[quote=no_such_reality]Then Target, Walmart and the corner supermarket should all cease to exist because in the end, they’re just asset price speculators.
They buy an apple for 5 cents and try selling it for 50 cents. They don’t even do their own shipping any more, the vendors and middle men have all that responsibility.
If you think they generate value by making availability, then you’ve just provided your answer.
As for a ‘few’ market makers, wow, learn history. The fewer the market makers more illiquid and the higher the spreads and their profit margins.
You can get that education any day from either trading a thinly held stock or dealing with a real estate enclave that doens’t participate in the MLS or buying a car or any other product with only a few distributors.[/quote]
It’s been awhile since I’ve worked in the corporate world, but used to work for a group of Target/Walmart/Costco/etc. vendors. We were the middlemen because we would simply contract with the overseas manufacturers (we designed, occasionally sourced raw materials, licensed, did the necessary testing, financed, imported, did some final assembly work on certain products, etc.), and would sell to US and other international retailers. We would often ship to the distribution centers from which these retailers would ship to their individual stores.
These retailers provide the physical infrastructure that enables the buyers to buy and the sellers to sell the products. They physically ship goods around the country, stock physical shelves, maintain physical stores, etc. Because of their scale, they can do all these things and offer the goods at a lower price than if individual buyers were to order goods from the manufacturers, themselves. They provide a very real, physical service, and allow buyers to buy for **less** than what they would have to pay if buying these goods on an individual basis. They are not hoarding goods with the intent to cause shortages of in-demand items.
The asset price speculators who buy up commodities, houses, etc. are not making it easier for buyers to buy these goods; they are intentionally taking goods OFF the market, in the hopes of causing shortages, so that end users/organic buyers will have to pay **more** when they need these goods.
Asset price speculators, while narrowing bid/ask spreads at given points in time (not sure that’s a good thing, over the long run…different arguments can be made), they exacerbate dangerous booms and busts. They anticipate shortages and buy up assets, hoping to accumulate as much as possible in front of price increases caused by reduced supply/increased demand, and hope to make those price increases even more dramatic than they’d be without all the speculation. They do the reverse in anticipation of increasing supply/reduced demand, exacerbating busts.
While market makers provide liquidity, over the long run, the money they make on the spreads is money taken from sellers and buyers. There are also times when, in the face of reduced demand/increased supply, speculative buyers simply disappear. This is behind many of those gut-wrenching days in the markets when everything just stops. There is no guarantee that market makers will act in ways that benefit the market, especially when the market is most in need of these speculative sales/purchases.
