Market Perspectives – iPhones, Commodities and the Infiltration of Short-Term Thinking

Lyle Stein - February 19, 2015

Consider the Apple iPhone. Apple, the world’s largest company, created a product so unique the world has beaten down the door to consume it. Each quarter, customers spend hundreds of dollars on various models of iPhones, earning Apple billions in revenue. To ensure the value of its brand and the integrity of its product, Apple tightly controls the distribution of the iPhones it makes and sells.

Contrast the iPhone to a barrel of oil or a pound of copper. Where it is comparatively difficult to replace a specialty product like an iPhone with something like an Android phone, it is relatively easy to buy commodity products, like copper, from just about anybody. One of the characteristics of a commodity market is that there tend to be multitudes of buyers and sellers, each transacting in a good that is relatively consistent. Over the years, commodity markets have evolved from simple markets where buyers and sellers swapped goods for money, into sophisticated financial futures exchanges where the volume of financial transactions can be a significant multiple of the amount that is actually transferred from buyer to seller. More recently, the commodity market has been invaded by a player who doesn’t even care about the product, but is solely focused on profiting from arbitraging the price differentials arising out of the financial futures market. The result is paper positions and transactions that swamp the physical markets from which they are derived.

There is no futures market for iPhones. Leaving aside the fact that the product changes every few years, the control Apple exerts over the distribution and sales of its product precludes financial players from cornering or arbitraging the market – though one might find an iPhone cheaper in the US than in Canada!

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