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jrsiajdranch
Veteran Advisor

Of banking squids and spineless gov.

Ok it is snowing in North Iowa Read this article for a more complete view of why Commodities are a totaly rigged game at the futures level.

 

http://m.rollingstone.com/politics/news/the-vampire-squid-strikes-again-the-mega-banks-most-devious-...

 

 

Meanwhile, Chase's own head of commodities operations, Blythe Masters – an even more famed Wall Street figure, sometimes described as the inventor of the credit default swap – admitted that her company's warehouse interests weren't just a casual thing. "Just being able to trade financial commodities is a serious limitation because financial commodities represent only a tiny fraction of the reality of the real commodity exposure picture," she said in 2010.

Loosely translated, Masters was saying that there was a limited amount of money to be made simply trading commodities in the traditional legal manner. The solution? "We need to be active in the underlying physical commodity markets," she said, "in order to understand and make prices."

We need to make prices. The head of Chase's commodities division actually said this, out loud, and it speaks to both the general unlikelihood of God's existence and the consistently low level of competence of America's regulators that she was not immediately zapped between the eyebrows with a thunderbolt upon doing so. Instead, the government sat by and watched as a curious phenomenon developed at all of these new bank-owned warehouses, in the aluminum markets in particular.

 
 
Guys this whole article Says what I have been saying for the last 6 years. The commodity bubble we are or were in is all about freee money gotten late at night from the discount window!  You need to read this article.
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12 Replies
BF2012
Advisor

This is News?

Just saying.

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jrsiajdranch
Veteran Advisor

Re: This is News?

No but Pal will accept it cause it is from Rolling stone!LOL Oh and Jim don't read the article it has foul language in it.

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BF2012
Advisor

Re: This is News?

lmao.

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hardnox
Advisor

Re: Of banking squids and spineless gov.

Hi Jr,

 

Yeah, I was laying in bed last night thinking about that, and other things.

 

Not unlike the dyslexic agnostic insomniac who laid awake wondering if there is a dog.

 

Yesterday I was musing over the Chinese shadow bank commodity rehypothecation story. And I'm interested in the apparent fact that the oil market appears to be accomodating the cost of production for high cost unconventional producers despite what appears to be good supply.

 

The CRB index held support at 500 and then blew out of there over the last few weeks although that thing is pretty cyclical, and somewhat seasonal in nature.

 

I don't have any answers other than the creeping suspicion that the masters of the universe are running this game, more than ever.

 

From a practical point of view I think you can conclude that as long as there is plenty of liquidity in the global system commodities have a solid floor under them.  CRB probably doesn't break 500 unless there's a lock up in the system.

 

I don't want to be like a survivalist in a bunker who's POed that the end of the world hasn't come yet- in many ways it isn't a bad thing for farmers. But it isn't your father's free market and a lot of traditional fundamental and technical measures are of limited use. And it makes me a little uneasy.

 

I'll veer further off into speculation by saying that I suspect that the PTB certainly don't want commodities leading a deflationary spiral. Whether the support is merely a side effect of the liquidity or more intentional, I can't say.

 

 

 

 

 

 

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jrsiajdranch
Veteran Advisor

Re: Of banking squids and spineless gov.

NOx your article got me thinking also about the fact that if we have a lehmen type event at one of the big boys now how does that effect china? Talk about some poed commies then! Wow! And see if you have pledged collateral today and then you try to pay off debts with worthless commodities well its the 80's ag disaster in the bankers world. Who would think that the entire banking system was based off of raw commodities as collateral? You guys better grow exactly the proper amount of corn and beans or it will be your faults we go back to the stone age.
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hardnox
Advisor

Re: Of banking squids and spineless gov.

Yeah, there's something there to think about but it's so dense that it's making my head hurt.

 

I guess the one good thing is that China isn't going to have a Lehman. As AEP says, it is a centrally directed economy where all contracts can be renegotiated by diktat.

 

And I guess that Adam Smith guy is so 18th century anyway?

 

So make sure your children remember the commies in their prayers. As all good capitalists should.

 

But OK I'm trying to think this through and once again find my brain short on RAM.

 

Let's start with the assumption that commodities held as collateral and frequently rehypothecated are entral to the historic explosion in Chinese shadow bank credit. And apparently the official tightening is just accelerating that trend as a source of cheaper financing.

 

So don't the authorities have a big problem?  They can't stop the game and risk a  dishoarding that would only reduce the value of the collateral and set off chain reaction through counterparties. But at the same time they appear to acknowledge that the huge credit bubble they've blown is dangerous.

 

Dunno, dunno, dunno. There's a story there for sure. Just don't know how big of one it is.

 

I guess maybe they just apply the Greenspan/Bernanke theory that says that you can't identify a bubble so there's no use taking action to pop it. You just let it pop itself and then deal with the mess.

 

I got no answers.

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Jim Meade / Iowa City
Senior Advisor

Re: Of banking squids and spineless gov.

Here is an interesting and actually pretty funny expose of the well known, one might even say infamous, Matt Taibbi's biases and misunderstandings of finances.

 

In fact, the dicussion directly explains the quotes that JR took out of the Rolling Stone article as well as a few other aspects of the case.

 

http://ftalphaville.ft.com/2014/02/14/1771522/information-asymmetry-bad-incentives-and-taibbi/

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hardnox
Advisor

Re: Of banking squids and spineless gov.

But ad hominem attacks from financial industry trolls aside, do you deny the allegations that there has been widespread market manipulation in LIBOR, FX, commodities?

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Jim Meade / Iowa City
Senior Advisor

Re: Of banking squids and spineless gov.

Are you talking about Taibbi's attacks?

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