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Quite an original view. I don't find the oil part convincing and this casts a shadow on the rest which is, well, unconventional to say the least (on LME, hedge funds and metals).

Nice very long run commodity price curves.

by Laurent GUERBY on Mon Jul 16th, 2007 at 04:03:54 PM EST
I think the storage vs consumption relationship is very different as between oil and metals.

My case is that oil markets have been manipulated on a pretty cosmic scale, the beneficiaries being intermediaries making money from artificially created volatility.

I got into big trouble for blowing the whistle on that but it now seems

Date Rape

I was right all along.

Metal market manipulation is different, and, as the guy says, pretty much rife. The LME is a disaster zone.

I'm reminded of the tin crisis of 1985, except that then it was sovereign governments keeping prices artificially high.

When their money ran out, the price collapsed from about $800 to $400/tonne. Put not your trust in Princes.

But to enforce the $400 price would have ruined half the LME members so the LME set a "ring-out" price of $600 which was the highest price that the brokers "long" of the market at $800 were prepared to pay. (any lower and they would have walked away from their trading subsidiaries).

The litigation from the aggrieved "shorts" (who were missing $200 a tonne profit) rumbled on for years.

Prior to the tin crisis, the LME was a "principal to principal" market (ie no clearing house). As a result of the tin debacle, London Clearing House clearing was forced upon the LME.

My case is that in a sudden "rush for the exit" by hedge funds, the LCH would be in deep shit, because its risk models do not incorporate market meltdowns ("Black Swans").

In fact I see clearing houses as unappreciated "central points of failure".

But what do I know?

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Mon Jul 16th, 2007 at 08:24:11 PM EST
[ Parent ]
regularly manipulated for volatilities sake, but not by very far on any given day.  Hardly a "cosmic" scale.  And probably netting to not much if you average over time.  Your regulators under Maggie/Major were asleep at the wheel.
by HiD on Tue Jul 17th, 2007 at 05:57:39 AM EST
[ Parent ]
I doubt whether it's ever been purely intra day. IMHO the trading relationship between BP and Goldman over the last ten years would not withstand detailed examination and could be one of the biggest "bezzles" (as Galbraith had it) of recent years.

But there are - as you know better than most - many ways to skin that cat.

Granted these are "frictional" costs, but to me the billions made in the last few years are not chump change. Why else have investment banks been queuing up to enter the area: and where are their profits going to come from? (apart from prime brokerage and trading off their own clients that is - Chinese Walls are full of chinks)

They ARE relatively speaking, minor compared to the overall market.

It's a similar "relational" point to that re the whole oil in Euro's / Oil Bourse conspiracy nonsense: oil dollar traffic is significant, but a relatively small, but increasing, part of general dollar traffic.

How does one define "cosmic" in other words!

Re regulation, do you think current regulators are much better placed than Maggie's/Major's?

They still have very limited access to the trading data they need: even if they get it, they have very limited competence and resources to make sense of it(since the good people are, by and large, poached by the industry) and they have limited enforcement power.

Apart from that, things are better, yes.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Tue Jul 17th, 2007 at 06:35:49 AM EST
[ Parent ]
In my day it was Phibro.  You really think GS is in bed with BP?  That shocks me a bit.  When the entire crude desk got wiped out in about 1993 over allegations (entirely backed up by the tapes) of fixing commission rate, people got pretty paranoid.

But I've been gone 10+ years now so what do I know.

by HiD on Fri Aug 17th, 2007 at 05:46:45 AM EST
[ Parent ]


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