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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
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