Remember the outrage last July when we found out owners of giant metal storage warehouses, folks like Goldman Sachs and JPMorgan Chase, were delaying delivery of stocks of aluminum so that they could collect more rent on them?
We learned that, since Goldman took over some industrial warehouses in Detroit, the delivery time for aluminum went from six weeks to 16 months.
That got a lot of people mad because, in case you can’t add two and two, raising metal storage costs increases the prices producers who use the stuff pay for it. And of course, they pass those price increases along to consumers.
The CFTC began an investigation. The Justice Department is looking into it too. But not wanting to wait, the London Metal Exchange (LME) acted right away.
The LME is the world’s largest metal exchange. And they oversee the 778 privately owned warehouses (75% of which are owned by just five companies) that stockpile metals traded on the LME. So they got a lot of bad publicity from the fiasco. The LME threatened warehouse owners with a slap in the face if they don’t cut back delayed delivery times to only 50 days, starting April 1, 2014.
Too bad they were a day late and a few million tonnes of metal balls short.
The warehouse owners, it turns out, were already fixing the problem themselves – and have been for three years. Not because they were hell bent on getting ahead of LME rule changes and applying a market solution to a regulatory problem…
But because there’s more money in smarter manipulation.
Since 2010, warehouse owners have been building huge warehouses that aren’t governed by LME rules. According to a Wall Street Journal article from Friday, they’re storing hundreds of millions of tons of metals – like aluminum, copper, nickel, and zinc – in these “shadow warehouses,” as opposed to in LME-sanctioned warehouses.
Let’s use aluminum as an example. Analysts estimate that while there’s about 5.5 million tons of aluminum in authorized, LME-approved warehouses, there’s even more in shadow warehouses – probably between seven and 10 million tons.
Now, here’s the part where I tell you why they’re really doing this, so you don’t get fooled by what you read anywhere else.
Some analysts will postulate that storing millions of tons of metals in “off-exchange” shadow warehouses – while the world looks to spot and future prices posted at the LME as indicative of “real world” prices – will cause price collapses if huge stockpiles of warehoused metals flood the market.
Oh the fear of deflation! I’m shivering in my boots.
Don’t worry. The chance of that happening is exactly between slim and none.
It doesn’t mean metals prices won’t go down. They sure could. It means don’t expect them to go down and stay down, because that ain’t gonna happen unless we get another 2008 meltdown.
I’ve got some very valuable gifts coming for you. Give me a couple of weeks, and I’ll deliver the first one to you, right here at WSII.
In fact, I have so many exciting things coming your way, I’m thinking about changing the name from Wall Street Insights & Indictments to Wall Street Insights & Profit Opportunities.
Because I’m always researching markets to find trading and investment opportunities, and because so many of you are so great and I owe you for your inspiration, I’m going to start gifting you with real-time trading and investing ideas, right here.
Not just “ideas,” but actual recommendations and instructions. Not every day, and not every week, but often enough.
For example, today I want to get into the outrageous breach of security that just happened with Target Corp. (NYSE:TGT). In the future, if I were writing about what I’m going to touch on today, I’d give you reasons to buy or sell Target, with suggested entry points and stop loss and profit target levels. I might have recommendations and trade parameter suggestions for getting into some cybersecurity plays or for shorting some likely “fallout” stocks (you’ll see what I mean).
In 2014, I’ll be giving you trades to get into if you want and telling you how to manage them too. In a perfect world, our trades will turn into investments, because every investment begins with a trade, and we’ll make lots of money and have fun doing it.
So, let me know if that’s something you want me to do and keep doing (I imagine it won’t hurt) and how I can best deliver it to you.
Wall Street Insights & Indictments isn’t just my forum, it’s a forum for everyone to join in the conversation.
Of course I read all your comments, every last one, and I love them all.
When you don’t agree with me, you tell me. I appreciate that. It makes me think twice.
I don’t usually reply to comments, not because I don’t have an answer, or because I don’t want to thank you for your inspiration, or because I don’t want to address your differences of opinion. It’s simply because it’s not fair to address some comments and not others.
Today, I apologize to all of you who would like to have had me reply to your comments because I’m going to reply to one particularly pointed comment by one gentleman. He penned the comment below, and in the holiday spirit of giving back, I will reply.
Shah Gilani obviously has no idea about JP Morgan and what transpired during the financial crisis. I have challenged his articles in the past with no response. It appears to me that he is a puppet for this corrupt Obama Administration. JP Morgan did not want any money from the Fed, but were requested to take $40 billion to stabilize the banking system and not have all the depositors transfer their deposits. The government also begged JPM to take over Bear Sterns and Washington Mutual to help stabilize the financial system. Without JP Morgan’s assistance, the FDIC would have lost hundreds of billions of dollars, all the depositors at these banks would have lost billions of dollars, and thousands of jobs would have been lost. I cannot believe that Money Map condones your misinformation. The $6 billion London Whale was a certainly a mistake by employees. But the actual loss impacted JPM investors, not the government. I would fire Shah Gilani if I were Money Map. HOW ABOUT A RESPONSE THIS TIME? He seems to like negative propaganda, but not accurate and fair analysis. ~ Fred Johns
Thank you for your comment. By the good graces of Money Map, I’m still here to reply to you.
We’ve talked a lot about the so-called Volcker Rule. I’ve called it a “cop-out” and “joke” and tracked its bloated path from 300 pages to nearly 1,000.
Well, now it’s here.
On Tuesday the rule was signed-off on by the five regulatory bodies that will have to enforce it when it goes into effect in July 2015 (supposedly). And getting it done and approved was no Little Feat*.
The Volcker Rule comes down to this: It stops banks and any other financial institutions that are backstopped by the Fed or the FDIC, generally speaking, taxpayers, from betting on their own behalf (proprietary or “prop” trading).
Don’t get me wrong. I’m thrilled that the Volcker Rule passed. And I’ll be thrilled when it goes into effect.
Jon Stewart just did a very funny piece on “The Daily Show” about a new derivatives dust-up that Bloomberg news broke.
Earlier this year, a big Wall Street firm bought a credit default swap on debt that a private company owed to a third party. So the firm was set up to make money if that company missed any payments. Then the firm offered the company a multi-million-dollar loan… with the condition that they would miss a payment on the other loan. They did. And the Wall Street firm walked away with a $15 million insurance payment.
Sound less than kosher? Oh, don’t worry. It’s perfectly legal.
“The Daily Show” team pointed out that this behavior isn’t illegal but maybe should be, and that the media didn’t cover it at all and maybe should have.
But there’s something they missed, and it’s even more frightening.
I don’t say this enough. I’m thankful for you and the several hundred thousand other dedicated readers who make Insights & Indictments what it is. You’re smart and you’re brutally honest, and you add to every discussion we have. Selfishly, too, you give me new ideas and new perspectives on the facts and trends we’re tracking. Thank you for that.
So today I’m going to let you guys do the talking – or most of it.
Q [re: “Don’t Let Your Broker Make You Broke (Do This Instead)“]: Amen, Amen. Well done Shah. I’ve been there with a broker who lost over 90% of my meager account back in the mid 90s. I’ve been trading and actively managing my own accounts ever since then. I’ve had to learn a lot over these years, not always happy lessons. But, now I believe I am a lot wiser and my accounts grow, not shrink. A few years ago I switched over from being a frequent trader of a few issues to spreading out my risk more and by following your portfolios at Money Map Press as a Passport Club subscriber. I find your advice rational, sound and profitable. I’m very glad to have discovered you and your trading services. ~ Frank B.
A: Thank you, Frank. And congratulations on being a take-charge, it’s my money, I’m going to be the maker of my destiny, kind of hero.
Everything we do at Money Map Press is about empowering our members to take charge of their money and investment and trading decisions. There’s nothing, NOTHING, in this business that I’ve been doing successfully for over 30 years that can’t be taught and learned easily by any of you. Did I get it right the first time? No. But life’s a long song, and it’s a lot easier to dance to your own beat than the drumbeat of deadbeat brokers.
Q: As a former broker and someone who has traded options for decades, I can tell you most brokers can’t even tell you how even the simplest long call and put options work, much less spreads, collars, etc. … and they sure won’t take the time to explain them to you or place the trades if they did. It’s too time-consuming. It takes too much patience. They don’t make enough. Better to direct the money into loaded mutual funds. ~ fallingman
A: Fallingman, you’re a good man. Thank you for your honesty; and BTW, I always enjoy your comments.
Q [re: “Why Congress is Trying to Kill the CFTC“]: Bad idea, if you let any Government agency keep the money they penalize people or corporations, they will be trying to find a way to penalize everyone, that includes good hard working people/corporations. Than the agency will operate at a wasteful level with the top level executives using the money for themselves, becoming more corrupt then the people they were to regulate… ~ Robert P.
A: You’ve got valid points, Robert, very valid points. Thank you for pointing that out.
I want the prices of shares I own to go higher. I bet you do too. And I’m all for activist investors shaking up ineffective boards to make smart changes that push share prices higher.
But what about activist hedge funds actually paying bonuses to their nominee board members to do their bidding?
That’s what’s “trending” these days in the world of corporate governance. Activist hedge funds want to pay their board nominees bonuses based on the target company’s stock performance.
On the surface, it makes sense.
Incentivize your hand-picked board members to do what it takes to get the company’s share price up, the higher the better, the better the bonus.
The activist argument is, all shareholder boats rise with the tide. Makes sense, right?
On the surface, sure. But what if the “rising tide” is the product of a tsunami of short-term schemes that sacrifice the long-term health of the company? What if the tide is leveraged and agitated by self-interest? What if entire corporations become tradable pawns in a price manipulation matrix in the game of thrones run by crony capitalist oligarchs?
Then we’re sunk.
I’ve got nothing against hedge funds and nothing against activist investors. But boards supposedly have a fiduciary duty to all shareholders, equally. So how can a couple or a few board members who are being compensated, perhaps richly by an investor or a group of investors working in concert, doing the bidding of their paymasters have an equal fiduciary responsibility to all shareholders?
What if the activist investor gets the stock up high enough to where he exits the shares after hitting his triple or homerun? There’s no law that says an activist investor that may agitate to leverage a company has to tell other shareholders he’s selling. If the price objective is met, hedge funds will often sell quickly and as quietly as possible. Why? Because they believe the stock’s run is over. What if it is?
Could this trend result in some type of massive internal pump-and-dump scheme? Maybe. I’m sure it’s a recipe for disaster.
Now this week we’ll see if this new trend is blunted or if the wheels of greed are greased.
The Royal Bank of Scotland, a huge lender to small- and medium-sized businesses in the U.K. and Europe, is being accused of undermining the businesses it lends to.
Not that this would ever happen in the United States…
Apparently, the too-big-to-fail British bank further stresses borrowers by layering on fees when businesses can least afford them. This can trigger covenants that allow the bank to actually dismantle the borrower, to the benefit of advisors who have less than an arm’s length relationship with the bank.
According to Sir Andrew Large – he’s a former Deputy Governor of the Bank of England who was commissioned by Sir Philip Hampton chairman of RBS to review the bank’s lending to small and medium businesses – “The accusations mainly stem from a perceived conflict of interest, whereby RBS may profit from working against the best interests of financially distressed customers.”
Sir Andrew’s report was delivered to RBS today. And it’s been made public.
The first is how Jamie Dimon & Co. and all the guilty big banks get away with murder.
The second is something I want to share with you because 50 years ago tomorrow, President John Fitzgerald Kennedy was assassinated. It isn’t a conspiracy theory about who did it, but a likely theory about what happened and the conspiracy to cover that up.
On the JPMorgan thing and the record fine it’s going to pay to settle allegations it misled investors about the quality and safety of the mortgage-backed securities it sold them, leading to the 2008 mortgage meltdown and financial crisis… I’m going to keep this simple.
And I need to thank one of my Insights & Indictments readers for what I’m about to call what’s happening, because he came up with this, and it’s perfect. So thank you, Harry M.