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As Speculative Bullish Bets Surge, Is Rice The Next Silver (And Manipulated In Kind?)

Tyler Durden's picture


When we reported on last week's net spec contract position per the CFTC, we noted that speculators are expecting a roughly 50% hike in the price of rice based on comparable historical patterns. Updating for this week's data confirms that the upside price bets, which increased from 6,652 to 7,114 have just surged above the previous top hit in late 2009, of 6,773. Yet they are still just shy of the all time highs from February 2008 when they stood at 7,883. As the spec activity in rice predates major price moves rather efficiently, the continued bets on a price surge mean something is bound to snap. And with rice prices continuing to be rather sticky, considering the move in all other grains, we may be in for a very major break out in the coming week. Or not: as we have now learned the hard way, the banking cartel has way to keep commodity prices low, until explosive break outs confirm that one can only manipulate a price down for so long. With recent disclosures by Wikileaks that China had been imposing pressure on the Treasury and the US banking system to get what it wants, is it too surprising to assume that just as JPM has long been manipulating the price of silver, so Chinese interests in the US (remember - quid pro quo in a M.A.D. world) have been instructed to keep the price of Rough Rice as low for as long as possible. If that is the case, are the Rice vigilantes about to call the Chinese bluff? If rice succeeds in breaking out from its $13-$16 trading range, the move to the upside could make the recent doubling in cotton, and surges in corn and wheat seem like child's play.


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Fri, 02/18/2011 - 19:25 | 975986 putbuyer
putbuyer's picture

Another Friday treat.
Chick who lives in a cabin in the NC Mountains. Got a donkey and chickens, and looking to go solar. As America collapses, we can learn a lot about her trials and tribulations. It has not been easy for her. Once in a while she dances.

Fri, 02/18/2011 - 20:00 | 976085 sabra1
sabra1's picture

is the donkeys' name Kong?

Fri, 02/18/2011 - 20:17 | 976134 putbuyer
putbuyer's picture

LOL. No Juju. She is a bit nutty, but I have land in NH and will be building a cabin this Spring so I try to see what others have done. Got to have an escape if SHTF. I follow lots of survival sites. No 1. guest post here often

Fri, 02/18/2011 - 23:11 | 976568 dark pools of soros
dark pools of soros's picture

make sure there is no shale under your well...  a frackin they will go

Fri, 02/18/2011 - 20:17 | 976136 Don Smith
Don Smith's picture

OMG, isn't that from Napoleon Dynamite? 

Sat, 02/19/2011 - 13:20 | 977463 EscapeKey
EscapeKey's picture

Throughout that piano playing session, I kept expecting a more sinister background music to emerge and eventually overpower the piano, and the narrator interrupting with "next week on Lost"...

Fri, 02/18/2011 - 19:26 | 975988 Hugh G Rection
Hugh G Rection's picture

Time to go long plastic

Fri, 02/18/2011 - 19:51 | 976046 The Limerick King
The Limerick King's picture

It's time to go long plastic rice

The profits are looking quite nice

It's fresh and it's new

Tastes great in a stew

And also grows tumors in mice

Fri, 02/18/2011 - 20:38 | 976186 akak
akak's picture

After their melamine pet food fiasco, maybe the Chinese can adopt a new marketing slogan:

"Rice: The Other White Plastic"

Fri, 02/18/2011 - 21:08 | 976279 VegasBD
VegasBD's picture


Fri, 02/18/2011 - 21:10 | 976281 VegasBD
VegasBD's picture


Fri, 02/18/2011 - 20:57 | 976250 Armchair Bear
Armchair Bear's picture

Hilarious - thanks!

Sat, 02/19/2011 - 04:08 | 977022 phil silver
phil silver's picture

Fully agree Limerick King.

Any ideas on the expiration date?

It tastes OK, but I suggest that you go heavy on the MSG.

Don't like the Rice Wine much.

Fri, 02/18/2011 - 20:17 | 976133 slewie the pi-rat
slewie the pi-rat's picture

lyme rickey: rice is nice, that's what they say.

sumbuddy call KINKY and see what (s)he tinxaboot my insane idee about putting the FOOD com-odditees on cash!

well, how about 90% cash?

EAT ME!!!!!!

kinky?YouTube - Kinky Friedman, They Ain't Making Jews Like Jesus Anymore

Fri, 02/18/2011 - 21:01 | 976154 slewie the pi-rat
slewie the pi-rat's picture


oh, yeah, i can hear U hot shot richierich's: but slewie~~~it's so much fun baptiZe tender-skinned children in the blood of the bapTiZmal/DiZmal font of our friends @ the crimex, the nymex, and, of course the "market" where, if we only BTFD, we can never lose, b/c of QE to infinity.

shhh. don't tell anybody:  you ARE the fuking DIPS................%%%%%%%%%%%%%%%@@@@@@@@@@@@@^^^^^^^^^<<<<<<<<<<<<<<<<<<<<<<<shitheadZ!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

YouTube - Leadbelly - Bourgeois Blues

Sat, 02/19/2011 - 14:02 | 977532 akak
akak's picture

You know, they do make decaffeinated coffee.

Might want to try it sometime.

Sat, 02/19/2011 - 16:25 | 977821 slewie the pi-rat
slewie the pi-rat's picture


it makes me ill.  so do you, asswipe.

Sat, 02/19/2011 - 16:35 | 977840 akak
akak's picture

Sticks and stones will break my bones

but you're still a tweaked-out jerk.

Fri, 02/18/2011 - 19:29 | 975992 NOTW777
NOTW777's picture

cool - time to add rice


chinese good at copying?

Fri, 02/18/2011 - 19:29 | 975995 e_u_r_o
e_u_r_o's picture

wtf, its like ppl want rice to rise? how is cheap rice anything but good for ppl

Fri, 02/18/2011 - 20:03 | 976091 sabra1
sabra1's picture

will, will, the price of rice krispies go up?

Fri, 02/18/2011 - 20:58 | 976253 Armchair Bear
Armchair Bear's picture

sushi, sake, rice krispies, everything!

Fri, 02/18/2011 - 19:31 | 976000 Caviar Emptor
Caviar Emptor's picture

Rice is to the emerging world as oil is to the developed world. Game over if there's another 'rice shock'

Fri, 02/18/2011 - 19:31 | 976001 NOTW777
NOTW777's picture

hey - you guys good with paying 350+ for gas

Fri, 02/18/2011 - 19:31 | 976006 dryam
dryam's picture

How does a small investor invest in rice?

Fri, 02/18/2011 - 19:37 | 976022 Twindrives
Twindrives's picture

Order it with your egg rolls.

Fri, 02/18/2011 - 19:41 | 976033 Flakmeister
Flakmeister's picture

 Or talk to the other Uncle Ben

Fri, 02/18/2011 - 19:42 | 976029 NOTW777
Fri, 02/18/2011 - 19:56 | 976069 topcallingtroll
topcallingtroll's picture

thanks dude!  I kinda wonder if we are too late for this party.  However agriculture may be in a secular uptrend.

Fri, 02/18/2011 - 20:22 | 976148 NOTW777
NOTW777's picture

also look at DBA.  however its had quite a run.  i bot @ 29 and recently took profits @ 34.5ish; hoping for a pull back to reload.

DBA top holdings recently: cocoa, sugar, coffee, live cattle, soybeans corn and wheat.

Fri, 02/18/2011 - 19:42 | 976030 jesse livermoore
jesse livermoore's picture

buy some bags and then sell them on ebay India......

Fri, 02/18/2011 - 19:45 | 976041 DaBernank
DaBernank's picture

Tough w/o buying futures contracts or options. The RJA ETF contains a small weighting in rice.

Fri, 02/18/2011 - 20:26 | 976155 NOTW777
NOTW777's picture

its also diversified so there is less risk; e.g. wheat pulled back good today -28

Fri, 02/18/2011 - 20:49 | 976220 BigJim
BigJim's picture

Spreadbetting is one way to directly place bets on rice prices. Tax-free gains, too (at least in the UK).

Although my provider (CMC Markets) has just yanked rice, for some reason.

Sat, 02/19/2011 - 01:12 | 976850 Non Passaran
Non Passaran's picture

A bowl (or a grain?) a time!

Fri, 02/18/2011 - 19:34 | 976014 SilerLibertyLondon
SilerLibertyLondon's picture

use some certificate from rbs

Fri, 02/18/2011 - 19:41 | 976032 spinone
spinone's picture

ZH is a ringside seat to armageddon.

I hope that someone is making an archive of ZH.  It will be a record for whatever posterity is left.

Fri, 02/18/2011 - 19:58 | 976076 topcallingtroll
topcallingtroll's picture

I wish they would open a bar with a bloomberg terminal on big screen.  This is definitely the best seat in the house.  Now if they could just add some liquor and some bar snacks.

Fri, 02/18/2011 - 20:20 | 976142 Don Smith
Don Smith's picture

They could call it Bar Chart...

Fri, 02/18/2011 - 22:05 | 976414 duo
duo's picture

The Admirals Club in LGA has 4

Fri, 02/18/2011 - 21:25 | 976161 slewie the pi-rat
slewie the pi-rat's picture

spinone:  meg-a-tron dogg:  i hope so, 2!

got friends? let's get viral & send these 'cUnT-puppies' where they BElong!!! 

ACTION, jackson!

lol...these moronZ have absolutely no freaking idea how many "blind" melons are waiting in the wings, armed to the teeth, waiting to have THEM 4 lunch.  and, slewie is gettin a little weary holding back the flood that is to come. for them!  get w/ the program, NOW, or enjoy the HELL outa your last freaking lunch.  capiche?

YouTube - Dying Crapshooter's Blues - Blind Willie McTell

Sat, 02/19/2011 - 13:24 | 977470 EscapeKey
EscapeKey's picture

I spent a crazy amount on books last year, so I have plenty of reading material when the shtf.

"Tragedy & Hope", "The Collapse of Complex Societies", and "The Mystery of Banking" were the standouts of last years reading material.

Fri, 02/18/2011 - 19:43 | 976035 bob_dabolina
bob_dabolina's picture

I think Bernanke is keeping the presses turned on like this in large part to pressure the Chinese to revalue the renminbi.

It think that may be part of it.

Fri, 02/18/2011 - 19:57 | 976078 Shameful
Shameful's picture

Why? Think it through.  What happens if China revalues RMB? 

Well first off their ability to buy commodities rises, and their exports get more expensive, and they have less incentive to hold dollars.  Granted their economy will shudder and shake, forcing them to unleash public spending (IE rice and veggies) to keep people happy, where will that money come from?  Treasury sales?  Now unless Americans can find a cheaper place for their imported goods it's still China, meaning the cost of Walmart goodies rises.  Now China will be able to buy more commodities for the RMB, that means less for Americans at current "low" prices.  Finally if they have no incentive to hold dollars to maintain the peg they will dump dollars, which will further weaken the dollar.

If China jumps off the peg then Ben is forced to print into an oncoming tsunami of dollars headed back to the US.  The US consumer will get caught between the hammer of returning dollars and anvil of Zimbabwe Ben's printing press.  Oh and for the after shock of the worldwide panic selling of the dollar after China gets out of dodge.

In all reality I expect there has been a lot of jawboning behind the scenes to keep China from dumping for this very reason.  Also by publicly calling for it we would make them lose face if they did it.  China would get hurt in a revaluation but the US consumer would be ripped into bloody pieces.  If prices radically rise, like I would expect we would finally get to see if Americans are really as spineless and brain dead as it seems.  If the rocketing of prices in a depression doesn't jolt them awake nothing will. 

Granted it would be easier for Americans to export goods, as our wages and standard of living would be radically reduced.

Fri, 02/18/2011 - 20:05 | 976096 topcallingtroll
topcallingtroll's picture

On balance I believe we are in better shape to survive yuan revaluation than they are.  They may be the biggest malinvestment bubble and bank corruption scandal in history, but you have the best seat in the house to watch it unfold whatever happens,  Zerohedge. 

We had an artifically high standard of living for a couple of decades now due to the debt binge.  Our standard of living will go down no matter what, on average.  Hopefully we get our imports and exports in better balance and get a few more americans employed as a small benefit.   If Asia can continue to grow really fast it may help bring their wages up so ours don't have to go down so far.

Fri, 02/18/2011 - 20:18 | 976139 Shameful
Shameful's picture

Bull!  Ok lets talk a little psychology.  1st the Chinese remember brutal poverty.  Most of them are still there or 1 gen out.  So a wave of poverty hits and they know how to deal. If the CCP is smart they can dance around it buy either a fight or cashing out and buying time with free rice with the assets they have.  Oh and they will nationalize all western companies, that should help with capital.

But what happens when people are spoiled and are forced down many rungs at one.  Now take that same society and spit it along racial, cultural, religious lines, now give them guns...does that sound stable to you?

People will lose their minds when they lose something.  Lose is seen as way worse then the absence of gain.  So you hit Americans with massive loss and a radical change of living standard that they have not seen in at least 80 years in a 3 month period.  With a rotten infrastructure, Byzantine regulations, and a group of fat cat parasites never before seen in the history of the world.  Yeah America will do great, we'll all come together and sing songs around a bowl of thin gruel.  Walk from miles around to gather to share a gallon of $20 milk.

China will get hurt, bad.  Might even toss out the CCP unless the CCP plays it smart.  America will go into a tailspin that will result in civil war or USSR.  Look around you.  Look at the Black Friday events, what will these people do when they can no longer afford to drive, or feed their children or heat their homes.

"When the chips are down, these 'civilized' people will eat each other"

Fri, 02/18/2011 - 20:32 | 976167 bob_dabolina
bob_dabolina's picture

China is so fucked up. I'm pretty sure they worse then us. And the Chinese people often revolt against their country if you look at history at all. The following are just the last 100-200 years.

-The Boxer Rebellion

-Taiping Rebellion

-Opium Wars

-Nien Rebelliopn

-Miao Uprising

etc, etc, etc

They are already feeding their citizens plastic rice and at somepoint the citizens there will revolt just like they are all over the world.

Fri, 02/18/2011 - 20:46 | 976215 Shameful
Shameful's picture

Will you look up from your bowl of gruel and think "Well at least someone else is worse off then me, so I guess this is ok"?

Fri, 02/18/2011 - 20:55 | 976229 bob_dabolina
bob_dabolina's picture


I think the entire world in large part is going to have a drastically reduced standard of living (China AND the US included) People often go on these tangents about how great China and it's just bullshit.

So if your question is if I would rather be the best of the worst then I would have to reply yes. I obviously would prefer to be the best of the best but if had the option of gruel vs. plastic rice then I would rather be the guy eating the gruel.

Fri, 02/18/2011 - 20:56 | 976241 percolator
percolator's picture

Bob, I respectfully disagree that China is worse off than USA.  USA is a debtor nation - China a creditor nation. And at least they've got the balls to rebel, whereas Americans are too damn lazy to get off the couch from watching American Idol.

I think it's good to have a rebellion now and then.  Keeps the politicians on their toes.

BTW, I'm an American.

Fri, 02/18/2011 - 21:12 | 976254 bob_dabolina
bob_dabolina's picture

Debtor nation vs. Creditor nation doesn't apply when you have the worlds reserve currency.

If you look at all developed nations have you ever pondered why we pay the lowest price for oil? Do you know how much an average cup of coffee is in Europe? It's like $7 bucks a cup (not starbucks)

The problem being that China was complicit in our bubble and bought our bonds so if they dumped it would be Mutually Assured Destruction. On the other hand China has created it's own credit bubble the consequences of which will have to be paid at somepoint.

Chinas edge was it's renminbi peg. However, Ben may be trying to exploit that by exporting most of our inflation to other countries including China. Thats why China wants the dollar replaced as the reserve currency because it's our Ace.

Again it's a new theory of mine and you will have to run game theory to determine possible eventualities. As Paul Tudor Jones has said the Renminbi/Dollar pair is the most important currency relationship that exists right now.

Fri, 02/18/2011 - 23:10 | 976569 Sopra Tutt1
Sopra Tutt1's picture

Yes, China is a creditor, but they 'only' have ~891.6 billions of dollars in bonds. This is peanuts compared to what Bernanke 'printed' so far, or compared with what he intends to print.

I disagree with the fact that the Chinese have the tendency or the balls to rebel. They are very afraid of authority, it's part of their culture. They are also disconnected with each other. This is what US intends to start there, a revolution. I'm not yet sure who's going to revolt first though, the traumatized Chinese or the fat dependent US-gov class (insert any public union here). I think this is where the fight is for the next 5 years. Good luck to all of us watching from the sidelines.

Sat, 02/19/2011 - 13:40 | 977489 EscapeKey
EscapeKey's picture

The boxer rebellion was vs western influence.

The Taiping rebellion was vs Christianity.

Opium wars were vs England.

Nien rebellion was a Northern Chinese army's attack on the Qing Dynasty. I'll give you this one.

Mao uprising was the communist takeover, which was the result of a collapse in living standards.

Furthermore, in "Tragedy & Hope", Carroll Quigley said the traditional Chinese society is one of authoritanism and limited social movement, and this wasn't really challenged until Western goods started flowing into the country, which put farmers under considerable financial pressure due to a collapse in the prices they could expect from their crafts.

But of course, no one can with certainty say what will happen in the future...

Sat, 02/19/2011 - 16:15 | 977792 Cyrano de Bivouac
Cyrano de Bivouac's picture

EscapeKey-Sorry you're off on one of your comments. The Taiping rebellion was led by the Christian convert, Hong Xiuquan. He was opposed to the Qing dynasty and the traditional religious beliefs of China.

Sat, 02/19/2011 - 16:51 | 977843 EscapeKey
EscapeKey's picture

Fair enough, but although it was an internal struggle, unquestionably outside influence had a rather central role...

My original point was really just that the Chinese don't often rise against the powers that be.

It's also worth pointing out it took place at the same time as the Nien rebellion.

Fri, 02/18/2011 - 22:15 | 976447 Bringin It
Bringin It's picture

Shameful - I think your description of China is accurate.  I think these other guys are engaged in wishful thinking.  The Chinese will band together and support each other when called to, at least for a while.  Americans will not.

Fri, 02/18/2011 - 20:29 | 976162 akak
akak's picture

On balance I believe we are in better shape to survive yuan revaluation than they are.

As producers of the world's current reserve currency, and as dependent as we are on that situation persisting to continue enjoying our current, though diminishing, standard of living, I believe that Americans are NOT in  better shape to survive ANY significant disruption to the worldwide financial and monetary status-quo.  That such disruptions will arrive, however, is a given.

Fri, 02/18/2011 - 20:17 | 976132 bob_dabolina
bob_dabolina's picture

I don't know.

Americans would have to cut back on Beanie Babies and shit like that but China would in large lose it's largest customer base.

Manufacturing jobs might make some kind of a bounce here if that happened.

However, this is just a theory, I have no idea what the fuck is going on behind the curtain.

Fri, 02/18/2011 - 20:23 | 976151 Shameful
Shameful's picture

Why would manu come back?  Would any sane person bring capital into this country and expose it to our gov?  Not a lot of capital floating around with the wall of debt anyway.  Corps are already on the way out and making global markets.

And it's not about cutting back on beanie babies.  I don't think you understand how fast the dollar would turn if the Chinese dumped.  Take a weak economy that is on life support only because of it's currency, take away the currency.  Imagine what would happen if we had to pay market rates on our national debt?  And it's not like the spending would stop.  Only thing that stops the spending would be a civil war and breaking from Mordor.  Can't expect the parasite class to cut back.  So without the reserve currency expect taxes to radically increase, to cut the budget gap.  So would have rising taxes, radically increasing prices, and still weak economy...yeah people would run to set up shop here.

Fri, 02/18/2011 - 20:34 | 976179 bob_dabolina
bob_dabolina's picture

I don't think you understand how fast the dollar would turn if the Chinese dumped.


China would die instantly.

Fri, 02/18/2011 - 20:49 | 976224 Shameful
Shameful's picture

Sure. America #1! I'm sure a $2 Trillion dollar buying that is not the Fed would step up. America is the greatest nation on earth and can never do wrong. We could issue 100% deficits to GDP and the would would gather round eager to give their money to God's gift to Earth. America, where every man is a underwear model with a PhD and every women could be on the cover of Playboy!


Fri, 02/18/2011 - 23:00 | 976187 slewie the pi-rat
slewie the pi-rat's picture



manu?  really?  thus spake Z.  you guy {intentional] R funny, tho.  like a wagonload of crutches, too. can i, perhaps, helpyou, sir?

1)  you might wish to connect w/ the part of yerself which speaks of this: The Law of Manu : philosophy, origin & calligraphy

2)  and, bring it together w/ THIS part:  YouTube - 'I Got Mine' FRANK STOKES (1928) Memphis Blues Guitar Legend

...which might lead to

3)  shutting your ignorant fuking piehole for, maybe 15 minutes,  unless you would perhaps prefer.

4)  slewie ripping you fuking head off w/ his bare hands and shittin, big-time, down yer fuking IGNORANT, red, NECK.

any questions, asswipe?

Fri, 02/18/2011 - 23:16 | 976573 slewie the pi-rat
slewie the pi-rat's picture



jeez, slewie, take it eZ, here, ok?  this gentleman isn't a redneck;  he would give rednecks a bad name...  he's just an innocent intellectual capitalist who thinks it's fun to be ironically humorous about children being murdered by the Z-heads, that's all.   i mean about the children being murdered, not the irony, ok?

ok, mom.  my bad.  you know how confused i get.  i'll apologize to him right after i get this next turd past his quivering epiglottis, ok?

love you!

Fri, 02/18/2011 - 21:00 | 976255 Azwethinkweiz
Azwethinkweiz's picture

Americans will never cut back on "Beanie Babies and shit like that!"

Look at our television programs these days...the Travel Channel has a highly rated show featuring a borderline-diabetic attempting to shove as much food in his fat face to have his picture pinned to the wall---and Americans flock to these restaurants, almost as if programmed to do so, to attempt the same freaking challenge---after which they buy the newest weight-loss pill (anal leakage seems to be an acceptable side effect) and pass a prescription for anti-depressants (where weight-gain is a side effect) to their pharmacist all teh while hoping the pills help cure their depression caused by being so overweight.


A food crisis is the best thing that could ever happen to America!!

Fri, 02/18/2011 - 21:04 | 976266 akak
akak's picture

the Travel Channel has a highly rated show featuring a borderline-diabetic attempting to shove as much food in his fat face to have his picture pinned to the wall---and Americans flock to these restaurants, almost as if programmed to do so, to attempt the same freaking challenge---after which they buy the newest weight-loss pill (anal leakage seems to be an acceptable side effect) and pass a prescription for anti-depressants (where weight-gain is a side effect) to their pharmacist all teh while hoping the pills help cure their depression caused by being so overweight.

This would be considered Kafkaesque surreal absurdism if it were not, in fact, the truth.

Fri, 02/18/2011 - 23:22 | 976597 slewie the pi-rat
slewie the pi-rat's picture


kafka ruled that whole, fun BBQ in 'nam!

Fri, 02/18/2011 - 21:15 | 976292 bob_dabolina
bob_dabolina's picture

"A food crisis is the best thing that could ever happen to America!!"

I couldn't agree more.

Fri, 02/18/2011 - 21:38 | 976333 Spalding_Smailes
Spalding_Smailes's picture

China can't just ... " jump off the peg "





.................. " Take the most obvious example, the PBoC itself.  The central bank officially has about $2.5 trillion in reserves.  This by the way almost certainly understates its true position but let’s ignore that for a moment.  The PBoC has funded this position with an equivalent amount of RMB liabilities, which makes it very vulnerable to changes in the value of the currency.

Rate addiction

In fact there were strong rumors last year that the PBoC was technically insolvent as a consequence of the 20% increase in the value of the RMB against the dollar during the 2005-08 period of currency appreciation.  Weirdly enough, although the numbers are huge, it has proven difficult to convince anyone that the PBoC is not the richest institution in the world, and that it is actually very vulnerable to big losses (although I notice that Sovereign Trends’ Terrence Keeley, in an OpEd in the Financial Times Tuesday, seems also to have done the numbers).

The problem for the PBoC occurs not just because of the currency mismatch but also because it needs repressed funding costs to keep it profitable.  How much do the PBoC foreign currency assets earn?  I would guess probably between 3% and 4%, maybe less.  The RMB funding cost, on the other hand, is roughly between 1.5% and 2.5%.  This leaves the PBoC with a net positive carry of between 1% and 2%.

If the RMB appreciates by as little as 2% a year, in other words, the PBoC runs a negative carry on its assets.  Every further 1% increase in interest rates, or additional 1% rise in the value of the RMB, then, erodes its capital by at least $25 billion (annually, if it happens through an increase in interest rates).

Let’s assume, for example, that over the next two years we see a combined appreciation and interest rate increase of 10% (let’s say a 2% increase in interest rates and a 4% annual appreciation), which is, in my opinion, the absolute minimum that China must do to slow down the worsening domestic imbalances.  Assuming no change in the rate earned on reserve assets, which in fact may decline, this means that the PBoC’s net indebtedness would rise by over $250 billion, or roughly 5% of the country’s GDP.

These kinds of number quickly add up.  And of course it is not just the PBoC that has this addiction to repressed interest rates.  Many years of very low cost borrowing has created a huge dependency on low interest rates among SOEs, local governments, and other creditors of the bond markets and the banks (not to mention the banks themselves), all of whom are directly or indirectly funded by long-suffering households.

As I discussed in an entry several weeks ago, repressing the interest rate is the equivalent of granting hidden debt forgiveness.  It is probably a safe assumption that an awful lot of borrowers depend heavily on this hidden debt forgiveness to remain solvent, and would be unable to repay if rates rose to anywhere near a reasonable level (at least 400-500 basis points, I would guess, if we wanted to eliminate the overinvestment and repressed consumption consequences of financial repression).

In that case any attempt to raise interest rates to levels high enough to reduce China’s investment misallocation and to allow households to raise their consumption levels would come, in the short term, with a massive rise in bankruptcies and in government debt levels.  If nothing else the PBoC is probably under huge pressure from local governments not to raise rates. " .............................’t-easily-raise-interest-rates/



A Reply to my Critics on Local Debt  -  Victor Shih


.................... " Since the publication of my editorial in the Asian Wall Street Journal on local debt, there has been a wave of interest on this issue. Several investment banks have issued reports on local debt, and some of them have disputed my main finding that current local government investment vehicle debt stands at around 11.4 trillion RMB. The World Bank likewise addressed this issue and came up with a much lower estimate on local investment company (LIC) debt. In the discussion below, I outline some reasons why I still adhere to my estimate that existing local investment vehicle debt stands at around 11 trillion RMB. Furthermore, I once again reiterate that local debt is a serious problem which will require decisive actions from the Chinese government. 

Some points people have raised about my estimate of local debt:
1. The Chinese government claims that there is only 6 trillion RMB in local investment vehicle debt.
My response: A. This widely cited figure was produced by a 6/2009 CBRC survey of the situation. The exact methodology is unclear, but informants state that the CBRC extrapolated this amount on the basis of a partial study of a few provinces.
B. Other government agencies have provided conflicting and higher amounts. For example, a MOF research team uncovered "well over 4 trillion" in late 2008 (excellent Credit Swiss research even states that the 4 trillion was a YE 2007 figure).
C. The CBRC finding concerns only bank loans, but total debt should also include bond issuance and accounts payable, which constitute triangular debt.
D. if we sum the gross debt of just the top 50 or so LICs, we quickly arrive at gross debt of over 2 trillion (try adding the gross debt of Guangdong Highway, Guangdong Transportation Group, Chongqing Highway, Beijing Basic Construction, Shanghai Urban Construction and Development Company, Shanghai Pudong Development Co., Tianjin Urban Basic Infrastructure, Binhai Development...etc.), so the remaining 8000 or so entities only owe 4 trillion (on average 500 mln RMB each)?

2. The 11.4 trillion is too high when compared with total bank loans in various categories.
My response: A. First of all, total loans outstanding at the end of 2009 was well over 40 trillion RMB, and I think it is completely reasonable to believe that nearly 1/4 of it was loans to LICs. In fact, I wouldn't be surprised that a higher share of bank loans ended up in LICs. 
B. Some analysts have trouble believing that such a high share of medium and long-term loans ended up in LICs. When we consider how many LICs there are and the vital role they play in the local economic strategy, it is not surprising that likely as much as 3/4 of new medium and long term loans in 2009 ended up in LICs. 
C. Beyond medium and long term loans, many LICs are holding companies with subsidiaries engaged in a wide range of businesses. For example, the LICs run thousands of hotels across China, and loans to these hotels would be classified as loans to the service industry. Thus, in addition to medium and long term loans and loans to infrastructure, it is perfectly reasonable for a sizable share of working capital loans, trust loans, and loans in the "other" category to end up in LICs. Again, gross debt of these entities would also include bond issuance and debt owed to each other.

3. LIC debt can be calculated by subtracting government spending on basic infrastructure from the total infrastructure spending figure. In that light, LIC debt only increased by 2.8 trillion RMB in 2009.
My response:
A. First, as pointed out, LIC are diversified holding companies which do not only engage in infrastructure construction. For example, thousands of subsidiaries of local investment companies engage in real estate development and absorb some share of the real estate loans. The figure generated using the method above, however, may be meaningful one-day when the government decides how much of the existing LIC debt it will seek to take over as part of a bail out. 
B. The calculation above assumes that much of the extrabudgetary revenue from local governments derived from land sales went to infrastructure construction. According to excellent research done by Standard Chartered and UBS on land sales, much of the land sales revenue is spent on compensating original residents, leaving only a minority share for actual investment. Thus, a realistic application of this methodology would lead to something like 3.5 trillion RMB in new loans to LICs, not just 2.8 trillion. 

4. My estimate of 12.7 trillion in future LIC debt is baseless and is way too high for YE 2011.
My response:
A. To be sure, I now think most of this debt will not realize by YE 2011 also. However, it would not be far-fetched to think that most of this debt will be realize by YE 2012. This estimate is not "baseless" as it comes from the hundreds of lines of credit that banks have granted to local governments. As long as banks more or less adhere to these lines of credit, they will lend this amount to local governments at some point in the future. " ...........................


Fri, 02/18/2011 - 23:30 | 976620 slewie the pi-rat
slewie the pi-rat's picture


why don't you un-ass yer fuking head, please, sir?  our American People are confused enough of this bullshit w/o you, sir. 

just try to focus on American politics, if you are an American, or Chinese politics if you are Chinese, ok? 

and please stop pretending to understand anything. 

or i'll hit you so fuking hard, you'll be blind in that eye, too.

Sat, 02/19/2011 - 02:46 | 976967 lawrence1
lawrence1's picture

You are a violent ignorant asshole and will die one.

Sat, 02/19/2011 - 06:49 | 977084 slewie the pi-rat
slewie the pi-rat's picture



1)  you say iyam violent.  this is Fight Club, sir.  and, i'm a pi-rat, not somebody in a paper bag.  AND, i have been "trolling" here for about a month so if you just put the google on "slewie the pi-rat" you will get three ppg. of blogs and, if you goto the bottom of page 2, and click on "repeat the search &tc", you will find 12 pages and the leads to ZeroHedge are all mine, ok?  so, if you can find anything there where i have advocated ANYTHING EXCEPT NON-VIOLENCE, please point it and i will award the point, game, set, and match and kiss yer fuking ASS, right in front of Radio City, while wearing a hula skirt in a snowstorm, ok?  i mean it, dude. CHECK IT OUT.  i am NOT violent, sir.  and You are slandering me.  poor me!

2)  ignorant?  again, read MY blogs, ok, sir?  really.  just hit the links and see if, after 5-10, you still have the same opinion, ok?

3)  asshole?  yep!  i'm a HUGE fuking asshole, and,

4) i DO hope to die one, too!  like in 40 years, ok? 

so, Mistress of The Obvious, where do we go from here?  you might wish to write a note to Tyler, and ask to lick his butt-plug and tell him how good it tastes, while you DEMAND that he either nuke YOU or ME from the site.  i would not do that, b/c iyam against "tempting" people who can't think straight, like TD.  but you could send him a note and say:  slewie and i have agreed to abide by your decision to nuke ONE of us from this site, forever, and i think it should be slewie b/c he is VIOLENT, as we see from these 25-50 blogs, and because he is IGNORANT, as we see from these 25-50 blogs, and....see what happenZ, ok?

even your mother must have mentioned "stix and stoners will bust my boner, but WORDz will NEVER hurt me.  unless she was smart enuf to check out early to avoid having to deal with YOU, in which case, i apologize for offending the sainted, beatified, archetype of TRUE womanhood. 

or, we could just have a DEBATE, and leave the charge of violence aside, by mutual stipulation, which would leave us in a punch-and-judy about ignorance/intelligence, right?

i would propose, sir that we might agree to debate the CONTENTS of S_Smailes' post # 976333. 

we could start right where he started: China can't just ... " jump off the peg ", which is where i started to get hot, in the first place, if you follow me.  now, mao and ho chi minh were in jail under the "nationalists". then THEY "conspired to take over China", and ACTUALLY did so, as i'm sure even you and S_S must have heard about, even in your plush caves of ignorance.  Ho set up HQ in Hanoi, and drove the FRENCH "imperialists" from dien bien phu in a masterpiece of strategy and human engineering, in 1954.  About 20 years later, with the SAME general in command of his forces, he did the same to US.  He wanted to unify HIS COUNTRY and, if you read about him, his political theories, his poetry and his obvious sacrifice of SELF-values for his Poeple, you may come to the "correct" conclusion that as far as intelligence goes, you and i together couldn't pour his tea.  I'm not a communist, but he was, and, imho, he was the "thom. jefferson" of communism.

Ho's forces, the No. Vietnamese Army (NVA) along w/ the dumb commies in the South (Viet Cong) were well supplied by china russia, and north korea.  even tho we were "morally right" in our cause, we just weren't able to win their "hearts and minds" under the leadership  of Tricky Dickie, Henry the K, And General Westmoreland, even after JFK ordered the assassination of their elected President in 1963:   JFK and the Diem Coup.

later, in November of 63, as i recall, offhand, JFK had his head blown off in Dallas by a Lone gunman, an "operative of Cuba", who was himself assassinated by Jack Ruby, live and in black & white, on TV, right around the time of his arraignment, wasn't it?  Jack R had cancer, and might had had too much sugar, or something, but was, REALly a red-white-and-blue American who just wanted to rid our god-blessed country of that vermin, L.H.Oswald, and all subsequent "investigations" have just gone:  okey dokey, haven't they, kinda like "9/11", really, so we can see how much we owe to our goobermint for keeping US so safe and coZy, and why we have all new laws which noone, especially in the FBI, seems to understand.  Here's the first page of 67,000 results in .9 sec, and i have a luddite computer, ok?  FBI cheating scandal - Google Search

Now, as far as "rice" and China goes, the Mekong delta and north along the lowlands up to Nha Trang, maybe, is fabulous rice farming, even with water buffaloes.  The Delta is known as the BEST "rice bowl" in the world!  and china is "connected" to it somehow, IF you can follow me, here. how tf do i know?  i usta live there, in a waterfront hotel, in Can Tho, on and off, while partying like it was...a long time ago. there was a nice little airport, and GREAT food and fellowship @ the seabees, who were very kind to me, and got me wasted b4 they took me to my hotel, whenever i stumbled thru.

Now, sir, i do not deny that S_S may have a small "point" with the FACT (?) that upward valuation of the Yuan/Ren might make rice "less expensive", but the idea that he KNOWS what China can or CAN'T do, is ABSURD, and i don't mean maybe. 

Now, let's go back to S_S, and you, and talk about true ignorance, but NOT ignore the CHILDREN, the Genocidal MURDER of whom, asswipes like you fukfaces, apparently do NOT wish to consider, b/c you are no fuking way as IGNORANT as slewie, right, touch-hole?

Sat, 02/19/2011 - 07:22 | 977097 slewie the pi-rat
slewie the pi-rat's picture



so, since you know MUCH about

1) violence, and

2) intelligence,  let's hear what you have to say about what china MUST do, and the price of rice, there, too, ok?

p.s.:  can't WAIT!

p.p.s.: Cee-Lo Green – Fuck You (Lyrics On Screen)

Sat, 02/19/2011 - 01:52 | 976915 Non Passaran
Non Passaran's picture

>In all reality I expect there has been a lot of jawboning behind the scenes to keep China from dumping for this very reason.

Makes sense.

There's no reason why the two governments couldn't reach a (non-public) agreement that both accommodates the printing and allows the Chinese to exchange their T-bills for natural resources in resource-rich countries.

Fri, 02/18/2011 - 19:46 | 976040 Mr Lennon Hendrix
Mr Lennon Hendrix's picture



Fri, 02/18/2011 - 19:47 | 976044 DoChenRollingBearing
DoChenRollingBearing's picture

DBA is a food ETF, been on a righteous roll.

Disclosure: long DBA

Fri, 02/18/2011 - 19:56 | 976070 Flakmeister
Flakmeister's picture

  Yes, been it since about ~24. Write calls against with "silly" strikes to take out the vig that you pay when they roll. Sell ~25% out and 3-6 months. Doing this I have picked up and extra 4% or so in premiums....

Fri, 02/18/2011 - 20:34 | 976178 jmac2013
jmac2013's picture

I wonder how much the cost of rice has changed relative to silver?


Sat, 02/19/2011 - 00:19 | 976725 Vint Slugs
Vint Slugs's picture

Rice during 1986 – 2007 traded between extremes at 12.82 and 3.43 cents/cwt.  Silver during 1987 – 2006 traded 95% between extremes at $9.52 and 3.53 per/oz.

Averaging those ranges you get a rice at 7.93 cents and silver at $6.52.  Rice is now at 14.75 cents an 86% gain; silver is at $32.62, a 400% gain.


Sat, 02/19/2011 - 10:05 | 977222 slewie the pi-rat
slewie the pi-rat's picture


ok, good start.  i think.

looks like you mighta taken the [hi + the lo]/2, which i tried, but didn't get your numbers. so, i'm not sure what you did! 

you take diff "periods": 86-2007 for rice, and 87-2006 for silver, and then compare them, to reach a conclusion.

then you compare them to some very recent price, i think, like today or yest.

maybe.  and are you using cash price for both, or the near future contract? or future price, for rice, and spot for silver?

either way, i think the indications of your "# crunching" IS indictive of "truth" about these relative price levels for these products.

so, we can conclude that in terms of REAL money, silver, rice prices are DECREASING, showing deflation.  Don't tell Batmanke, we're s'posed to think there is inflation, right?

now:   in terms of green stamps, the same is true?  no, i think.  the USdollar has gone down, maybe?  relative to rice AND silver, because of the fuking FED and it's need to "reflate" after "changing ALL the RULES" about Banking, Insurance, Mortgages, Bankruptcy, Torture, War, The Legal System, Human Rights, and the need for Politically Correct  Speach, Rather than FREE Speach, while robbing the TREASURY, OUR Treasury blind for their CRONIES, who are all Zionist/Sionizt psychopathic criminal BANKERS & BUSINESSPERSONS OPARATING UNDER THE COVER OF law, SO (wink, wink, wingue, wanque, wonk, wonque] there's Nothing to See Here, except for Slewie, right?  and, to QUOTE

so: in terms of silver, deflation.

in terms of "fiat", inflation.  (?)

either way if people who have neither fiat nor silver are pretty screwed.  right into the groung, as in BURIED due to death.

so, we can see deflation in terms of "money" [as DEFINED in the Const.], and inflation in terms of fiat.

and dead children either way.

personally, i am more concerned about the dead children than the "price" of anything, especially in "managed markets" for Rice, silver, AND the US Dollar. 

many people here seem to value either the fiat, [the "price" of rice AND silver, in dollars.

this is why we're having such a complete clusterfuck about about something which, to me, is quite simple:  folks WAY below the US's "definition of poverty" are screwed even worse than usual! 

what are YOUR values?

i like silver, and enuf cash for about 3-4 months, and i hate to see starving children. i have a couple of bags of rice, too!

i think most on this page would like a big pile of silver, enough cash for 2 months, startegic hedges, accumulation of "rice" and silver and US$, but don't seem to notice the "little problem" about the dead kids in "poor" nations, because, hey, not MY problem, right?

slewie KEEPS saying:  put the food commodities "contracts" on CASH.  after two-3-4 weeks of this idea, i have not heard ONE SINGLE zero"hedger" endorse this idea!  now if someone has endorsed this idea, maybe one of you kind, caring, genocidal psychopaths can show me where, by say, posting a bookmark of where you SAW this, ok?  yes. i AM calling Every Single One of you shitforbrained assholes OUT, here, so let's fuking, boogie, ok? maybe you can wake up BEFORE it is just "too late".



Sat, 02/19/2011 - 10:40 | 977249 gall batter
gall batter's picture

Pi-rat, most human beings care about children.  If we work for change, it's for the children, not for ourselves. But we should, also, care about the elderly.  I take my dog Trooper to visit the elderly in a nearby nursing home.  Yes, that's allowed.  I guess I'm interested in what exactly you do to help children, to show that you really care beyond all these words about caring for children.  Seems that having cash for three or 4 months and bags of rice aren't caring for children.  Explain please.  And you do sound violent, often.  But, then, I like a good fight.  Are you married? 

Sat, 02/19/2011 - 15:07 | 977649 LudwigVon
LudwigVon's picture

Speculators are professionals who research supply, demand and monetary conditions in a marketplace. Typically they also provide the early warning system in capitalism which drives expansion of production to fill future real demand, mitigating risks of shortages. They make a market for the sellers of the staple. Speculators insulate farmers and food producers from price volatility. Hazlitt uses a historical example of central planner intervention here in the US to help us think about speculation:

“Government loans to farmers to enable them to hold their crops off the market… are urged in Congress for reasons that seem very plausible to most listeners. They are told that the farmers’ crops are all dumped on the market at once, at harvest time; that this is precisely the time when prices are lowest, and that speculators take advantage of this to buy the crops themselves and hold them for higher prices when food gets scarcer again. Thus it is urged that the farmers suffer, and that they, rather than the speculators, should get the advantage of the higher average price.

This argument is not supported by either theory or experience. The much-reviled speculators are not the enemy of the farmer; they are essential to his best welfare. The risks of fluctuating farm prices must be borne by somebody; they have in fact been borne in modern times chiefly by the professional speculators. In general, the more competently the latter act in their own interest as speculators, the more they help the farmer. For speculators serve their own interest precisely in proportion to their ability to foresee future prices. But the more accurately they foresee future prices the less violent or extreme are the fluctuations in prices.

Even if a farmer sold their whole crop of wheat on the market in one month of the year, the price in that month would not necessarily be much lower than average as speculators, in the hope of making a profit, would do most of their buying at that time. They would keep on buying until the price rose to a point where they saw no further opportunity of future profit. They would sell whenever they thought there was a prospect of future loss. The result would be to stabilize the price of farm commodities the year round.


It is precisely because a professional class of speculators exists to take these risks that farmers do not need to take them.” 

Sat, 02/19/2011 - 15:15 | 977651 LudwigVon
LudwigVon's picture


Sat, 02/19/2011 - 15:10 | 977653 LudwigVon
LudwigVon's picture

Carl Menger taught us in 1871 that consumers set prices, they are not coming from commodity producers and prices definitely are not set by speculators.

Sat, 02/19/2011 - 00:24 | 976739 Vint Slugs
Vint Slugs's picture

We're in a nominal commodities price up cycle.  No way will rice prices hold a candle to silver which is in a real price up cycle.

Fri, 02/18/2011 - 21:14 | 976290 AN0NYM0US
AN0NYM0US's picture

a mid west commodity (farmer 24k acre corn/wheat guy) speculator told me the other day that in his view wheat has peaked for now and the risk on the horizon is the 4m acres of set aside with another 12m potential being released - his confidence is not sufficient that he is short but rather he had a good run and is walking from the table for now

Based on his input, I will hold off stocking up  on the buy one get one on Wheaties promo at the local supermkt




Fri, 02/18/2011 - 22:12 | 976441 prophet
prophet's picture

Fascinating section in "Outliers" on rice for those interested.  The book is worth a quick read.

Fri, 02/18/2011 - 22:37 | 976499 Freddie Krugerrand
Freddie Krugerrand's picture

Rice is a crappy long-term investment.  Besides, you can't eat rice.  Oh..  wait a minute...  Never mind.  :-/

Fri, 02/18/2011 - 23:25 | 976609 dark pools of soros
dark pools of soros's picture


Sat, 02/19/2011 - 01:58 | 976919 Non Passaran
Non Passaran's picture

I doubt this would work.

$800+ billion (still) imports a lot of rice...

Fri, 02/18/2011 - 23:49 | 976662 Vint Slugs
Vint Slugs's picture

Seems like every time commodities markets get ZH coverage there is a lot of unbridled bullish bias.  Time for some objective TA input here.  Rice weekly chart sports top reversal today 2/18.  Weekly momentum bearish divergence also occurred.  Let's see if the market can close an obvious underlying January 18 gap at 14.03-13.695 and that buyers can stem weakness above key Nov/Dec support at 12.97/13.05 before we get too carried away about the upside.


Maybe it's about time that you asked the house shrink, Cognitive Dissonance, to do a piece about the psychological pathology of those who cannot explain reality without resorting to a conspiracy theory.


Sat, 02/19/2011 - 02:50 | 976965 lawrence1
lawrence1's picture

Forget the word "conspiracy" and replace it with "manipulation" because the more I learn about virtually every market the more I realize that those in charge or in the know are outright lying or grossly misrepresenting the reality of how things work. And that's the fucking reality and, if you dont want to see, just go elsewhere.

Sat, 02/19/2011 - 10:21 | 977234 slewie the pi-rat
slewie the pi-rat's picture

hey, Vint Slugs, what is yer avatar anyhow?  looks like a totally messed up person with no soul, whatsoever, to me. 

you mention something about "psychological pathology of those who cannot explain reality without resorting to a conspiracy theory."  i just finished doing that for you, above at yer # 976725 and my # 977222.

criminal psychopathy and apparently a pretty widespread one, too!

Sat, 02/19/2011 - 10:23 | 977236 slewie the pi-rat
slewie the pi-rat's picture


any questions, bro?

Sat, 02/19/2011 - 00:05 | 976698 dalkrin
dalkrin's picture

Bought a 5 lb bag of rice with just this fear in mind.  Plan to visit the local bakery outlet tomorrow to relieve them of a few loaves of bread that will be introduced to my freezer. 

Remember, they can't print rice.. Except rice paper, made with plastic rice.  Got soy sauce?

Sat, 02/19/2011 - 00:25 | 976742 gwar5
gwar5's picture

Rice is a biggie. I think the biggest staple in the world.

Sat, 02/19/2011 - 10:35 | 977243 slewie the pi-rat
slewie the pi-rat's picture

hi gwar.  glad to see ya!  we celebrate Thanksgiving with a big family feast.  now i don't speak or read chinese, but i was once informed by a person who to be able to do such that in Chinese (mandarin?) the symbol for "Thanksgiving"  could be translated into English as:


Sat, 02/19/2011 - 02:53 | 976973 lawrence1
lawrence1's picture

Any suggestions or references for investing in rice?

Sat, 02/19/2011 - 10:28 | 977240 slewie the pi-rat
slewie the pi-rat's picture


my, my; all you wombats are certainly out in force, this day!

some,uh, personal problem(s) or something, perhaps?

Sat, 02/19/2011 - 10:50 | 977265 ColonelCooper
ColonelCooper's picture

-Five gallon food grade buckets with lids

-1 Gamma seal lid

-5 gallon food grade Mylar bags

-2000 cc oxygen absorbers

Bulk white rice.

Will store 25-30 years.

Sat, 02/19/2011 - 11:09 | 977288 gall batter
gall batter's picture

Shameful, you make the most sense to me and I appreciate your comments. 

Sat, 02/19/2011 - 12:25 | 977388 savagegoose
savagegoose's picture

so if interest rates rise, , but no one still buys US debt, then they print more ... how is this making life more acceptabel in ?USA sure get your union pay, get you pension, but they $$'s aint gonna buy shit faster than a zimbabwe trill note.

Sat, 02/19/2011 - 12:32 | 977395 gall batter
gall batter's picture

dalkrin, do you have a generator for that freezer? me, i'm buying beans.  and i can blame Trooper when my friends come over for movie night and i fart.  

Sat, 02/19/2011 - 12:43 | 977414 unky
unky's picture

I am thinking of selling some of my gold to buy silver,  because of what is going on at the comex now and they dont have enoug silver and stuff. would anyone here advice/suggest to do it in this way?

Sat, 02/19/2011 - 14:05 | 977537 Forgiven
Forgiven's picture

Getting back to the OP, the manipulation UP of Rice is a powerful reply to the run on metals possibly by China.  You want the gold and silver,'ll pay more for your rice.

Sat, 02/19/2011 - 18:37 | 978118 dumpster
dumpster's picture

china will eat our rice


thjey have hedged their dollar holding with the world mineral wealth

the usa will crumble long before china .. look to see a china backed gold currencys along with a euro gold

gold will skyrocket the dollar will dump on geithers front lawn


silver enough said for the silver dont have a clue gang

The comment and analysis below is from Harvey Organ's most recent commentary.

The huge rise in silver price has caught the silver bankers totally offside on the silver banking. The BIS data released in November ( shows that the G 10 bankers have collectively sold forwards and swaps to the tune of 4 billion oz and short naked calls for another 3 billion oz. The total, 7 billion oz represents 10 years of production. If you just do the forwards, then it is 7 years of annual silver production.

Let us say the average cost of acquiring these derivatives and forwards equate to $15.00 for silver. Thus collectively the entire G10 bankers are feeling massive pain (losses) to the tune of:

7 billion oz of silver( 32.30-12.00) = 7 billion x $17.30 = 121.1 billion dollars of losses.

This is in a market of only 14 billion dollars. It begs the question to what economic need was this done.This is still off balance sheet.

If you include only the forwards or swaps (the lending of actual metal to which nothing has come back yet) then the losses are:

4 billion x 17.30 or 69 billion dollars.

Regardless how you look at it, the bankers are in serious trouble with this huge rise in silver prices. I hope you understand the severity of the situation.



Sat, 02/19/2011 - 18:38 | 978120 dumpster
dumpster's picture

china will eat our rice


thjey have hedged their dollar holding with the world mineral wealth

the usa will crumble long before china .. look to see a china backed gold currencys along with a euro gold

gold will skyrocket the dollar will dump on geithers front lawn


silver enough said for the silver dont have a clue gang

The comment and analysis below is from Harvey Organ's most recent commentary.

The huge rise in silver price has caught the silver bankers totally offside on the silver banking. The BIS data released in November ( shows that the G 10 bankers have collectively sold forwards and swaps to the tune of 4 billion oz and short naked calls for another 3 billion oz. The total, 7 billion oz represents 10 years of production. If you just do the forwards, then it is 7 years of annual silver production.

Let us say the average cost of acquiring these derivatives and forwards equate to $15.00 for silver. Thus collectively the entire G10 bankers are feeling massive pain (losses) to the tune of:

7 billion oz of silver( 32.30-12.00) = 7 billion x $17.30 = 121.1 billion dollars of losses.

This is in a market of only 14 billion dollars. It begs the question to what economic need was this done.This is still off balance sheet.

If you include only the forwards or swaps (the lending of actual metal to which nothing has come back yet) then the losses are:

4 billion x 17.30 or 69 billion dollars.

Regardless how you look at it, the bankers are in serious trouble with this huge rise in silver prices. I hope you understand the severity of the situation.



Sat, 02/19/2011 - 22:26 | 978533 bob_dabolina
bob_dabolina's picture

hi slewie the pie rat you look very nice tonight

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