The Bronze Swan Arrives: Is The End Of Copper Financing China's "Lehman Event"?

Tyler Durden's picture

In all the hoopla over Japan's stock market crash and China's PMI miss last night, the biggest news of the day was largely ignored: copper, and the fact that copper's ubiquitous arbitrage and rehypothecation role in China's economy through the use of Chinese Copper Financing Deals (CCFD) is coming to an end.

Copper, as China pundits may know, is the key shadow interest rate arbitrage tool, through the use of financing deals that use commodities with high value-to-density ratios such as gold, copper, nickel, which in turn are used as collateral against which USD-denominated China-domestic Letters of Credit are pleged, in what can often result in a seemingly infinite rehypothecation loop (see explanation below) between related onshore and offshore entities, allowing loop participants to pick up virtually risk-free arbitrage (i.e., profits), which however boosts China's FX lending and leads to upward pressure on the CNY.

Since the end result of this arbitrage hits China's current account directly, and is the reason for the recent aberrations in Chinese export data that have made a mockery of China's economic data reporting, China's State Administration on Foreign Exchange (SAFE) on May 5 finally passed new regulations which will effectively end such financing deals.

The impact of this development can not be overstated: according to independent observers, as well as firms like Goldman, this will not only impact the copper market (very adversely) as copper will suddenly go from a positive return/carry asset to a negative carry asset leading to wholesale dumping from bonded warehouses, but will likely take out a substantial chunk of synthetic shadow leverage out of the Chinese market and economy.

Naturally, for an economy in which credit creation is of utmost importance, the loss of one such key financing channel will have very unintended consequences at best, and could potentially lead to a significant "credit event" in the world's fastest growing large economy at worst.

But before we get into the nuts and bolts of how such CCF deals operate, and what this means for systemic leverage, we bring you this friendly note released by Goldman's Roger Yuan overnight, in which Goldman not only quietly cut their long Copper trading recommendation established on March 1 (at a substantial loss), but implicitly went short the metal with a 12 month horizon: a huge shift for a bank that has been, on the surface, calling for a global renaissance in the global economy, and in which Dr. Copper is a very leading indicator of overall economic health and end demand.

From Goldman:

Closing: Long LME copper September 2013 contract at $7,482/t, a $236/t (3.1%) loss


Following the initial sell-off in copper prices in the second half of February 2013, we established a long copper position at $7,718/t in the September contract (on March 1, 2013). We believed that the fall in copper prices, reflecting in part concerns about Chinese activity, was overdone. We reiterated this view on April 22, post further substantial price declines. Since then, prices have rebounded strongly, with the September contract closing at $7,482/t on May 22, up by 10% from the May 1 low of $6,808/t.


The emergence of the risk that CCFDs unwind over the next 3 months – we had assumed that deals would continue indefinitely – has complicated our near-term bullish copper view (from current prices). On the one hand, our fundamental short-term thesis is playing out – copper inventories are drawing, copper’s main end-use markets in China are growing solidly (property sales +39% yoy, completions +7% yoy, auto’s output +14% yoy Jan-April 2013), seasonal factors are currently supportive, Chinese scrap availability is tight, positioning also remains short, and policy risks are, arguably, mildly skewed to the upside.


Set against this is the likely near-term unwind in CCFDs and, critically, our view that copper is headed into surplus in 2014 (the window for higher copper prices is shortening). On net, we now see the risks to our 6-mo forecast of $8,000/t as skewed to the downside, and, in this context, we unwind our September long copper position at $7,482/t, a $236/t (3.1%) loss, given the recent strong rally in LME prices to near our 3-mo target of $7,500/t. Additionally, we believe that a further rally in copper prices in the near term would be a good selling opportunity taking a 12-month view [ZH: translated: short it].


Consumers: We believe that consumers will have a better opportunity to enter the copper market to buy taking a 12-month view. Following the recent sharp sell-off in zinc we are increasingly bullish on the outlook from current prices and as such believe consumers should take advantage of current low levels.


Producers: Our base case of a sharp slowdown in growth of Chinese construction completions in 2014, in the context of above-trend supply growth, presents significant longer-term downside risks to global copper demand growth and prices. Therefore we continue to believe that any further rallies in the copper price in 2013 represent a good opportunity to hedge, and in our view other non-producer market participants should continue to monitor any copper positions in light of the 2014 downside risks.


So just what is the significance of CCFDs? As it turns out, it is huge. Goldman explains (get a cup of coffee first: this is not a simple walk-thru):

The combination of Chinese capital controls and a significant positive domestic (CNY) to foreign (USD) interest rate differential has, in recent years, resulted in the development and implementation of large scale ‘financing deals’ which legally arbitrage the interest rate differential via China’s current account. These Chinese ‘financing deals’ typically use commodities with high value-to-density ratios such as gold, copper, nickel and ‘high-tech’ goods, as a tool to enable interest rate arbitrage. With the notional value of the deals far exceeding the export/import value of the commodities used, and likely significantly contributing to the recent run-up in China’s short-term FX lending (and related upward pressure on the CNY), China’s State Administration of Foreign Exchange (SAFE) announced new regulations to address these issues (May 5), to be implemented in June. Goldman continues:

SAFE’s new policies are, in our view, likely to bring these Chinese ‘financing deals’ to an end over the next 1-3 months. Having said this, some uncertainty remains around the implementation of the new policies by SAFE and Chinese banks, the speed at which the policies impact the market, and the possibility that new financing deals are “invented”. Owing to these uncertainties, a complete unwind of CCFDs is still at this point considered a risk.

In this note we provide a full example of a typical deal and discuss our understanding of the impact of an unwind in Chinese Copper Financing Deals (CCFDs) 1 on the copper market.


Our view is that the bulk of copper stored in bonded warehouses in China – at least 510,000t at present, as well as some inbound copper shipments into China – is being used to unlock the CNY-USD interest rate differential. This material has not been entirely unavailable to the market (deals can be broken if costs rise, such as a tightening of LME spreads), but the inventory has been effectively financed by factors exogenous to the copper market for some time.


We find that a complete unwind of CCFDs would be bearish for copper prices as the copper used to unlock the differential would shift from being a positive return/carry asset to a negative carry asset for those who currently hold it. As such this inventory will likely become more ‘available’ to the global market. Initially stocks would likely move into the Chinese domestic market to ease the current tightness, until the current SHFE price premium to LME closes.


After the SHFE-LME price arbitrage closes sufficiently, the remaining bonded stock (over and above day-to-day working flows) would likely shift from bonded warehouses to the LME. We expect that the ex-China (LME) market would likely see inventory increases as a result, as China draws on bonded stocks instead of importing and as excess bonded stocks are shifted back on to the LME. We estimate that the ex-China market will need to ‘carry’ a minimum of 200-250kt of additional physical copper over the coming months, equivalent to 4%-5% of quarterly global supply. The latter would most likely result in a widening contango, including downward pressure on cash prices.


Specifically, the current LME 3-15 month contango is 1.1%, compared to full carry of c.3%-3.5%.


The emergence of this bearish risk – we had assumed that deals would continue indefinitely – complicates our near-term bullish copper view. Indeed, our fundamental short-term thesis is unfolding – copper inventories are drawing, copper’s main end-use markets in China are growing solidly (property sales +39% yoy, completions +7% yoy, auto’s output +14% yoy over the Jan-April 2013 period), seasonal factors are currently supportive, and scrap availability in China is reportedly tight. Positioning also remains short, and policy risks may be mildly skewed to the upside (ECB meeting June 6 and FOMC meeting June 18-19).


The other factors that have recently supported a rebound in copper prices have been mine supply disruptions at Grasberg in Indonesia (c.480kt for 2013E), and the threat of further strikes in Chile ahead of the Chilean elections and at Grasberg ahead of contract negotiations (the current labour contract ends in September). Our forecast 2013 disruption allowance of 5.8%, or c.900kt is designed to account for these kinds of developments, and so far this year our allowance looks reasonable, meaning that these disruptions are not set to impact our overall balance forecast.


Set against this is the likely near-term unwind in CCFDs and, critically, our view that copper is headed into significant surplus in 2014 (the window for higher prices is shortening). On net, we now see the risks to our 6-mo forecast of $8,000/t as skewed to the downside. In this context, we unwind our September long copper recommendation at $7,482/t, a 3% loss.

If you haven't shorted copper after reading the above.... we suggest you re-read it.

Ploughing on: below is the reason for SAFE's new dramatic regulations, and why China decided to go ahead and kill CCFD, unintended consequences, whatever they may be, be damned:

China’s foreign currency reserves have risen significantly since the start of the year, placing upward pressure on the CNY (Exhibit 1). This development prompted SAFE, China’s regulator of cross-border transactions, to announce a new set of regulations on May 5, to be implemented in June.



The new regulations can be split into two parts, and broadly summarised as follows:


a) The first measure targets Chinese bank balance sheets. This measure aims to:


i) Directly reduce the scale of China’s FX loans, thus reducing the scale of letter of credit (LC) financing (bank loans), thereby reducing the volume of funding available for CCFDs (though not specifically targeting CCFDs); and/or


ii) Raise banks’ FX net open positions (banks are required to hold a minimum net long FX position at the expense of CNY liabilities), thus raising LC financing costs, thereby increasing the cost of funding CCFDs.


Specifically, Exhibit 2 shows that SAFE aims to implement a bank loan to bank deposit ratio of 75%-100% going forward, compared to an existing ratio of  >150%.



b) The second measure targets exporters and/or importers (‘trade firms’) by identifying any activities that mainly result in FX inflows above normal export/import backed activities (i.e. trades for the purpose of interest rate arbitrage, amongst others). This measure would force entities to curb their balance sheets if they are found to be involved in such activities.


Since May10 SAFE has been requesting ‘trade firms’ provide detailed information of their balance sheets and trading records, in order to categorize them as either A-list or B-list firms by June 1, 2013. B-list firms will be required to reduce their balance sheet significantly by cutting any capital inflow related trade activities.


To avoid being categorized as a B-list firm by SAFE, ‘trade firms’ may reduce their USD LC liabilities in the near term, with CCFDs likely impacted. It is not yet clear what happens to the B-list firms once they are categorized as such. However, if B-list firms were prohibited from rolling their LC liabilities this could increase the pace of the CCFD unwind, since these trade firms would likely need to sell their liquid assets (copper included) to fund their LC liabilities accumulated through previous CCFDs.


These new regulations are likely to impact a number of markets and market participants. In this note we focus on the impact on CCFDs and the copper market. Should a) and b) be enforced, copper financing deals are highly likely to be impacted.

* * *

That explains China's macro thinking. But what does it mean for the actual Copper Financing Deal? The below should explain it:

An example of a typical, simplified, CCFD


In this section we present an example of how a typical Chinese Copper Financing Deal (CCFD) works, and then discuss how the various parties involved are affected if the deals are forced to unwind. Exhibit 3 is a ‘simplified’ example of a CCFD, including specific reference to how the process places upward pressure on the RMB/USD. We believe this is the predominant structure of CCFDs, with other forms of Chinese copper financing deals much less profitable and likely only a small proportion of total deal volumes.


A typical CCFD involves 4 parties and 4 steps:

  • Party A – Typically an offshore trading house
  • Party B – Typically an onshore trading house, consumers
  • Party C – Typically offshore subsidiary of B
  • Party D – Onshore or offshore banks registered onshore serving B as a client

Step 1) offshore trader A sells warrant of bonded copper (copper in China’s bonded warehouse that is exempted from VAT payment before customs declaration) or inbound copper (i.e. copper on ship in transit to bonded) to onshore party B at price X (i.e. B imports copper from A), and A is paid USD LC, issued by onshore bank D. The LC issuance is a key step that SAFE’s new policies target.


Step 2) onshore entity B sells and re-exports the copper by sending the warrant documentation (not the physical copper which stays in bonded warehouse ‘offshore’) to the offshore subsidiary C (N.B. B owns C), and C pays B USD or CNH cash (CNH = offshore CNY). Using the cash from C, B gets bank D to convert the USD or CNH into onshore CNY, and trader B can then use CNY as it sees fit. 


The conversion of the USD or CNH into onshore CNY is another key step that SAFE’s new policies target. This conversion was previously allowed by SAFE because it was expected that the re-export process was a trade-related activity through China’s current account. Now that it has become apparent that CCFDs and other similar deals do not involve actual shipments of physical material, SAFE appears to be moving to halt them. 


Step 3) Offshore subsidiary C sells the warrant back to A (again, no move in physical copper which stays in bonded warehouse ‘offshore’), and A pays C USD or CNH cash with a price of X minus $10-20/t, i.e. a discount to the price sold by A to B in Step 1. 


Step 4) Repeat Step 1-Step 3 as many times as possible, during the period of LC (usually 6 months, with range of 3-12 months). This could be 10-30 times over the course of the 6 month LC, with the limitation being the amount of time it takes to clear the paperwork. In this way, the total notional LCs issued over a particular tonne of bonded or inbound copper over the course of a year would be 10-30 times the value of the physical copper involved, depending on the LC duration. 


Copper ownership and hedging: Through the whole process each tonne of copper involved in CCFDs is hedged by selling futures on LME futures curve (deals typically involve a long physical position and short futures position over the life of the CCFDs, unless the owner of the copper wants to speculate on the price).


Though typically owned and hedged by Party A, the hedger can be Party A, B, C and D, depending on the ownership of the copper warrant.

As Goldman further explains, the importance of CCFD is "not trivial" - that is an understatement: with the implicit near-infinite rehypothecation in which the number of "circuits" in the deal is only a factor of "the amount of time it takes to clear the paperwork", there may be hundreds of billions, if not more, in leverage resulting from this shadow transaction that has been used in China for years. Now, that loop is about to end. The reality is nobody can predict what the impact will be, but whatever it is - i) it will extract tremendous leverage from the system and ii) it will have adverse impacts on both China's ability to absorb inflation and grow its economy.

How important are CCFDs? They are not trivial!


Chinese ‘financing deals’, including CCFDs, are likely to contribute to China’s FX inflows since they involve direct FX inflows through China’s current account. Specifically, for CCFDs, the immediate cross-border conversion of FX to onshore CNY after Party C pays Party B for the copper warrant (Step 2) directly contributes to China’s FX inflows. In terms of outflows, the issuance of LC (FX short-term lending) by Party D to Party A (Step 1) is not associated FX outflow by definition, and when the LCs expire they tend to be rolled forward. Step 3 occurs offshore, so there is no inflow/outflow related to this transaction.


In this way, the net Chinese FX inflows/outflows associated with CCFDs are equivalent to the change in the value of the notional LCs. We make some broad estimates of how much of China’s short-term FX lending could be accounted for by CCFDs.


Specifically, our best estimate suggests that roughly 10% of China’s short-term FX lending could have been associated with CCFDs since the beginning of 2012 (Exhibit 4). In April 2013, we estimate that CCFDs accounted for $35-40 bn (stock) of China’s total short-term FX lending of $384 bn (stock), making various assumptions. More broadly, Chinese bonded inventories and short-term FX lending has been positively correlated in recent years (Exhibit 5).


Two key questions remain: how the upcoming unwind will impact each CCFD participant entity...

How an unwind may impact each CCFD participant


As we discussed on pages 4 and 5, SAFE’s new regulations target both banks’ LC issuance (first measure) and ‘trade firms’ trade activities (second measure). Here we discuss how the different entities (A, B, C, D) would likely adjust their portfolios to meet the new regulations (i.e. what happens in a complete unwind scenario).


Party A: Party A, without the prospect of $10-20/t profit per Step 1-3 iteration, is likely to find it hard to justify having bonded copper sitting on its balance sheet (the current LME contango is not sufficient to offset the rent and interest costs). As a result, Party A’s physical bonded copper would likely become ‘available’, and Party A would likely unwind its LME short futures hedge.


Party B, C: To avoid being categorized as a B-list firm by SAFE, Party B and C may reduce their USD LC liabilities by: 1) selling liquid assets to fund the USD LC liabilities, and/or 2) borrowing USD offshore and rolling LC liabilities to offshore USD liabilities. The broad impact of this is to reduce outstanding LCs, and CCFDs will likely be affected by this. It is not yet clear what happens to the B-list firms in detail once they are categorized as such. However, if B-list firms were prohibited from rolling their LC liabilities this would increase the pace of the CCFDs unwind. In this scenario, these trade firms would have to sell their liquid assets (copper included) to fund their LC liabilities accumulated through previous CCFDs.


Party D: To meet SAFE’s regulations, Party D will likely adjust their portfolios by reducing LC issuance and/or increasing FX (mainly USD) net long positions, which would directly reduce the total scale of CCFDs and/or raise the LC financing cost, respectively.

... And what happens to copper prices (hint: GTFO)

Implications for copper - bonded copper moves from a positive carry asset to negative carry asset

Implications for copper - bonded copper moves from a positive carry asset to negative carry asset


We expect that a complete unwind of CCFDs, everything else equal, is likely to be bearish for copper prices, LME spreads, and bonded premiums.


CCFDs involve a long copper physical positions and a short futures position on the LME. The physical position would be sold if CCFDs unwound and the short futures positions bought back. The newly available physical copper would not be financed by the China and ex-China interest rate differential anymore (not a positive carry asset anymore), and would instead need to be financed by a natural contango (in the interim copper becomes a negative carry asset), everything else equal.


Theoretically then, the physical market, over a short period (say, one quarter), may need to absorb as much as c.400kt of copper, equivalent to 8% of quarterly global copper supply.


By contrast, the LME futures market would need to absorb buying of c.0.2%-0.3% of quarterly traded LME volumes and c.6% of daily average 2012 open interest. The impact on the physical market is therefore likely to be relatively large, in spite the fact that an unwind of CCFDs does not result in the creation of new copper (i.e. aggregate global copper inventory impact is 0/our inventory chart does not change).


What about in practice?


Since there are no comparable historical examples to make reference to, what happens when CCFDs unwind in practice is open for debate. We believe that since the downward pressure on the physical market is large, both in absolute terms and relative to the upward pressure on the futures market, near-term prices are likely to come under relatively significant pressure. Further, if the market fears the unwind of CCFDs, physical buyers may hold off on purchases, and futures sellers may bet on lower prices (offsetting either in part or more than offsetting the financing deal related unwind buying). In this way it is likely that in practice the whole copper price curve would be under pressure in the case of a complete CCFD unwind, at least until the contango widens sufficiently to compensate for the cost of carry.


We see the following as a likely chain of events in a complete unwind scenario:

  • China would draw on bonded until it is ‘full’. In the current market bonded copper stocks will likely initially flow into the domestic Chinese market, since SHFE prices are above LME prices, with the SHFE curve in backwardation and LME in contango.
  • Chinese imports fall/remain low, placing upward pressure on LME stocks. Since China is drawing bonded inventories to meet its demand, Chinese copper imports are likely to be under downward pressure beyond May, resulting in any excess material ex-China turning up on the LME as well (Exhibit 7). Remaining bonded stocks (ex-stocks in transit), would shift to LME. Once China is ‘full’ (i.e. the import arbitrage closes, bonded physical premia decline, SHFE price and curve softens), the remaining excess bonded inventory will likely make its way on to the LME. Since China is in deficit at present (drawing bonded and SHFE inventories, SHFE in backwardation), due in part to seasonal factors, the inventory numbers noted above, in practice, will likely be smaller but still very large. Our best estimate would be a minimum of 200,000-250,000t of stock could shift/build on the LME over the next 2-3 months, or 4%-5% of quarterly global consumption.
  • LME contango to widen. Higher LME stocks suggest higher LME copper spreads, including downward pressure on the front end. Exhibit 8 illustrates that over the last 6 years, the buildup of LME inventory has been consistently associated with widening LME spreads into contango, and the scale of contango is mostly driven by financing cost and inventory levels. With excess copper flowing into LME warehouses, the spread needs to widen further to finance the carry trade effectively. For reference, LME annual rents are c.$150/t or 2% of copper prices. Assuming an annualized financing cost of 1%-1.5%, full carry is c.3%-3.5%, compared to current LME 3-15 month contango of 1.1%.


The main caveat to the above is that a complete unwind in CCFDs is still subject to the implementation of the policy by SAFE, Chinese banks and ‘trade firms’, and the possibility that new financing deals are “invented”. As a result, we will continue to closely monitor implementation of the policy by banks via monitoring bonded physical premiums, SHFE spreads and bonded stock flows.

Finally, what does all this mean for explicit rehypothecation chain leverage (initially just at the CCFD level although a comparable analysis must be done for systemic as well) and CCFD risk exposure:

Leverage in CCFDs


Below is a demonstration of the LC issuance process in a typical CCFD. Assuming an LC with a duration of 6 months, and 10 circuit completions (of Step 1-3) during that time (i.e. one CCFD takes 18 days to complete), Party D is able to issue 10 times the copper value equivalent in the form of LCs during the first 6 month LC (as shown from period t1 to t10 in Exhibit 10). In the proceeding 6 months (and beyond), the total notional value of the LCs remains the same, everything else equal, since each new LC issued is offset by the expiration of an old one (as shown from period t11 to t20).


In this example, total notional amount of LC during the life of the LC = LC duration / days of one CCFD completion* copper value = 10. In this example, the total notional amount of LC issued by Party D, total FX inflow through Party D from party A, and total CNY assets accumulated by party B (and C) are all 10 times the copper value (per tonne).


To raise the total notional value of LCs, participants could:

  • Extend the LC duration (for example, if LC duration in our model is 12 months, the notional LC could be 20 times copper value)
  • Raise the no. of circuits by reducing the amount of time it takes to clear the paperwork
  • Lock in more copper


Risk exposures of parties to CCFDs


Theoretically, Party B risk exposure > Party D risk exposure > Party A risk exposure


  • Party B’s risks are duration mismatch (LC against CNY assets) and credit default of their CNY assets;
  • Party D’s risks are the possibility that party B has severe financial difficulties. (they manage this risk by controlling the total CNY and FX credit quota to individual party B based on party B’s historical revenue, hard assets, margin and government guarantee) (Party D has the right to claim against party B (onshore entity), because party B owes party D short term FX debt (LC)). If party B were to have financial difficulties, party D can liquidate Party B’s assets.
  • Party A’s risk is mainly that party D (China’s banks) have severe financial difficulties (Party A has the right to claim against party D (onshore banks), because Party A (or Party A’s offshore banks) holds an LC issued by party D). In the case of financial difficulties for Party B, and even in case Party D has difficulties, Party A can still get theoretically get paid by party D (assuming Party D can borrow money from China’s PBoC).

In brief (pun intended): a complete, unpredictable clusterfuck accompanied by wholesale liquidations of "liquid assets", deleveraging and potentially a waterfall effect that finally bursts China's bubble, all due to a simple black swan. Although, in reality, nobody knows. Just like nobody knew what would happen when the government decided to let Lehman fail.

So... is this China's Lehman?

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Dr. Engali's picture

The only people who will profit from this when it vaporizes are the people who have real tangible things. Everybody else will be crying in their beer.

LawsofPhysics's picture

If they have beer, they will have at least one asset.

1C3-N1N3's picture

Know how to make beer. It will be safer to drink than the water.

ParkAveFlasher's picture

You do know that water can be "boiled"?

1C3-N1N3's picture

And how long does it stay good before you have to boil it again?

You only boil once for beer, and you're good for at least months, possibly years.

s2man's picture

I just found out food has a shelf life.  Now I'm wondering about all that beer and doritos I buried in the back yard...

thismarketisrigged's picture

is anyone watching this shit on level 2?


europe is down 2 plus percent across board, asia we know the deal with japan, and even china 2.50 percent, and yet the fucking u.s markets ( ponzi scheme) are fucking down nothing.


every fucking market globally is fucking down big time, yet this joke of a market is going to finish green today, or flat.


u cant make this shit up, u really cant.


when the fiscal cliff shit happened, we rallied despite never selling off because all around the globe they did, but when the globe sells off, we are flat?


fuck u ben, its his 3.5 billion pomo today

lakecity55's picture

Amazing, markets dropping around the world, but NY keeps chugging along with Bennie at the helm.

madcows's picture

It's the Bernanke PUT.  Everyone knows that the market won't be allowed to fall, including the FED.

LongBallsShortBrains's picture

Almost time to short it. When every motherfucker is positive it can't go down. Almost there. It will be quick. It will be blamed on some rogue trader or another madoff. Maybe some accounting discrepancies in a 2 billion market cap company that will start it. The emails have been coming in... How to beat this market for 5600% in two days. When they promise 9000 % in two days, I'm going short the spoos.

Short copper
Short heating oil

Meat Hammer's picture will be blamed on having to bomb some brown people for their own good.

Going Loco's picture

@longballsshortbrains: Your nickname is appropriate. As a private individual you will NOT be allowed to profit from short selling if/when they lose control.

hootowl's picture

Suckers! Suckers and more suckers + bernankenstein & his demon monkeys.



jayman21's picture

Where do you think the capital is flowing right now?  Risk on or off?  Dollar Up or Down?  Who in thier right mind would have capital invested in Europe or Japan?  USA is the least ugly at the party right now.  Follow the flow.


FYI - Japan just might bottom soon, but it is a process with confirmation.

buzzsaw99's picture

Half a million tons of it? That's like ten Titanics of solid copper.

rustymason's picture

Yes. That's by ship weight. By volume, you could fit 2.6 of those sales into the Titanic if you also used the space in the the superstructure:

(500,000 tons copper)(2000 lbs/ton) / 560 lbs/ft3 = 1,785,700 ft3 copper.

(4,632,800 ft3 total ship space, volume) / (1,785,700 ft3 copper) = 2.6 copper sales.

If you only used the cargo hold, then the Titanic could only hold 1.4 such copper sales:

2,500,000 ft3 cargo volume / 1,785,700 ft3 copper = 1.4 copper sales.

Please check my math.

Tsunami Wave's picture

OT: Goldman will be moving their global operations to... Salt Lake City, Utah.

I can't copy the link since I'm on my phone, but it's in the featured videoes section on Bloomberg, and its explained by Blankfein himself. This probably has something to do with its proximity to the NSA's new data center

Dr. Engali's picture

I'll post a link for you:


It's curious that they chose the same location as the NSA's data center:

BigJim's picture

When you do God's work, you need to be as close to as many different gods as possible.

rustymason's picture

Maybe it's gods' work, not God's work.

bank guy in Brussels's picture

Old joke:

The Pope calls the Cardinals in the Vatican together and tells them, "I have received a message from an angel of God, and there is good news and bad news ...

"The good news," the Pope continues, "Is that Jesus is coming back to earth to see us."

"Wonderful !" exclaim the Cardinals. "To have this miracle in our lifetimes, what a blessing ! ... But, Your Holiness, What can be the bad news, then ?"

"Well," says the Pope, "Jesus IS coming to see us ... But the bad news is, he wants us to meet him in Salt Lake City."

MarsInScorpio's picture

Dr. E:


I don’t know why anyone would have any doubt.


Let’s say that the long-running theory of ZH that the oligarchs control the game is in fact correct. Obviously, the guys who own the US FED are among the oligarchs.


The NSA Data Center is the vacuum of all electronic information gathered anywhere in the world. If it is transmitted using electronics, most likely it will end up in the NSA center.


I always wondered why the big corps would allow the feds to gather their info and peer into their business communications and strategies. But reading ZH has given me the answer:


These are best conceptualized as crime families. Crime families meet to divide up the landscape in an effort to avoid wars between them. In order to do that, they have to share a certain amount of information in order to assure the other families that they are playing according to the agreed upon territories and takes.


There are only three circumstances when one crime family moves to take out another. 1) If a family tries to move into its territory, so as a defensive measure the crime family fights the other family; or 2) if the family perceives another family is on the ropes and is therefore susceptible to being wiped out and their territory are the spoils gained; or 3) the market craters and taking out a competing family is necessary to maintain revenues.


Unless one or more of the circumstances for taking out a family exist, the day-to-day relationship is the “status quo,” which is in everyone’s best interest to maintain. Unlike governments, families don’t make money on warring on each other – they let that niche of society expend its best and brightest. So fighting between families is discouraged as an economic matter of preserving leadership and rising stars.


In the managing of the family, information is key. That is why they employ snitches on the street, pay off cops, buy judges, send moles into other families, and they hold their own, and attend each other’s social events.


That said, the NSA center is a valuable piece to have in place for worldwide information gathering valuable to the financial crime families. Here they will know what is going on with other governments, other corporations, other NGOs, who is having affairs, who is gay, who is doing drugs, who is on the ropes, who is going insane, who is a mole, who is double-dealing . . . you get the idea; the NSA is going to be the control center for information on a One World basis.


I’ve often seen remarks in these posts and articles about privacy. They will get your emails (which the FBI maintains no longer requires a warrant), the attachments to your emails, your text messages, your calls on your cell phone, your internet activity, anything and everything electronic.


Privacy? There is none. Zero.


And just as the algos want their servers inside the exchanges, so too will the oligarchs want their crime family’s implementers as close as possible to the data center in order to reduce latency and the chance that communications will be cut off through terrorism or natural disconnects involving weather and equipment malfunctions.


By the way, noting the terrorism aspect, how many Arabs and Blacks will you find in Salt Lake City?


Regardless of the PC insanity over profiling, one look at the history of terrorism tells you that those two racial components are responsible for nearly all of the violent crime and terrorism (Boston and its white Caucasus perps being the <1% exception).


So Goldman gets the data faster and more reliably and significantly decreases the chance of terrorist acts, kidnappings, and violent crime. Win-win.


While almost all of us can agree a Times Square whore has higher morals than Goldman, et. al, the fact is that they have managed to control much of the Western financial world. Give them credit for brains, if not omniscience. But this NSA move shows they are working to correct that lack.


So there you are – and now watch the lemmings of the other crime families follow suit.


That’s the thing about criminals – they all like to gather at the same spot for dining and drinks – after all, there is no honor among thieves.



Renfield's picture

I hope they all move there, right away. Makes it a lot more obvious to sheep (mind you, they will need to be told), and should any particular sheep get enterprising, the chief criminals and the heart of the spy network will all be conveniently located in one place.

When you have a snake problem, it helps to find the nest. We are watching the snakes build theirs.

I still maintain that all this spying and surveillance, like the illegal invasions that criminal governments prefer to call "war", must be financed. That's why I'm not worried about it long term. Getting thru the short term is the hard part. In but a few years, if these governments still exist, it will be all they can do even to enforce tax collection.

Herd Redirection Committee's picture

Yep, crime families.

They are just the most successful ones.  The whole spiel about Capone, Lucky Luciano, Meyer Lansky... Those were never the top guys.  High up, sure.  But more COO than Chairman. 

The Kennedy family was up there, but they got taken down a couple notches.  The Bush family... Right up there.  Clintons.  Big Pharma, Military Industrial Complex, Oil, Banking, Media.  Need not look much further.

TheMeatTrapper's picture



That's probably the single best post I've ever read here. More informative than most of the articles. 

ebear's picture

"They will get your emails (which the FBI maintains no longer requires a warrant), the attachments to your emails, ........"

OMG!  They are gonna have the biggest LOL Cat collection in the known universe!

DosZap's picture

It's curious that they chose the same location as the NSA's data center:


Nah, would YOU want to be them when the SHTF?, and caught in the cesspool of Wall Street?.Not me, nor them.NYC will be a guerilla warfare zombie zone.


machineh's picture

'... Goldman's Roger Yuan ...'

Hi, Roger, I'm Dave Dollar. Pleased to meetcha!

El Hosel's picture


fonzannoon's picture

Those were real prints. It looks like those trades will stick.

Illiquid market.

semperfi's picture

holy shit!  I thought digital signal processing was extremely difficult to master.  Now I know why all you financial types are richer than a lowly engineer

s2man's picture

Yeah, that made my brain hurt.  Thanks, Tyler.

ebworthen's picture

So will the same be true for Gold, or will Gold be used as an alternative to Copper and get pushed higher?

williambanzai7's picture

The modern wonders of financial innovation never cease to amaze. What will the world be like without this?

GeorgeHayduke's picture

I want to see the part where the keep the phony US stock market green AND do their tapering nonsense. When the rug is pulled out from under this entire scam called the US financial markets, a whole lot of things are going to fall over and land hard.

waterwitch's picture

Hey GWH, looks like you need to take a road trip to SLC, UT and deal with Blankfein and the boyz, mano a mano. There's work to be done!


RSloane's picture

So all  these black swans that have been hopping all over everyone's yard and eating all the green shoots seeds for months are now unforseeable? Not if you opened your eyes and looked out the window.

fomcy's picture

Bullish for stocks! Plunge protection team working overtime. GOLD capped under 1400.

ekm's picture

Same scheme with Crude oil

rubearish10's picture

Certainly would've expected some serious crunching of derivitive models from one way momentum strategies. The reasoning for this not to jhappen escapes me. Didn't we have "better than expected"US numbers this morning???? More than someone is barely holding on by skinny teeth!

eddiebe's picture

Now let me get this straight.    It's better to carry more sovereign IOU's, especially US paper, than copper?    OK. got it.

Taint Boil's picture



Wow – lost me …….. but an infinite rehypothecation loop can’t be good. 


Infinite rehypothecation: 

This is when a bank lends money to a borrower and the borrower puts up some collateral for that money. But then that bank can use that collateral in an infinite number of transactions which allows that bank to borrow money from other banks or sources. 

So having the power to create money out of thin air is not enough for them……… 



Counterfiat's picture

Crash imminent?

Have the Chinese done this with gold and silver as well?

Kreditanstalt's picture

How complicated!

How does any of this actually PRODUCE WEALTH, if I may ask?  Sign of economic sickness.