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China Scrambling After "Discovering" Thousands Of Tons Of Rehypothecated Copper, Aluminum Missing

Tyler Durden's picture




 

"Banks are worried about their exposure," warns one warehousing source, "there is a scramble for people to head down there at the minute and make sure that their metal that they think is covered by a warehouse receipt actually exists."

The rehypothecated catastrophe that we discussed in great detail here (copper financing), here (all commodities), and here (global contagion) appears to be gathering speed as the China's northeastern port of Qingdao has halted shipments of aluminum and copper due to an investigation by authorities after they found "there is a discrepancy in metal that should be there and metal that is actually there."

 

Copper prices are tumbling already (despite Gartman's most recent prognostication on Dr. Copper's China recovery meme) as the world's 7th largest port disallows any shipments until the probe is complete.

"It's such a massive port I would think virtually everybody has exposure," warned one analyst, adding that this will be bearish for metals as "a lot of Western banks will try to offload material and try not to deal with Chinese merchants."

Reuters reports,

China's northeastern port of Qingdao has halted shipments of aluminium and copper due to an investigation by authorities, causing concern among bankers and trade houses financing the metals, trading and warehousing sources said on Monday. Port authorities could not immediately be reached for comment. China has a public holiday on Monday.

 

"We were told we can't ship any material out while they do this investigation," a source at a trading house said. The port of Qingdao is China's third-largest foreign trade port and the world's seventh-largest port, trading with 700 ports in more than 180 countries, according to its website (www.qdport.com/).

 

"Banks are worried about their exposure," one warehousing source in Singapore said.

 

"There is a scramble for people to head down there at the minute and make sure that their metal that they think is covered by a warehouse receipt actually exists," he said.

Metal imports have been partly driven in China as a means to raise finance, where traders can pledge metal as collateral to obtain better terms. In some cases the same shipment can be pledged to more than one bank, fuelling hot money inflows and spurring a clampdown by Chinese authorities.

"It appears there is a discrepancy in metal that should be there and metal that is actually there," said another source at a warehouse company with operations at the port.

 

"We hear the discrepancy is 80,000 tonnes of aluminium and 20,000 tonnes of copper, but we hear that the volumes will actually be higher. It's either missing or it was never there - there have been triple issuing of documentation," he said.

 

Beijing last year set new rules to curb currency speculation amid signs that hot money inflows helped push the yuan to a series of record highs. The rules required banks to tighten the management of their foreign exchange lending and types of clients that are able to access those loans.

 

"It's such a massive port I would think virtually everybody has exposure," the trading source said.

 

"Once the investigation is over, it could be bearish for metals. I think that a lot of Western banks will try to offload material and try not to deal with Chinese merchants," the trading source added.

Critically - this is a major problem for any shadow-banking credit creation process as if the rehypothecated commodity-backed CCFDs are ultimately unwound, 1) someone will not get their collateral (payment problems - bailouts?), 2) less real collateral means less real credit expansion (which banks can;t fill because the firms that use this method of financing are anything but creditworthy), and 3) liquidation of any assets will proceed rapidly...

Goldman concludes that "an unwind of Chinese commodity financing deals would likely result in an increase in availability of physical inventory (physical selling), and an increase in futures buying (buying back the hedge) – thereby resulting in a lower physical price than futures price, as well as resulting in a lower overall price curve (or full carry)." In other words, it would send the price of the underlying commodity lower.

 

 

 

Finally, as we showed before when it comes to commodity financing deals, in terms of total notional value, both copper and aluminum pale by comparison to the one metal most used (by value) in China as a funding substitute: gold

As we commented previously:

When we previously contemplated what the end of funding deals (which the PBOC and the China Politburo seems rather set on) may mean for the price of other commodities, we agreed with Goldman that it would be certainly negative. And yet in the case of gold, it just may be that even if China were to dump its physical to some willing 3rd party buyer, its inevitable cover of futures "hedges", i.e. buying gold in the paper market, may not only offset the physical selling, but send the price of gold back to levels seen at the end of 2012 when gold CCFDs really took off in earnest.

 

In other words, from a purely mechanistical standpoint, the unwind of China's shadow banking system, while negative for all non-precious metals-based commodities, may be just the gift that all those patient gold (and silver) investors have been waiting for.  This of course, excludes the impact of what the bursting of the Chinese credit bubble would do to faith in the globalized, debt-driven status quo. Add that into the picture, and into the future demand for gold, and suddenly things get really exciting.

So if tens of thousands of tons of copper and aluminum are suddenly "missing", one can assuredly say: "at least the gold is still there." Right?

 

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Wed, 06/04/2014 - 09:25 | 4822787 NoDebt
NoDebt's picture

SHOCKER!  I'm stunned.  "Nobody could have predicted this."

Wed, 06/04/2014 - 09:26 | 4822799 Bunker Boy
Bunker Boy's picture

This should be fun.

Wed, 06/04/2014 - 09:34 | 4822841 smlbizman
smlbizman's picture

so let me get this straight.....no supply equals lower prices....

Wed, 06/04/2014 - 09:36 | 4822858 _ConanTheLibert...
_ConanTheLibertarian_'s picture

Yeah makes perfect sense.

/s

Wed, 06/04/2014 - 09:40 | 4822874 MillionDollarBonus_
MillionDollarBonus_'s picture

Big deal. Most people don't want physical delivery. Only doomer golbugz and a few end users are obsessed with getting the 'physical' metal - settling in cash is sufficient for 90% of market participants.

Wed, 06/04/2014 - 09:43 | 4822882 Harlequin001
Harlequin001's picture

Absolutely, No where are my paper apples...

Now, if I could only work out how to make a new door for my car out of, well, cash...

I know, paper mache, that should be perfectly good enough eh MDB?

Wed, 06/04/2014 - 09:45 | 4822895 nope-1004
nope-1004's picture

I agree.  Bought a corvette the other day.  GM gave me an IOU.  #Happy  #WhoNeedsTheRealThing

Wed, 06/04/2014 - 09:49 | 4822925 MillionDollarBonus_
MillionDollarBonus_'s picture

Derivatives exist for the purposes of hedging and speculation. They are financial instruments. Physical backing is optional and not important for most market participants, so you are blowing this way out of proportion. What's the difference between getting $1m worth of copper or $1m dollars in cash? If the end user wants the copper they can just purchase it with the cash - problem solved!

Wed, 06/04/2014 - 09:54 | 4822948 dryam
dryam's picture

As Chris Martenson nicely sums up what wealth and money are.......There are 3 main types of wealth.  Primary wealth which consists of real productive things such as oil wells, productive farmland, fisheries, mines, etc.  There is secondary wealth which are the byproducts of primary wealth such as oil, fish, the commodities which come frome mines.  Lastly, there is tertiary wealth which consists of things such as stocks, bonds, etc.  Tertiary wealth is simply a claim on the first two types of wealth.  The current system is diverging with contracting primary & secondary sources of wealth, and expanding forms of tertiary wealth.

Problem not solved, problem worsening & headed for a crash.

 

http://www.peakprosperity.com/crashcourse

Wed, 06/04/2014 - 09:55 | 4822962 BaBaBouy
BaBaBouy's picture

YES .... And How About @ The FED ??????????

All THAT GOLD That Should Be There But Is Not ??????

How About That?

Wed, 06/04/2014 - 09:57 | 4822975 dryam
dryam's picture

MBD already knows what I wrote.  He's just here on ZH to spew forth his (the FED's, banks's, etc.) propaganda.

Wed, 06/04/2014 - 09:59 | 4822980 ParkAveFlasher
ParkAveFlasher's picture

I'm sure all that copper and aluminum went into fine crafts that the pigs can now float themselves down the river in.

Wed, 06/04/2014 - 10:02 | 4822997 Vampyroteuthis ...
Vampyroteuthis infernalis's picture

Would the Chinese banksters lie? Just like banksters everywhere. The Minsky Moment is here for the failed commie state.

Wed, 06/04/2014 - 10:18 | 4823061 Never One Roach
Never One Roach's picture

<< "there is a discrepancy in metal that should be there and metal that is actually there." >>

 

A real Thriller despite being a recurring theme in today's Potemkin Markets.

Wed, 06/04/2014 - 10:32 | 4823106 gh0atrider
gh0atrider's picture

This is just another stunning example of why only a fool in 2014 would be invested in commodities.  All of the inventories are fake.  Every graph, every chart, everything.... fake.

With Bitcoin everyone on Earth sees exactly how much is in your wallet.  It is validated and cannot be faked.

Wed, 06/04/2014 - 10:46 | 4823159 BrosephStiglitz
BrosephStiglitz's picture

I don't think the technology has existed long enough to make that claim.  If there is any vulnerability in the system someone somewhere will figure out a way to exploit it.

I'm not bashing Bitcoin, I was in the market until yesterday afternoon.  Might buy back in tomorrow during the Asian market open.  But that doesn't mean it is completely immune to market distortions.

Wed, 06/04/2014 - 10:56 | 4823185 Save_America1st
Save_America1st's picture

So lemme get this straight...

phyzz DOES matter?  You mean, you can't just have empy warehouses full of paper and lies with no actual metal and be considered legitimate? 

I'm sure blood is shooting out of Bill Murphy's eyes over at GATA after reading this!

So after this "audit" is complete, I'm thinkin' we should also have full audits of the bullion bank vaults, the Crimex vaults, the Federal Reserve vaults, and last but not least...a full audit of Fort Knox.

I mean, if fundamentals are actually going to matter for the Chinese all of sudden when it comes to accuracy in how much aluminum and copper they have then it's only fair we have accurate audits of how much phyzz gold and silver we have here in the U.S.

 

Wed, 06/04/2014 - 10:58 | 4823196 Badabing
Badabing's picture

@Billion dollar blowjob

Big deal. Most people don't want physical delivery. Only doomer golbugz…………….I’m a Dick….”

Idiot this is copper and aluminum without delivery all industrial production stops.

Did you hear the one about the banker turn farmer? He’s growing paper corn!

 

This post is for the ZH’rs that take you seriously!  

 

Wed, 06/04/2014 - 11:18 | 4823270 svayambhu108
svayambhu108's picture

China scrambling a few eggs.

Wed, 06/04/2014 - 12:06 | 4823465 Beam Me Up Scotty
Beam Me Up Scotty's picture

"With Bitcoin everyone on Earth sees exactly how much is in your wallet"

And therein lies the problem.  Good luck losing it in a boating accident.

 

Knock, Knock......we know you have wealth.....GIVE IT TO US.....NOW!!

Wed, 06/04/2014 - 12:16 | 4823504 DoChenRollingBearing
DoChenRollingBearing's picture

There are ways, not too complicated, where you can acquire BTC as well as cover your trail.

1) Buy BTC for cash

2) Use bitmixer.io and/or sharedcoin.com

3) Have multiple wallets

Only the NSA could track all that down...

Wed, 06/04/2014 - 12:24 | 4823537 Say What Again
Say What Again's picture

Off Topic, but...

 

Did NASD break?!?!?!?

 

No access to trade server

Wed, 06/04/2014 - 12:35 | 4823574 Beam Me Up Scotty
Beam Me Up Scotty's picture

"Only the NSA could track all that down..."

Thats the problem in my opinion, lol.  Not against bitcoin, it certainly has its utility.  Its just not something I find useful if TSHTF.  Maybe it would be great right before the shit flies though.

Wed, 06/04/2014 - 19:20 | 4825006 A82EBA
A82EBA's picture

gold doesn't disappear when the lights go out

Thu, 06/05/2014 - 01:19 | 4825823 AldousHuxley
AldousHuxley's picture

By 1905, the ROTHSCHILD interest in RIO TINTO amounted to more than 30 percent. 

 

World's largest mining co for copper and aluminum

Wed, 06/04/2014 - 22:02 | 4825458 strannick
strannick's picture

 


Vote up!

0
Vote down!

0

Seems having all these unbacked claims for limited supplies of metals

Wed, 06/04/2014 - 11:00 | 4823202 Manthong
Manthong's picture

WTF?  Do they think they are special or something?

.. that there is actually anything there to back their paper?

Wed, 06/04/2014 - 11:15 | 4823260 Son of Loki
Son of Loki's picture

"If you don't hold it, you don't own it."

...and one of the corollaries:

"If you don't hold it, it ain't there."

Odd how some peeples don't see that at this late stage in the game after all the Fraud they have seen on Wall Street and across the Globe. Why do you think Indians and Chinese buy phyzzical silver, gold, and so on.....

Hundreds of years of history and learning there.

Wed, 06/04/2014 - 21:31 | 4825358 BrokusDickusMaximus
BrokusDickusMaximus's picture

Let me get this straight. Chavez got Venezuela's 200 tons from England because he came with a ship and got it. The US Fed told Germany we'll give it up in dribs and drabs. Austria just wants to look at their gold held in England. Who exactly has their hands on the phyzz gold? Some say Ft. Knox is empty. What happened to the gold held at WTC towers when they fell? Where are the gold bars? I'm thinking it's in Asia.

Wed, 06/04/2014 - 10:57 | 4823188 THX 1178
THX 1178's picture

Only a matter of time before the same happens with gold and silver. Then the comex and lbma are dunfer.

Thu, 06/05/2014 - 01:30 | 4825845 Manthong
Manthong's picture

Don’t forget ABN Amro and Rabobank..

The run on them followed our happy delivery news to Germany and that is what kicked off the vicious gold suppression by the Central Banks.

Chavez got his just in time and was probably the last.

Wed, 06/04/2014 - 10:49 | 4823165 THX 1178
THX 1178's picture

No supply equals lower prices? No.

Low supply equals lower paper prices.

Wed, 06/04/2014 - 19:13 | 4824984 FinalEvent
FinalEvent's picture

And more important, we know exactly how much there is and there will ever be.

 

Wed, 06/04/2014 - 19:18 | 4824998 thisisjustarand...
thisisjustarandomusernameicreatedforzerohedge's picture

yup

this is a great article, BTW, Zero Hedge

 

recently I have been quite critical of the China articles here, bordering on sounding like a 'defense squad' or 'apologist' despite my attempts to just be critical of sensationalism

 

so I just wanted to say that any time I've been critical of recenty ZH articles on China, it was PRECISELY because THIS is the type of article I know this website can feature, and this is exactly what I come here for. so I just wanted to give some kudos.

Wed, 06/04/2014 - 22:03 | 4825465 Lionhearted
Lionhearted's picture

Can you fake real gold? No. But you can fake things made out of nothing that represent real things all day long (See any kind of paper that represents wealth). So I will take my real gold over your fantasy paper any day of the week. In the end I can convert my REAL pms into dollars, bitcoins or what ever else I want, today, tomorrow or anytime in the future. I am building my own gold standard.

Thu, 06/05/2014 - 17:34 | 4828138 FinalEvent
FinalEvent's picture

Yes you can fake gold.

You can gold plate tungsten.

Also, nobody knows for sure how much gold there is. It is always an estimate and the one who is able to hide the biggest stack wins!

Thu, 06/05/2014 - 01:24 | 4825836 TheReplacement
TheReplacement's picture

Can't be faked?!?  What exactly happened at Mt. Gox?

Thu, 06/05/2014 - 17:35 | 4828140 FinalEvent
FinalEvent's picture

If you don't hold it, you don't own it.

Goldbugs should know better...

Wed, 06/04/2014 - 10:39 | 4823131 Mesquite
Mesquite's picture

But the difference, in China, the banksters, if found guilty, will get more than just a fine.. (As I'm sure many already know...)

Wed, 06/04/2014 - 20:09 | 4825148 thestarl
thestarl's picture

The bankers are only an extension of the party in China,let them face the music.

Wed, 06/04/2014 - 10:00 | 4822954 BaBaBouy
BaBaBouy's picture

.

Wed, 06/04/2014 - 14:09 | 4823901 gafgroocK
gafgroocK's picture

 

 

 

Only problem I see is for the Bankers, the ones to be rounded up and Shot next week when the investigation is 'complete'

Wed, 06/04/2014 - 09:53 | 4822956 nope-1004
nope-1004's picture

The point of the article is that.... they already did purchase the copper!  And it's gone!

 

Wed, 06/04/2014 - 10:21 | 4823078 Peter Pan
Peter Pan's picture

It's the same with banks. People think there money is there but in reality it isn't.

Wed, 06/04/2014 - 22:08 | 4825483 Lionhearted
Lionhearted's picture

The currency may be in the bank and the amount of dollars is the same as it was yesterday but it's value is going down quickly. BTW the gov can reach in anytime they want and take it.

Wed, 06/04/2014 - 11:13 | 4823255 PT
PT's picture

Rehypothecated copper that isn't there? Doesn't that mean a scramble for phys?  Doesn't that mean prices go up?  Or was the rehypothecated copper purely used as collateral for loans?  And now the loans are non-performing, the copper gets repossessed, the banks are left with an over-supply and the price goes down?  Except for that magic word, "rehypothecated", which means the copper isn't there so there is no over-supply.  Someone just has to sort out all the IOUs, net them out and then eventually someone is owed some copper which may or may not be there ... ummm, maybe I'd better read the article again.

Wed, 06/04/2014 - 16:40 | 4824496 mkkby
mkkby's picture

Another nothing burger.  All bread and no meat.

So some chink banks will be even more insolvent than before.  Nothing another POMO can't solve.  BTFD and wait for the real event. 

Real event comes after most of the EU countries, Japan and UK "go Greece".  Then there will be a flight from the dollar.  We be f***ed.

Wed, 06/04/2014 - 19:23 | 4825014 11b40
11b40's picture

Let me know when you get it figured out.

Wed, 06/04/2014 - 23:22 | 4825655 PT
PT's picture

Ditto.  Maybe I'm not reading hard enough.

Didn't the Squid have a nice big stash of Al in some dead city somewhere? Actually, I think they got rid of it a year or so ago but it had to go somewhere.

Thu, 06/05/2014 - 01:01 | 4825805 conscious being
conscious being's picture

Demand for copper had two sources, traditional wire, electronics, etc. and as loan colateral for dodgey enterprises.  Now, the component of demand for copper as loan colateral has collapsed due to fraud exposure (RehypoMagic). That function/utility of copper in China is on it's way out.  Demand falls price falls.  TD points out PMs expected to react differently.

 

 

Wed, 06/04/2014 - 09:55 | 4822967 NoDebt
NoDebt's picture

MDB.... Yeah, that's very funny, but there's one problem with your sarcasm this time- THERE AIN'T NO CASH, EITHER.  There ain't nothin' to settle up WITH.  No metal, no cash, just empty promises, an empty warehouse and a slip of paper.

Wed, 06/04/2014 - 10:03 | 4823005 Vampyroteuthis ...
Vampyroteuthis infernalis's picture

Don't feed the MSM troll!

Wed, 06/04/2014 - 10:13 | 4823037 NoDebt
NoDebt's picture

He's not a troll.  He's hysterically funny.  But when he doesn't get it exactly 180* opposite of reality (which is always his goal), I feel compelled to correct him.

Besides, you would prefer Satoshi back instead?  No thanks.  Compared to those other schmucks, MDB is GOLD.  (Rehypothecated gold, but gold nonetheless).

I didn't get it at first, either, but I've warmed up to it.

Wed, 06/04/2014 - 10:49 | 4823166 MeMongo
MeMongo's picture

I agree nodebt, but I down vote him most of the time anyway! MDB reminds Mongo of a kid he went to school with. This kid would constantly fight with others and intentionally get his ass kicked, why? Mongo's no psychiatrist so he can't really say why! Point is MBD just really seems like he enjoys a good beatin!

Wed, 06/04/2014 - 13:49 | 4823810 Overfed
Overfed's picture

I can never decide whether to upvote him for being hilarious, or downvote him because it would make sense since his posts are like opposite day.

Wed, 06/04/2014 - 14:00 | 4823871 WmMcK
WmMcK's picture

Sadistic?

Thu, 06/05/2014 - 13:57 | 4827443 Tall Tom
Tall Tom's picture

No. Masochistic. Sadists enjoy giving others pain. Masochists enjoy receiving pain.

Wed, 06/04/2014 - 11:26 | 4823291 PT
PT's picture

No, that's the trouble, he's not funny enough.  He's too dry and that is why only a few people get it.  It's too easy to mistake him for people who really are that dumb.

Wed, 06/04/2014 - 22:14 | 4825506 RafterManFMJ
RafterManFMJ's picture

What kind of a man places the burden of comprehension not on the drooling reader but on the humorist for his being 'too dry?'

Nobody ever went broke underestimating the intelligence of the American public. - H. L. Mencken

PS I still up voted ya, because reasons.

Wed, 06/04/2014 - 23:55 | 4825710 PT
PT's picture

Plenty of magazine articles, newspapers and TV shows sound exactly like MDB and I don't laugh at them either.  I simply don't watch/read them.  The entertainment value is not there (for me).  I think MDB's main claim to entertainment for you is the bold juxtaposition of MSM tripe in a ZH environment.

Okay, maybe MDB is love child of MSM propaganda mated with one too many motivational seminars.  That's as much leeway as I can give you.

Thu, 06/05/2014 - 00:05 | 4825721 PT
PT's picture

Whoops, double post.  It might even end up as a triple.  If ever I go into business, I don't think I'll use computers.  Mine really are THAT unreliable.

While I'm here, RafterManFMJ:  If you think MDB is entertaining, perhaps you should try an Amway / Qixtar seminar.  Not to my taste but I think you'll find them a hoot!

Wed, 06/04/2014 - 12:43 | 4823594 Kirk2NCC1701
Kirk2NCC1701's picture

MDB and Krugman are fictional bloggers (stealth Tylers), whose sole purpose is to cause a massive response, which helps site stats.

Questions?  Here all week.  Try the salad bar.

Wed, 06/04/2014 - 21:23 | 4825340 prains
prains's picture

MDG (Goober) is the phalanx of stoopidity, intentional or not, the propogation of ignorance stopped being funny when people were herded to a wall and shot.

Wed, 06/04/2014 - 10:05 | 4823013 Ozy_mandias
Ozy_mandias's picture

The Russians and the Chinese have their brightest people advising them to stack like crazy because they like the smell. No other reason. It is the only possible logical scenario. I'm glad they haven't hired you to advise them MDB then we'd really be screwed!

Wed, 06/04/2014 - 10:18 | 4823036 BrosephStiglitz
BrosephStiglitz's picture

Hm.  Gee, let me think about that for a second?

If that physical supply doesn't exist anywhere but on paper then the price of the underlying commodity won't be 1mil.  It will be substantially higher.  Plus the whole system assumes that the market has decent volume and the underlying isn't supply inelastic.

You know.. supply inelastic like when a bunch of "doomer goldbugz" are willing to ride the financial pricing of commodity markets into the ground because they have lost faith in the currency system and the "market" pricing mechanism?

Fuck you and your million dollar bonus.  You can keep it.  I'll keep my physical.

Edit:  Oh and also, I should mention.. the representatives here are a minute fraction of the Anglosphere who have read up on this.  You know we're just the tip of the iceberg right?  The real goldbugs are in India, China, Turkey, Russia, Argentina, The Middle East, pretty much anywhere that has faced currency, or political instability in the last 50 years and doesn't have a senile population.

Wed, 06/04/2014 - 10:13 | 4823049 Ban KKiller
Ban KKiller's picture

IF, a big IF, the phizz is there, right? What? It is not there? Oh...well send me paper. Financial instruments only work when honesty is involved. 

Wed, 06/04/2014 - 11:46 | 4823380 maxblockm
maxblockm's picture

I think this is your best post yet MDB_ 

 

"What's the difference between getting $1m worth of copper or $1m dollars in cash? If the end user wants the copper they can just purchase it with the cash - problem solved!"

Wed, 06/04/2014 - 12:22 | 4823526 donsluck
donsluck's picture

Although I know MBD is being sarcastic, even that comment doesn't address the costs incurred by having to turn around and buy the commodity with cash when it should have been delivered.

Wed, 06/04/2014 - 17:06 | 4824591 Angry Plant
Angry Plant's picture

"What's the difference between getting $1m worth of copper or $1m dollars in cash? If the end user wants the copper they can just purchase it with the cash - problem solved!"

The reports ive seen indicate if you want take delivery of copper today the price is much much higher then the price if you are willing to wait three months.

The basic problem of over production in copper is being masked by the use of copper as money, But stacking thousands of tons of copper in wharehouses doesnt produce any interest for the owner like paper assets can.

The result is a basic desire to cheat and secretly try and make that copper earn interest through shady means, That results in the eventual condition of person not having the copper they claim they have but cash instead,

The jump in spot price is the result of people scrambling to aquire the actual physical copper they claim that they owned.

Wed, 06/04/2014 - 14:58 | 4824092 ebear
ebear's picture

No derivatives here, just plain vanilla loans that can't be recovered.

Here are the dots:

1. money borrowed from insurance co's, private  trusts, and the real kicker: state enterprises recycling govt. loans.

2. Against inventory that either doesn't exist, or has multiple claims.

3. Monies borrowed invested in real estate that is falling in price.

The money borrowed has already been spent.  The only receivables here are apartments that can't be sold, and half-finished projects that will not be completed.   Good luck liquidating that in a falling market.

This thing is bigger than they're telling us (isn't it always?) and will cascade into other sectors of the financial system, not to mention the real economy.  I can't prove this, but I suspect that the metals issue is just a small part of the problem, the main one being that state enterprises have lent massively into the shadow banking system without authorization.  These losses will be revealed in the coming months, and all hell will break loose.

Furthermore, China is one big earthquake away from exposing the true value of all this recent construction ie. the land its sitting on, less the demolition cost.

In 1985 Mexico city suffered a major earthquake in which many govt. housing projects collapsed while others were rendered unsafe and had to be demolished. Given that corruption in China is at comparable levels to Mexico, I ask a simple question:

How much rebar is in these new buildings, and what is the quality of the concrete used?

 

 

 

Wed, 06/04/2014 - 21:43 | 4825395 BringOnTheAsteroid
BringOnTheAsteroid's picture

I think you miss the point you dill. The whole point is when the user goes to purchase the copper with their cash the copper ISN"T NECESSARILY THERE ! ! ! 

If you think a system where there are more claims on assets than there are assets is fine, you really are a rung short of a ladder. If it's fine then what level of claims over non existant assets is acceptable, 10%, 20%, 100%, 1,000%, 1,000,000%?

Anyone would think you a Steve Liesman.

Thu, 06/05/2014 - 05:23 | 4825971 ebear
ebear's picture

"...a system where there are more claims on assets than there are assets..."

Fractional Reserve Mining


Thu, 06/05/2014 - 03:56 | 4825939 OldPhart
OldPhart's picture

My compliments MDB, you're good at this shit.

Dear China,

Welcome to Crony Capitalism, bitchezz

 

P.S.  You have our sympathy...you shouldn't have to go through this shit.

 

(nor should we.)

Wed, 06/04/2014 - 10:13 | 4822886 nope-1004
nope-1004's picture

Another day, another financial scam unearthed.  Not surprising when the foundation of the system is a ponzi.

 

Wed, 06/04/2014 - 11:56 | 4823430 silverserfer
silverserfer's picture

Yeah, this is China were talking about. It happens every Tuesday there I thought? 

Record the day's events from skycam, replay the days events at x3 speed and some Benny Hill and it will all make perfect sense.

Thu, 06/05/2014 - 04:01 | 4825942 OldPhart
OldPhart's picture

for the ignoratti

<iframe width="960" height="720" src="//www.youtube.com/embed/x5sQL7q_IOI?rel=0" frameborder="0" allowfullscreen></iframe>

Greatest show on earth...back in the 80's...this is what FOX cut it's teeth on.

https://www.youtube.com/watch?v=jiWkNjCef64

 

Wed, 06/04/2014 - 10:20 | 4823069 Puncher75
Puncher75's picture

Yeah!!!!  Only dummies want real stuff.  What fools!!

Wed, 06/04/2014 - 11:47 | 4823384 waterwitch
waterwitch's picture

Long paper lead. /s

Wed, 06/04/2014 - 10:28 | 4823092 Goldenballs
Goldenballs's picture

Obviously the world economy is doing so well because commodities are being actually sold not just staying in the same place being continually speculated on or in China,s case a cardboard cutout is being speculated on.Too bad thats all the banks own they have a big enough worthless paper problem as it is.

 

MDB what a jerk.

Wed, 06/04/2014 - 10:46 | 4823137 Aaaarghh
Aaaarghh's picture

@ mdb

 

knob

 

 

 

thnx

Wed, 06/04/2014 - 11:11 | 4823232 MFL8240
MFL8240's picture

Have they figured a way to make Aluminum Foil or Copper wire with paper that I am unaware of? Thats the only way the price could drop on this news.

Wed, 06/04/2014 - 14:12 | 4823911 Freewheelin Franklin
Freewheelin Franklin's picture

Just the other day, i bought my wife a necklace made out of paper. i told her, but dear, it's backed by real gold. She then proceeded to tear it up and set fire to it. Needless to say, I did not get a hummer that night. 

Wed, 06/04/2014 - 22:17 | 4825517 RafterManFMJ
RafterManFMJ's picture

They quit making Hummers years ago, dumbass.

Thu, 06/05/2014 - 00:11 | 4825743 Renfield
Renfield's picture

A hummer. Not a Hummer. Biiiig difference. ;-)

Thu, 06/05/2014 - 03:05 | 4825913 Captain Benny
Captain Benny's picture

Not if you're Asian... :P 

Wed, 06/04/2014 - 21:12 | 4825307 Buck Johnson
Buck Johnson's picture

Yea like Germany wanting their gold.

Wed, 06/04/2014 - 12:58 | 4823638 tdogg
tdogg's picture

No more yanky my wanky.  The donger need food!

https://www.youtube.com/watch?v=7HO57oMHTcw

Wed, 06/04/2014 - 13:12 | 4823672 Kirk2NCC1701
Kirk2NCC1701's picture

Tyler: "...may be just the gift that all those patient gold (and silver) investors have been waiting for".

Let's get this straight... Is Gold "real money, i.e. a "Store of Value", or just another commodity on which you speculate for more bits of fiat currency?  Which is it, Tyler?

In my case, having learned the hard way (from taking ZH advice since Summer 2012), gold is dangerous for speculation.  At best, it's a long-term "store of value" -- cause it sure as hell isn't a hedge against fiat currency creation (QE), contrary to what ZH and others have proclaimed for a very long time.  Gold prices vs Money Supply decoupled with manipulation, which we should've seen coming, but didn't.

History (since Fall 2012) has shown gold investor & speculators alike, that TPTB have used QE in part to smash & control gold prices.  Had we been as smart and devious as TPTB were/are, we would have anticipated this, instead of being victims of their gold price manipulation.

So, until proven otherwise, I predict once again (and have been saying for the last 13 months), that gold prices will continue to be "managed" (manipulated!), and will keep bouncing in predefined channels of the sideways market that TPTB control.  Speculate or BTFD accordingly. 

p.s. Brokers, agents and bullion shop owners make their margins as long as there is ACTIVITY, no matter the 'price'.  Just so we're clear about their motives and biz models also.

Wed, 06/04/2014 - 20:57 | 4825276 sledge2k
sledge2k's picture

If you've been speclating in gold then you havent really been taking ZH's advice, in my opinion.  Fiat currency is a long con, you need to plan accordingly.

Could you have put a bunch of money in cash and waited for the price to drop?  Absolutely, in hindsight, that strategy would have netted you more metal.  But that strategy works until it doesn't.

Gold is the kind of party that I'd rather be several hours early for than one minute late.

Thu, 06/05/2014 - 01:20 | 4825829 conscious being
conscious being's picture

Kirk go back and look at what was going on from around the time you went into reruns until Volker stopped the party.  Similar roller coaster ride going on now, but no major new energy North Slope, North Sea this time around means no Volker either.

Re. Btc. infinite copies is the obvious, obvious flaw, lite coin, zero coin, etc.

Wed, 06/04/2014 - 21:19 | 4825330 SILVERGEDDON
SILVERGEDDON's picture

Ho Li Fuk.

Sum Ting Wong.

Shi Al Gong.

Fu Kin Tief.

Ban Kin Win Hi.  

Wed, 06/04/2014 - 23:39 | 4825682 THX 1178
THX 1178's picture

Ban Ki Win?

Wait fo Soon.

Ban ka wi dai

hang ing off lamp post.

Wed, 06/04/2014 - 09:37 | 4822860 _ConanTheLibert...
_ConanTheLibertarian_'s picture

double post

Wed, 06/04/2014 - 09:39 | 4822864 nope-1004
nope-1004's picture

Yes, that's El Iranians "new normal".  See, when things don't go your way and you get caught stealing, the opposite of the natural laws of nature occurs.

Wed, 06/04/2014 - 09:53 | 4822949 dontgoforit
dontgoforit's picture

In China heads will literally roll.

Wed, 06/04/2014 - 10:25 | 4823091 Alpo for Granny
Alpo for Granny's picture

In the US, those heads will move into the top regulatory positions at the SEC, CFTC, etc.

Wed, 06/04/2014 - 15:22 | 4824176 tenpanhandle
tenpanhandle's picture

Well you know the old saying "takes a crook to catch a crook".  Well since these - cough, cough - regulatory agencies have no intention of catching crooks then they are following the even older dictum of "takes a crook to be a crook". 

Wed, 06/04/2014 - 10:44 | 4823150 Mesquite
Mesquite's picture

Future organ donors...  :-)

 

Wed, 06/04/2014 - 11:59 | 4823444 silverserfer
silverserfer's picture

Unfortunatly the heads will probably make their way into baby food in China or some dog food here in the US.

Wed, 06/04/2014 - 09:40 | 4822876 SWCroaker
SWCroaker's picture

... and presumably the "over supply" due to rehypotication and selling the same stuff multiple times meant....  lower prices.     Sux to deal in anything but paper.

Wed, 06/04/2014 - 09:46 | 4822912 They_Live
They_Live's picture

Lower paper prices, yes.

Wed, 06/04/2014 - 10:55 | 4823182 MrBoompi
MrBoompi's picture

Exactly.  A rational person would think "missing" metal would end up being bullish on the price.  But in the upside down world of futures and derivatives, it's bearish?  Just another example of how actual physical commodities, ie supply and demand, have nothing to do with price in this fucking manipulated world.

Wed, 06/04/2014 - 20:20 | 4825185 Tall Tom
Tall Tom's picture

so let me get this straight.....no supply equals lower prices....

 

What is the value of an unenforceable contract?  ZERO.

 

The price of Copper, Aluminium, Iron, Gold and Silver, etc... are prices for CONTRACTS...NOT THE PHYSICAL METAL.

 

If there is fraud rampant in the CONTRACTS then who wants the damned contract? The DEMAND for CONTRACTS decrease which leads to a decline in price FOR THE CONTRACT.

Thu, 06/05/2014 - 03:11 | 4825916 1C3-N1N3
1C3-N1N3's picture

This. Thank you.

Wed, 06/04/2014 - 10:01 | 4822986 Da Yooper
Da Yooper's picture

Wana bet heads will roll

literly

when this is sorted out

Wed, 06/04/2014 - 20:13 | 4825159 mt paul
mt paul's picture

Chinese alchemist

turn copper into titanium ...

 

gold reserves increase 100x overnight

Wed, 06/04/2014 - 09:34 | 4822843 CPL
CPL's picture

 ...and it's gone.  Ta da!

Wed, 06/04/2014 - 10:07 | 4823030 ParkAveFlasher
ParkAveFlasher's picture

Assetio ... REHYPOTHECATUM!  [waves wand in circle]  [poof!]

Wed, 06/04/2014 - 10:02 | 4822999 doctor10
doctor10's picture

The Teamsters have a branch in China? Who'd a thunk!!

Wed, 06/04/2014 - 10:39 | 4823133 john39
john39's picture

teamsters are pikers compared to the triads

Wed, 06/04/2014 - 15:26 | 4824207 tenpanhandle
tenpanhandle's picture

You'll find teamsters everywhere a corrupt buck can be made.

Wed, 06/04/2014 - 11:52 | 4823410 OldPhart
OldPhart's picture

Oh, for the days when stocks went up, gold went down.  Gold up, stocks down.

It's getting to where backwardsation is the norm.

I wonder, if the market ever gets back to reality, if any of us could remember how it's expected to function.

Wed, 06/04/2014 - 11:53 | 4823419 disabledvet
disabledvet's picture

Actually...unless you've been calling for a major price correction in physical (no one here did) then yeah....SURPRISE COCKFAG!

Wed, 06/04/2014 - 13:04 | 4823654 JLee2027
JLee2027's picture

Probably lost it all in the pollution. Don't worry, it will turn up when the fog lifts.

Wed, 06/04/2014 - 15:13 | 4824149 Jannn
Jannn's picture

Too bad Zero Hedge didn't understand gold "round tripping" in the first place. I wonder if they do now...

http://www.ingoldwetrust.ch/the-round-tripping-myth-and-why-it-doesnt-hu...

Wed, 06/04/2014 - 19:10 | 4824972 villainvomit
villainvomit's picture

ruh ro !

Wed, 06/04/2014 - 22:04 | 4825471 KnuckleDragger-X
KnuckleDragger-X's picture

Rehypothecatedis so much more official sounding than fairy tale.

Wed, 06/04/2014 - 09:28 | 4822792 CHX
CHX's picture

Just wait and see, the same phenomenon will happen to illusionary, nonexistent PMs, like fractional Au. Phyzz, bitches.

Wed, 06/04/2014 - 09:26 | 4822795 Bryan
Bryan's picture

What they need are some derivatives of copper derivatives to assure them that their paper copper holdings are held by solid, paper-holding derivative companies!

Wed, 06/04/2014 - 11:58 | 4823439 disabledvet
disabledvet's picture

Really? Actually what they need are products that are cost competitive...and those are usually products that contain zero copper, gold, silver and aluminum.

A hell of a lot of oil and natural gas though.

And the USA has infinity energy (once you factor in coal, nuclear and wind.)

Plagiarism works two ways in this world...this who copy and "cheap"...and those who create and monetize.

Wed, 06/04/2014 - 12:25 | 4823544 donsluck
donsluck's picture

Infinite energy, if you consider people don't REALLY have to breath, drink (water) or reproduce.

Wed, 06/04/2014 - 15:36 | 4824259 tenpanhandle
tenpanhandle's picture

@Bryan: "What they need are some derivatives of copper derivatives to assure them that their paper copper holdings are held by solid, paper-holding derivative companies!"

 

You can be sure they aleady have those plus derivatives on derivatives of those.   All fiat must be borrowed or backed into existance, even if borrowed or backed by nothing (fake collateral for fake assets).  Considering how much fiat of all nationalities is washing over the World these days,  derivatives to the 10th power must be so.

Thu, 06/05/2014 - 01:28 | 4825843 conscious being
conscious being's picture

This sureity built on sureity, to try to be sure ... it's like the Tower of Babel.

Wed, 06/04/2014 - 09:25 | 4822796 JustObserving
JustObserving's picture

All the rehypothecated gold and silver in the West will have no effect on their prices - the Fed says so.

Wed, 06/04/2014 - 09:31 | 4822821 BurningFuld
BurningFuld's picture

Yes and if they find out that 20,000 tons of Gold aren't there then the price of Gold will surely collapse.

 

Copper is not there so price goes down???? Is it not fun to live on backwards planet Earth.

Wed, 06/04/2014 - 09:41 | 4822877 cynicalskeptic
cynicalskeptic's picture

Welcome to BIZZAROWORLD..... and you didn't even know you were here

Wed, 06/04/2014 - 09:53 | 4822955 dontgoforit
dontgoforit's picture

True; but the stawk market will soar.

Wed, 06/04/2014 - 11:57 | 4823425 ForWhomTheTollBuilds
ForWhomTheTollBuilds's picture

The more I see, the more it looks like the Freegold movement is going to be proven right about this detail of their thesis.  

 

When the comex defaults, the paper contracts it trades will fall to a value of $0 and since they are by definition the price of gold, then gold will fall to $0 as well before we find out the new price in the physical markets.

 

I suppose another way of looking at it is that anything that in isolation threatens to bring down the big banks is extremely deflationary in nature and so commodity prices are reflecting that.  Or maybe the bad actors are being forced to sell whatever small amounts of physical copper they do have in a panic to stave off their inevitable insolvency for just one more day...

 

Whatever the reason, this is the proof you want to have some good old paper money on hand during the final days of our system.  Nothing will be more worthless than tangible assets like gold, land, fuel and food during the period of time the system of leveraged paper convulses in violent death.  Anyone with the courage/sense to aquire these items during that time will do relatively well.

Wed, 06/04/2014 - 12:28 | 4823553 donsluck
donsluck's picture

True. The problem is our weak command of language. Cash used to mean physical currency. Now it's been diluted to mean MM deposits at a brokerage.

Wed, 06/04/2014 - 09:26 | 4822797 Luckhasit
Luckhasit's picture

Are they sure JPM didn't just move it to another warehouse?

Wed, 06/04/2014 - 09:31 | 4822819 pob
pob's picture

Yer its called the Shadow warehouse

Wed, 06/04/2014 - 09:42 | 4822881 nope-1004
nope-1004's picture

I doubt it, because Blythe said on TV, in front of millions, that JPM only trades to hedge client positions.  She was ademant that they are only a market clearing facility, so their actions are totally above board.

/dumb-da-dumb-dumb

 

Wed, 06/04/2014 - 09:54 | 4822957 dontgoforit
dontgoforit's picture

Over there they cook their books in a wok.

Wed, 06/04/2014 - 10:39 | 4823132 Proofreder
Proofreder's picture

Right !

Wok and Woll Over

Fall Down, Dead.

Wed, 06/04/2014 - 09:36 | 4822823 NoDebt
NoDebt's picture

That's what I was thinking.  Inspectors come in the morning and go through a warehouse... everything accounted for.  The warehouse owner takes the inspectors out for a 3-Martini Lunch while the forklifts scramble to move everything to the next warehouse down the dock for the afternoon inspection.

Wed, 06/04/2014 - 10:59 | 4823198 Winston Churchill
Winston Churchill's picture

Used to work for the cookie cutter builders down here in Florida.

I know a lot of houses with no rebar, CB(S) specials.

Wed, 06/04/2014 - 09:26 | 4822800 Savvy
Savvy's picture

Isn't this what happened to Japan in the 90s with oil and brought their economy to it's knees?

Wed, 06/04/2014 - 09:32 | 4822829 NoDebt
NoDebt's picture

No.

Wed, 06/04/2014 - 12:02 | 4823456 disabledvet
disabledvet's picture

Yeah actually. There was a massive buildup of warehousing in copper...the position was WAY overextended, the price collapsed...and then the price REALLY collapsed once this one dude discovered he had amassed millions in tons of copper that was worthless.

Wed, 06/04/2014 - 09:27 | 4822801 ms8172
ms8172's picture

Bearish for metals???

Wed, 06/04/2014 - 09:30 | 4822817 White Owl
White Owl's picture

More like bullish. Less physical = panic prices

Wed, 06/04/2014 - 10:13 | 4823045 BlindMonkey
BlindMonkey's picture

I doubt it.  The scramble for liquidity will hit first and everything will be on sale.  Next comes the distrust and nobody can move goods because letters of credit will not be issued until the banks feel their loans are backed by something.

Wed, 06/04/2014 - 09:27 | 4822802 Cognitive Dissonance
Cognitive Dissonance's picture

Let the rehypothecated games begin.

Wed, 06/04/2014 - 09:52 | 4822944 TheFourthStooge-ing
TheFourthStooge-ing's picture

Sorry, no tickee, no aruminee.

You have tickee?

Sorry, we crosed. Come back tomorrow. You go. You go now.

Wed, 06/04/2014 - 13:50 | 4823814 WmMcK
WmMcK's picture

Bank Holiday.

Wed, 06/04/2014 - 10:33 | 4823112 Buckaroo Banzai
Buckaroo Banzai's picture

"May the metal be always in your warehouse!"

Wed, 06/04/2014 - 09:27 | 4822803 Everybodys All ...
Everybodys All American's picture

Herrro... That copper can be found in the walls of all your ghost cities.

Wed, 06/04/2014 - 09:34 | 4822839 BurningFuld
BurningFuld's picture

I'd bet they used aluminum wire. (Cheaper)

Wed, 06/04/2014 - 09:36 | 4822855 smlbizman
smlbizman's picture

than all their citys have wheels?

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