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More On China's "Missing Commodity" Scandal: Fallout Spreads As Banks Get Involved

Tyler Durden's picture




 

While we have warned about the problem with near-infinitely rehypothecated physical/funding commodities/metals, be they gold or copper, many times in the past, and most recently here, it was only yesterday that China finally admitted it has a major problem involving not just the commodities participating in funding deals - in this case copper and aluminum - but specifically their infinite rehypothecation, which usually results in the actual underlying metal mysteriously "disappearing", as in it never was there to begin with.

And disappearing commodities is exactly what we reported yesterday the third largest Chinese port of Qingdao is being investigated for after a source at a local warehouse said that "it appears there is a discrepancy in metal that should be there and metal that is actually there... 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."

This has resulted in a prompt and acute selloff of copper and other commodities as we further documents, but the problems may only now be starting and the banks, those which stand to lose the most if their "collateral" is uncovered to have never existed, are finally getting involved. As Reuters reports, worries over a probe into commodity stockpile financing at China's Qingdao port appeared to deepen on Wednesday as Standard Bank Group and a part-owned unit of Louis Dreyfus Corp warned of potential losses and copper prices fell further."

Responding to queries about the probe at Qingdao, which has not been officially confirmed, South Africa-based Standard Bank said it was "working with local authorities" to investigate potential irregularities at China's third-largest port, a major source for metal and iron ore imports.

 

"Standard Bank Group is not yet in a position to quantify any potential loss arising from these circumstances," the bank, whose Standard Bank Plc subsidiary conducts commodities trading, said in a statement.

Standard Bank is not the only one that may suffer major losses should the disappearance of rehypothecated collateral be confirmed:

Singapore-based logistics provider GKE Corporation Ltd warned shareholders that it was "assessing the potential impact" of the investigation on its GKE Metal Logistics Pte Ltd unit, a joint-venture 51 percent owned by global commodities merchant Louis Dreyfus.

While we expect many other banks to step up, for now these two are the first companies to publicly discuss the issue since the inquiry came to light on Monday, when Reuters reported the port in northeastern China had halted shipments of copper and aluminum as it launched an investigation into metal stockpiles used for collateral on loans.

To be sure Chinese authorities are in a bind: while they can't ignore the problem, a very aggressive investigation into the disappearance of collateral may result in a collapse of the entire rehypothecated house of cards, and they know it: according to Reuters, authorities at the port in northeast China have not officially confirmed an investigation, and have said exports and operations are running normally.

But earlier on Wednesday, Xinhua news agency reported that the port had said it was investigating whether iron ore warehouse receipts were fraudulently used multiple times to raise finance by different banks.

And while we have been warning about this problem for years, only now - when there is a documented case of alleged fraud - are the players finally starting to panic:

According to traders and warehousing sources, port authorities at Qingdao's Dagang wharfs have been examining whether there had been multiple issuing of receipts for single cargoes of metal tied to a trading company and linked companies.

 

The tumult has revived concerns that first surfaced in March, when China's first domestic bond default fuelled fears of further financing woes and triggered one of copper's steepest drops in years, with prices tumbling 8 percent in three days.

The immediate impact on pricing is clear, and just as we warned in March: lower.

"I think it's (copper) got more downside to go," said analyst Vivienne Lloyd at Macquarie. "That (the probe) will have the effect of making the banks extremely cautious about to whom they will issue letters of credit."

So while we are gratified that yet another event we have warned about has come to pass, what happens next is unclear.

Recall what we said in March, when we looked at the possible aftermath of a wholesale unwind of commodity funding deals:

From a commodity market perspective, financing deals create excess physical demand and tighten the physical markets, using part of the profits from the CNY/USD interest rate differential to pay to hold the physical commodity. While commodity financing deals are usually neutral in terms of their commodity position owing to an offsetting commodity futures hedge, the impact of the purchasing of the physical commodity on the physical market is likely to be larger than the impact of the selling of the commodity futures on the futures market. This reflects the fact that physical inventory is much smaller than the open interest in the futures market. As well as placing upward pressure on the physical price, Chinese commodity financing deals ‘tighten’ the spread between the physical commodity price and the futures price.

 

... 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.

Indeed as an unknown number of deals have begun unwinding, lower commodity prices is precisely what we have seen, just as predicted. But like in March, there is a footnote, one which pertains to a specific subject of Chinese funding deals: namely those which use gold, which as we showed before...

... is the metal most widely used in terms of notional to provide "metallic" funding.

We agree that this may indeed be the case for "simple" commodities like copper and iron ore, however when it comes to gold, we disagree, for the simple reason that it was in 2013, the year when Chinese physical buying hit an all time record, be it for CCFD purposes as suggested here, or otherwise, the price of gold tumbled by some 30%! In other words, it is beyond a doubt that the year in which gold-backed funding deals rose to an all time high, gold tumbled. To be sure this was not due to the surge in demand for Chinese (and global) physical. If anything, it was due to the "hedged" gold selling by China in the "paper", futures market.

 

And here we see precisely the power of the paper market, where it is not only China which was selling specifically to keep the price of the physical gold it was buying with reckless abandon flat or declining, but also central and commercial bank manipulation, which from a "conspiracy theory" is now an admitted fact by the highest echelons of the statist regime. and not to mention market regulators themselves.

 

Which answers question two: we now know that of all speculated entities who may have been selling paper gold (since one can and does create naked short positions out of thin air), it was likely none other than China which was most responsible for the tumble in price in gold in 2013 - a year in which it, and its billionaire citizens, also bought a record amount of physical gold (much of its for personal use of course - just check out those overflowing private gold vaults in Shanghai.

 

* * *

 

This brings us to the speculative conclusion of this article: 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 far it is unknown just what happens next: when it comes to copper and certainly gold, there has been a substantial downswing in prices. How much of that is attributed to CFDs unwinding is unclear. But the bigger question, and not just for gold prices, but for the Chinese economy is if indeed the funding deal house of cards is imploding, what happens to China's shadow banking system, which is extremely reliant on the billions in "rehypothecated" dollars emanating from non-existent metal collateral.

Because should the Qingdao port fiasco spread and be confirmed at all other venues that use commodities for funding purposes, then that may just be the straw that breaks the already weakened back of China's credit system. How the PBOC will respond to that may be just the variable that answers what happens to China's inflation, and thus to the price of the simple, unencumbered underlying physical metals in the coming weeks and days.

Stay tuned.

For those who want to learn more, please read "How China Imported A Record $70 Billion In Physical Gold Without Sending The Price Of Gold Soaring"

 

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Thu, 06/05/2014 - 12:55 | 4827217 _ConanTheLibert...
_ConanTheLibertarian_'s picture

What's oh shit in Chinese?

Thu, 06/05/2014 - 12:58 | 4827225 Say What Again
Say What Again's picture

That's what happens when the "cost of carry" goes negative.

Just ask Draghi

Thu, 06/05/2014 - 13:00 | 4827235 DoChenRollingBearing
DoChenRollingBearing's picture

I am in Peru now, bearing sales are down a little vs. 2013.  Probably at least in part due to China.  Peru exports a lot of copper and iron (etc.) to China.

At 24hgold.com I see that their widgetr (bottom at home page) shows a mighty 37% premium of AGEs vs. spot price.

Yikes!

Thu, 06/05/2014 - 13:04 | 4827238 nope-1004
nope-1004's picture

If I sell you a car I don't have and you come looking for it - angry, demanding to see the car, should I be "concerned"?  LMAO.

 

Thu, 06/05/2014 - 13:06 | 4827258 pods
pods's picture

I could swear I read a story about this a year or two ago here.  Same exact shit. 

World didn't end last time?  Why is this time different?

(serious question, not poking fun)

As long as nobody actually uses that fractionally reserved copper and aluminum the band can play on.

Everything in China is at least 2-3x hypothecated.

pods

Thu, 06/05/2014 - 13:10 | 4827267 LawsofPhysics
LawsofPhysics's picture

"Everything in China is at least 2-3x hypothecated." -  Yes, but in this new game of "cleanest dirty shirt" how does that compare with the western world?

 

That's all that matters...

Thu, 06/05/2014 - 13:25 | 4827317 pods
pods's picture

Now are we talking City of London leverage or normal human leverage?

Just wanna make sure we are talking apples to apples, not apples to hand grenades.

pods

Thu, 06/05/2014 - 13:48 | 4827406 Vampyroteuthis ...
Vampyroteuthis infernalis's picture

Rehypothecation is good to build up unbacked, toxic debt. Those creditors who had debtors who defaulted first will end up on the best side of this growing mess. They claim the commodities and later defaulters screw those who they owe money.

Is this the way things will go down in the west? He who invested in the worst investments wins out due to first dibs at the assets and bail outs are still coming strong?

Thu, 06/05/2014 - 13:56 | 4827435 Save_America1st
Save_America1st's picture

New Jim Willie interview w/ Elijah Johnson:

Banking Cabal In Charge:

https://www.youtube.com/embed/rGNCXABQiwY

Fed has printed/counterfieted 23 Trillion and given it to various world's most elite families so that they could buy up all the world's assets after they crash the system...

 

Thu, 06/05/2014 - 14:01 | 4827454 HardlyZero
HardlyZero's picture

Does negative interest rate cause any divide-by-zero errors or Excel errors in any finanance spreadsheets ?

Just asking.

This might be much more exciting than Y2K.

Get some PM before this weekend...its getting very hypothetical in the fiat echo chamber looking glass.

We hear, We see...what ?  when ?  why ?  from who ?

Start of the Great RESET ?

Thu, 06/05/2014 - 14:04 | 4827469 MillionDollarBonus_
MillionDollarBonus_'s picture

This is not even an issue! 90% of market participants are happy to settle for cash!

Thu, 06/05/2014 - 14:13 | 4827489 nope-1004
nope-1004's picture

I agree.  It's the 10% honest folk out there, littering the internet with their conspiracy theories, that we gotta watch.  The 90% engaging in Ponzinomics are where it's at!

 

Thu, 06/05/2014 - 15:08 | 4827534 Badabing
Badabing's picture

So the Chinese beat us at our own game. Forced the price of gold down with Paper while buying physical!

But this Aluminum and copper fraud is very different. Anyone who supplies the physical can call the shots on price!

The normal outcome should be the paper price goes down because no one wants to be stuck with a worthless contracts and sells at any price. While the physical price skyrockets to meet demand for the metal they didn’t have with out disrupting industry consumption.

The only way we will not see a disconnect in price is with an under the table intervention. The suppliers will get some freshly printed fiat under the table as compensation. We still will see inflation as a side effect to unwind this monster.

 

Fake inventory = a disconnect in price or inflation.      Keep in mind that his is the third largest port!

Do you think port 1 and 2 is immune ?

 

Thu, 06/05/2014 - 15:31 | 4827720 BaBaBouy
BaBaBouy's picture

JUST WAIT Until ........

The World Finds Out ALL The Purported USA GOLD Is MISSING/GONZO...

Yeah, FALLOUT...

Thu, 06/05/2014 - 15:31 | 4827733 strannick
strannick's picture

Goldman seems to think having infinite claims on finite metals is bearish for the metals.

ie. Goldman is short metals.

Thu, 06/05/2014 - 15:36 | 4827748 BaBaBouy
BaBaBouy's picture

""Goldman seems to think having infinite claims on finite metals is bearish for the metals.""

Meet The New World Of Bizzaro HFT Manipped Markets...

Thu, 06/05/2014 - 16:04 | 4827862 strannick
strannick's picture

If China needs help on conducting a fake commodities investigation, which alleivates tension in the manipulated market while not actually doing anything, the CFTC and Bart ''the couffeur'' Chilton would be a great source to try.

Thu, 06/05/2014 - 19:06 | 4828399 disabledvet
disabledvet's picture

So let me get this straight: stupendous amounts of commodities appear...get turned into a stupendous number of buildings...and the money has disappeared too.

Hmmm. This doesn't sound very unusual to me. Like stiffin your buddy for the 500 dollar bar tab.

Thu, 06/05/2014 - 14:39 | 4827562 Tall Tom
Tall Tom's picture

From the article:  From a commodity market perspective, financing deals create excess physical demand and tighten the physical markets, using part of the profits from the CNY/USD interest rate differential

 

This is mind blowing. If you believe that this will be contained to China then you have been smoking something really bad.

 

American Banks hold HUNDREDS OF TRILLIONS IN DERIVATIVES based on INTEREST RATE SWAPS...LIKE THE CNY/USD INTEREST RATE DIFFERENTIAL (a Differential IS A FUCKING DERIVATIVE.) REFERRED TO IN THE ARTICLE ABOVE.

 

This is your Black Swan Event.

 

MDB...Stop your Bullshit. (I know that it is a gag but...come on now...)

 

We are so freaking DOOMED it is not funny anymore. It is now obviously out of their control. China's God damned Shadow Banking is going to implode the World's Economy...or what is left of it.

Thu, 06/05/2014 - 17:48 | 4828162 pods
pods's picture

I recall boldy pronouncing that the "Black Swan" arrived when I looked into the MERS mortgage fiasco (on another board).

That pig is about through the python of the Fed and many people willingly refinanced to clear up the compromised chain of title.

I am never surprised now when rule breaking and rabid money printing covers up yet another black swan.  

pods

Thu, 06/05/2014 - 14:47 | 4827591 john39
john39's picture

>>Jim Willie

Interesting that Jim is openly calling the bankers out as satanists.  Absolutely true, but I doubt that most will let themselves see it.

Thu, 06/05/2014 - 15:03 | 4827640 DoChenRollingBearing
DoChenRollingBearing's picture

+ 1  That is interesting.  I was inattentive and did not take note while listening to that part of the interview.

Thu, 06/05/2014 - 13:14 | 4827274 darteaus
darteaus's picture

AND the world didn't end after: The Black Death, Holocaust, Rwanda, Nuking of Hiroshima, etc.

It's the shock of the seemingly inevitable exponential increase of human misery that most observers find staggering.  That, and the knowledge that it's all SO AVOIDABLE if only the criminal liars in positions of power would just sometimes, JUST SOMETIMES make the appearance of doing their jobs during their self enrichment at someone else's expense.

Thu, 06/05/2014 - 14:01 | 4827460 HardlyZero
HardlyZero's picture

and...these are all interesting times.

Thu, 06/05/2014 - 14:11 | 4827486 Professor Fate
Professor Fate's picture

You've got to be kidding.  Getting a valid warehouse receipt in China is about as likely as getting the truth about anything out of Obama.

Fate the Magnificent
"Push the Button, Max" 

Thu, 06/05/2014 - 13:09 | 4827265 SoilMyselfRotten
SoilMyselfRotten's picture

I'm sure there was a selloff....OF PAPER

Thu, 06/05/2014 - 13:27 | 4827320 DoChenRollingBearing
DoChenRollingBearing's picture

A friend of mine is the Latin America export manager of a US capital equipment manufacturer (machinery for chemical plants, etc.).  He told me some three months ago that sales were down ALL over LatAm except for Peru and Colombia.

But, "three gets you five" that sales are down for him now in Peru as well.

***

And there continues to be solid resistance among Peruvian locals in the mountains AGAINST Conga and other new gold mines (with good reason, the miners have historically been irresponsible re pollution and not sharing the wealth...).

With European NIRP and reports of a real decline in Q1 GDP in the USA, we probably are on the verge of our second recession (assuming acceptance of the .gov figures before).

¡Mucho Peligro!  ¡Preparanse!

Fri, 06/06/2014 - 14:40 | 4830783 Lord Koos
Lord Koos's picture

Aren't Peru and Columbia both big cocaine producers?  

Thu, 06/05/2014 - 14:11 | 4827490 lakecity55
lakecity55's picture

I just got a decent premium over some Au at Provident. Not advertising, but if you look around some are not too bad.

Thu, 06/05/2014 - 14:35 | 4827549 DoChenRollingBearing
DoChenRollingBearing's picture

 

 

Excellent!

The widget I refer to at 24hgold.com is a JV between that website and eBay.  It shows current offer price at eBay for AGEs vs. current spot price.  It is EXTREMELY volatile, but it is the only easy way I currently know to check scarcity of physical gold vs. "paper gold" price, however imperfect.

The widget has low predictive value.  For a while I tracked the premiums and other data from there in MS Excel, but found no significant predictive value.  Premiums would go UP when spot went down (easy to understand).  But, 37% is very high!  I keep an eye on the widget even though it is very imperfect.

If physical gold becomes truly scarce, that widget will be one of the very first Red Lights!

Thu, 06/05/2014 - 16:13 | 4827892 lordylord
lordylord's picture

Deleted

Thu, 06/05/2014 - 16:40 | 4827980 Coast Watcher
Coast Watcher's picture

If physical gold becomes truly scarce, what happens to silver? Hmmmmm.

Thu, 06/05/2014 - 16:44 | 4828000 DoChenRollingBearing
DoChenRollingBearing's picture

Hmmm indeed!

Thu, 06/05/2014 - 17:01 | 4828042 Al Huxley
Al Huxley's picture

...or if the general public ever starts to worry about the safety of digital money.  Gold's expensive (relative to an many peoples' income), but the $ needed to buy a couple of ounces of silver are within a lot more peoples' reach.

Thu, 06/05/2014 - 13:01 | 4827239 SamAdams
SamAdams's picture

In today's convoluted economic world, nothing works per your MBA instruction.  Supply dwindles, prices drop....  No, don't recall that one....

Thu, 06/05/2014 - 13:15 | 4827287 Deathrips
Deathrips's picture

They must be boaters....thats how I lost my shiny.

 

RIPS

Thu, 06/05/2014 - 13:57 | 4827438 scraping_by
scraping_by's picture

Careful. You might want to check out recent advances in underwater metal detectors.

Or, I might want to. Sounds like a profitable hobby.

Thu, 06/05/2014 - 16:27 | 4827946 viahj
viahj's picture

not impressed, they haven't found MH370 yet   /s

Thu, 06/05/2014 - 12:58 | 4827226 Zirpedge
Zirpedge's picture

Ni Hai Bin Du Wah

Thu, 06/05/2014 - 13:02 | 4827247 insanelysane
insanelysane's picture

Local seafood wholesaler did this in my town a few years ago.  Basically stated that they were flowing X amount of inventory each week and had cash flow financing in place.  The owner took off and the banks showed up and found the place pretty much empty.  Also had a big sale on gift certificates before running.

Thu, 06/05/2014 - 13:06 | 4827259 darteaus
darteaus's picture

The West is such a great place to do business.

I bet he paid all his payroll taxes for his illegal labor too!

Thu, 06/05/2014 - 13:05 | 4827254 darteaus
darteaus's picture

Flung Poo

Thu, 06/05/2014 - 14:22 | 4827421 HardlyZero
HardlyZero's picture

Shadow Banx Collapse >> Finance Collapse >> Markets Collapse >> Fiat Collapse.

Hopefully the fan flung poo has an airtight box around it and it doesn't escape the Chinese Fingerlock Box Confinement.

Expect Western Bank and CB firewalls to come up soon.

Incoming.

Thu, 06/05/2014 - 14:52 | 4827610 Tall Tom
Tall Tom's picture

No chance. THis cannot be contained to China as it involved the CNY/USD Interest Rate Derivatives. Our Major Banks are holding Hundreds of Trillions of Dollars in these Derivatives.

 

No firewall can be erected. Incoming without a shield. We will feel the impact and it will hit us like a Thermonuclear Bomb. Incoming is correct. The system will implode. Kiss Citigroup goodbye as they will be the sacrificial Lamb where allof the toxic derivatives will be parked since they hold a substantial amount now. (Damn I wish that it would happen to JP Morgan Chase.)

 

Thu, 06/05/2014 - 13:34 | 4827361 BanksterSlayer
BanksterSlayer's picture

So if President Xi doesn't think twice about arresting, or even hanging,  Banksters guilty of fraud ... surely heads will egg-roll over this scandal too, yes?

Thu, 06/05/2014 - 13:59 | 4827448 CPL
CPL's picture

Only morons steal from a Dragon's hoard.  Or Giants house.  Or a Bears Cave.  Or a Wolves Den.  Or the Eagles nest.  Or the Tigers wood.  Or a Lion's savanna.  Or a Scorpions hole.  Or steal from Fairy.  etc.

Anyone that's read a fable or myth anywhere on this planet would know that, they aren't suggestions.  They are the playground rules to keep it honest and things running smoothly without too many complaints in an easy format to teach a lesson without anyone getting pissed.

 

In the meanwhile, grab the popcorn, this is going to be awesome.

Thu, 06/05/2014 - 13:59 | 4827452 scraping_by
scraping_by's picture

The other recent high-profile case was Iran sending a rich banker to the gallows for embezzlement.

I'm confused. Cold War 2.0 says we're the good guys.

Thu, 06/05/2014 - 13:49 | 4827405 F0ster
F0ster's picture

"that shitty walk owner, he wouldn't even harm a fry"

 

http://www.youtube.com/watch?v=GAnGYocNP7I

Thu, 06/05/2014 - 14:49 | 4827600 rubiconsolutions
rubiconsolutions's picture

"The Law of Conservation of Energy states that matter cannot be created or destroyed, but can change its form." Apparently matter can be rehypothecated however. 

Thu, 06/05/2014 - 15:06 | 4827620 IndyPat
IndyPat's picture

And the cat can be in the box and not in the box...at the same time. Or 300 cats in a 2x2 ft box, what the hell, why not?

Just depends on who's looking...or wants to look.

Thu, 06/05/2014 - 21:55 | 4828809 TheReplacement
TheReplacement's picture

China may eat the front end of this hotdog but the west is going to have to swallow the rest plus the bun down the road.  Despite not having the copper and aluminum in the beginning, China seems to have the gold and that is what will matter in the end.

Thu, 06/05/2014 - 12:57 | 4827224 PlusTic
PlusTic's picture

let the dominos tumble!

Thu, 06/05/2014 - 13:08 | 4827262 101 years and c...
101 years and counting's picture

since actions are no longer needed (just promises are needed now), as soon as a chinese official declares there is no reason to worry, stocks can add another 3% to recover the .0001% correction due to this story.

Thu, 06/05/2014 - 13:02 | 4827227 darteaus
darteaus's picture

The whistle-blower is going to be imprisoned so fast his head may fall off.

BTW, we're talking $440M.  That's a lot of spring rolls.

Thu, 06/05/2014 - 13:20 | 4827305 john39
john39's picture

i don't think that this would be in the news if the top Chinese leaders were not trying to clean house.

Thu, 06/05/2014 - 12:58 | 4827229 _ConanTheLibert...
_ConanTheLibertarian_'s picture

"This has resulted in a prompt and acute selloff of copper and other commodities"

Makes no sense at all. (rolleyes)

Thu, 06/05/2014 - 13:16 | 4827289 Silver Pullet
Silver Pullet's picture

Really. Why would there be a selloff if supply just dropped several thousand tons?

Thu, 06/05/2014 - 13:55 | 4827432 scraping_by
scraping_by's picture

Traders heading toward the exit. Instead of buying contracts to sell to other traders, selling out and sitting on cash until the dust settles. If there's someone to buy, which isn't clear who.

Thu, 06/05/2014 - 14:04 | 4827462 UggSmash
UggSmash's picture

The way it works is that the metals are being used as collateral. When you have a bank reposess collateral, they sell it, to get their money back (what they lent). All this selling makes the price go down. This isn't a case of "high demand for metals". It's a case of faking the amount of collateral you actually had. 

Same exact thing happened with the subprime insanity in 2008-2009: subprime people couldn't pay the mortgage bill, so the bank reposessed the collateral on the mortgage (the houses), then sold them to get back the money they loaned. And what happened to the price of houses at that time? 

They went down!

It especially hurts prices when a LOT of reposession and selling goes on (as you can imagine). This is also partly why shadow inventory in U.S. housing ("homes held off the market for other reasons") is so high: banks are still scared to list the houses for sale to get back losses, because they'll take such a loss if they actually sold (for such low prices). 

And that brings us to how banks currently use "Mark-to-Unicorn" accounting for valuing their assets. i.e. if they actually recorded the market-price of those houses in the assets section of their accounting books, some (many? most?) banks would be insolvent or have serious problems. 

Thu, 06/05/2014 - 14:21 | 4827514 IndyPat
IndyPat's picture

Ok, now that I understand.

Thu, 06/05/2014 - 14:26 | 4827526 Killer the Buzzard
Killer the Buzzard's picture

Clear explanation.  Thanks Ugg.

Thu, 06/05/2014 - 14:29 | 4827537 LawsofPhysics
LawsofPhysics's picture

You are forgetting the bit about multiple claims on a single asset.  In layman's terms that's fraud, period.

Thu, 06/05/2014 - 14:45 | 4827579 IndyPat
IndyPat's picture

Committed by _______________?

Punishable by_______________ in a __________ for ________.?

A little ad lib.

Thu, 06/05/2014 - 15:04 | 4827642 Tall Tom
Tall Tom's picture

Chinese Warehouse Owners.

Death by lethal injection

Execution Van

Six to Eight Minutes.

 

Filled in the blanks. Then they sell the organs. The Chinese do not fuck around when it concerns financial fraud.

Thu, 06/05/2014 - 15:09 | 4827653 IndyPat
IndyPat's picture

Well, hell's bells.
That's makes up for a lot of shitting by the roadside in my book.
Bet they charge the crooks families for the price of the injection.
That's a nice touch in this case
Not so much in some of the other cases.

Thu, 06/05/2014 - 15:23 | 4827700 Terminus C
Terminus C's picture

Actually, much like here, if you are in the club you can do whatever you want... if you are not, they don't fuck around.

Thu, 06/05/2014 - 15:46 | 4827782 Augustus
Augustus's picture

There is a difference between the home loans and the Chinese copper problem.

With the home loans there was actually a house to grab and sell.  Maybe not worth what it had been appraised for, but still a physical property to grab and sell.

The Chinese problem is different.  It is not about the price or value of the metal.  It is about whether the inventory exists.  Banks cannot repo physical metal that is not there.  If it is not actually in a warehouse, it cannot be sold.  100% loss for banks with nothing transacted in the copper market.  If the copper is actually there to back up the warehouse receipt, the banks will probably continue to roll the loans.  They are in business to earn rates for lending.  No loans or lending means no interest collected and no profits. 

Just because there is an audit problem does not necessariily mean that copper that actually exists will be sold.  JMO.

Thu, 06/05/2014 - 16:49 | 4828015 Panafrican Funk...
Panafrican Funktron Robot's picture

Ergo, the selloff.  In the paper market.  I'd sell that paper to at whatever price I could get for it, given the discovery that it is backed by nothing.

Thu, 06/05/2014 - 13:18 | 4827298 darteaus
darteaus's picture

Makes tons of sense, sadly.

Problem: The game of rehypothecation is starting to show cracks, so it's absolutely urgent that the beneficiaries restore confidence immedately in order to keep the game going.  Solution: Dump short contracts of the very metals under question; same way the same players are surpressing gold.

Thu, 06/05/2014 - 14:25 | 4827525 IndyPat
IndyPat's picture

But is this a good thing if you are a company that actually needed the materials? Or is the point that it's bad, because all you can get is paper instead of aluminum?
Looks like the price of a new AR just went up for different reasons.

Thu, 06/05/2014 - 12:59 | 4827234 goldhedge
goldhedge's picture

Reality strikes.

Pass the popcorn.

Thu, 06/05/2014 - 13:00 | 4827237 NOTaREALmerican
NOTaREALmerican's picture

Quick, to the printing presses!  

 

Do Do, Do Do, Do Do, Do DO...
Do Do, Do Do, Do Do, Do DO...
Fiat man!!!

Do Do, Do Do, Do Do, Do DO...
Do Do, Do Do, Do Do, Do DO...
Fiat MAAAAN!!!

Thu, 06/05/2014 - 13:34 | 4827241 agstacks
agstacks's picture

So when it becomes too difficult to control the price of gold they can just announce "we have no gold left" and the price will plummet? Why doesn't that sound right?

Thu, 06/05/2014 - 13:44 | 4827393 quasimodo
quasimodo's picture

This is bizzaro world when it comes to certain things that actually MATTER. Too much gold? Bam, plummets. No gold? Bam, sinks all the same.

Drought in Cali? Bam, veggies and fruit prices fall like a.......nevermind. 

Thu, 06/05/2014 - 13:02 | 4827244 Carpenter1
Carpenter1's picture

So, load up on FB?

Thu, 06/05/2014 - 13:02 | 4827245 dontgoforit
dontgoforit's picture

Seems like I remember the Chinese were in fact buying thousands of tons of scrap copper (and scrap just about anything else) just a few years ago.  How this situation got out of hand could be an accounting error, or an accounting fraud where some insider hustlers found a way to skirt the system and pulled in a few million bucks each.  Possible.  No country is immune to common crooks as we've so commonly seen.

Thu, 06/05/2014 - 13:04 | 4827249 gcjohns1971
gcjohns1971's picture

The corrupted paper-markets in Comex and London Gold Pool survive on the perceived lack of alternative markets.

This news does not help China show that there is a more credible alternative.

Thu, 06/05/2014 - 13:06 | 4827256 Meat Hammer
Meat Hammer's picture

Seriously???  This is going to be how "they" begin the reset?  "We didn't know the cupboards were bare." ????

This must've been Plan Q, way down the list from war in Syria, Lybia, Ukraine, N. Korea, and Leichtenstein.

Thu, 06/05/2014 - 13:25 | 4827318 IndyPat
IndyPat's picture

Holy shit! Leichtenstein was in McCains crosshairs?
What the hell did Leichtenstein ever do to anyone.
And wouldn't someone have to know
A) it existed? ....and
B) where it was located?

Thu, 06/05/2014 - 13:31 | 4827339 Meat Hammer
Meat Hammer's picture

It's a tax haven.  I'm sure invasion forces remain on alert.

Thu, 06/05/2014 - 13:43 | 4827384 IndyPat
IndyPat's picture

Ahhh....do they have lakes and leaky canoes there?
I do love the water.....

Thu, 06/05/2014 - 14:07 | 4827473 HardlyZero
HardlyZero's picture

Been noticing the last few days how wide the smile of TPTB.

It is like that 20 year old SoundGarden Blackhole Sun video...everyone smiling nice wide smile. 

Almost Too much.

Thu, 06/05/2014 - 14:29 | 4827536 IndyPat
IndyPat's picture

Oh man. That video was creepy.
Much more creepy that the smells like teen spirit vid with the junkie knocked up cheerleaders.
That came to pass.
Oh shit....

Thu, 06/05/2014 - 13:08 | 4827261 LawsofPhysics
LawsofPhysics's picture

The chinese invented paper money for christ's sake.  Of all people you would think that they would know when fraud is the status quo, possession is 100% of the law.

Thu, 06/05/2014 - 13:13 | 4827276 youngman
youngman's picture

That is exactly why they are buying so much gold.....

Thu, 06/05/2014 - 13:54 | 4827426 DoChenRollingBearing
DoChenRollingBearing's picture

Possession, yes.  I would include well-hidden and protected by Pb and Pb delivery devices.

Maybe in different places too.  Some at the bottom of a lake might not be so bad after all.

Thu, 06/05/2014 - 14:06 | 4827471 lakecity55
lakecity55's picture

Keep Stackin'

Fizz is on sale!

Thu, 06/05/2014 - 17:23 | 4828110 Billy O'Naire
Billy O'Naire's picture

They also invented toilet paper.

I wonder if it was at the same time as paper money?

Thu, 06/05/2014 - 13:13 | 4827273 Ban KKiller
Ban KKiller's picture

Thank you Comedy Central for my laugh of the day. I will walk down Grant to Chinatown and see how the locals feel about ghost metals. I have a feeling they don't know and don't care as they only deal with what they can see and touch. Like FOOD! Ha-ha...

Thu, 06/05/2014 - 13:15 | 4827281 Dr. Gonzo
Dr. Gonzo's picture

Sorry but 20k oz ain't that much...Oh. You said tonnes? Never mind. We're screwed.

Thu, 06/05/2014 - 13:16 | 4827290 IndyPat
IndyPat's picture

Someone please fucking help out a layperson here...

So China is "missing" a thousands of metric shitons of copper and aluminum that apparently (many) someone(s) held a contract for.

If I'm sitting in fucking Jersey or somewhere with a mountain pile of both...
Literally sitting right out back, why would I be asking less? The Banks need it, I got it and this is how much you're gonna pay to fill those contracts.

The over subscription made it scarce....thus, I'm asking a hell of a lot more, right?

Please....tell me what I'm missing....pretend you are explaining it to a golden retriever...or perhaps a regulator, but please give it a shot.

Also, the terms "fraudulently used" in this article....does that mean what it means, say....if I floated a check for $50K...in a court?

Thanks in advance.

Thu, 06/05/2014 - 13:22 | 4827309 youngman
youngman's picture

Thats Econ 101..old school...does not work in todays Markets..or what we call a market...

Thu, 06/05/2014 - 13:27 | 4827327 IndyPat
IndyPat's picture

I was really asking.

It wasn't meant to be rhetorical.

Thu, 06/05/2014 - 13:51 | 4827416 scraping_by
scraping_by's picture

Try it this way: the upward pressure on copper prices reflected the volume and velocity of money brought to the market. The real copper didn't matter, since they were buying and selling promises rather than the fulfillment of those promises.The contracts were bid up on the assumption another trader would bid up the contract later.

 

Commodity trading is a market built on abstracts, rather than realities. The discovery some of the contracts were a little too abstract just creates uncertainty, and people don't bring money to an uncertain market.

The announcement that the copper didn't exist just slammed the trading. Without the back and forth of contracts, the money stopped. So it sort of drifted south.

Thu, 06/05/2014 - 14:07 | 4827474 nope-1004
nope-1004's picture

The IOU for the underlying commodity (of which price is currently set by the banking thieves), is losing value. 

Thu, 06/05/2014 - 14:10 | 4827480 IndyPat
IndyPat's picture

...were a little too abstract....
So people go into this imaginary market knowingly....they've seen the shit go all kinds of sideways in the not too distant past, and it blows up on them. How is it my problem again?

I'm guessing this ends with a Jan Lo Chowzine sneaking off with the loot, but...who the fuck plays this game?
Thanks, though. That last bit was rhetorical.

I get it enough to know its bullshit.

Thu, 06/05/2014 - 13:27 | 4827328 Herd Redirectio...
Herd Redirection Committee's picture

The metal was pledged as collateral.  As the unwind takes place, there will be some dumping of real actual physical metal.  Once the unwind is over, though, you are correct, there will be no downward pressure on price.

In your eg. contracts to buy metal need to be filled.

But in this case, the metal was pledged as collateral, in exchange for financing.  Say you pledge $10,000 of collateral (or 1 oz of gold, or whatever).  I give you the $10,000, you tell me the collateral is in XXX Warehouse, on YYY St, Unit #... Now you find out there is actually only $4,000 (or less) of collateral in said warehouse (or there is 10k but its claimed by multiple parties, who all say it has been pledged to them)....

So you can either pledge more collateral, or unwind.  Unwind means selling the $4,000 of collateral that you do have...  Hopes this helps.

Thu, 06/05/2014 - 13:34 | 4827358 IndyPat
IndyPat's picture

Thanks but two more rider questions:

"there will be some dumping of real actual physical metal"
Why? Who would "dump" a wildly shorted material?

Why would you sell the collateral you do have for less?
What if I have a contract and I actually build shit out of copper and aluminum? Can't I just take delivery?

Thu, 06/05/2014 - 13:47 | 4827399 HardlyZero
HardlyZero's picture

Agree...but Copper and Aluminum finance in China will be FUBAR for years to follow...so the Chinese financial system may collapse.

We can take notes...as this may be EPIC in China and might bleed out to the rest of the World.

It will be (Chinese Corzine)2.   There might be fallout to the US, EU and Australia.  They will EXIT their imaginary Chinese commodity markets created the last 10 years.

It will be similar when a Gold good bar is claimed by 100 leases and only one owner exists...SCRAMBLE.

Thu, 06/05/2014 - 13:52 | 4827419 IndyPat
IndyPat's picture

If it's as you say, how could there not be fallout everywhere?

Good thing they have a bunch of treasury notes. They can sell those.
Who doesn't want those?

Bullish as all get out. We will all be farting through silk in no time.

Thu, 06/05/2014 - 14:03 | 4827465 lakecity55
lakecity55's picture

Well, that ole Yuan may not be so strong as thought.....

Thu, 06/05/2014 - 13:54 | 4827425 Thorny Xi
Thorny Xi's picture

If you own the metal, you wouldn't sell right now.

 

If you had taken out three loans, all backed by the same metal, accepted the cash, and got caught, you'd sell whatever you had and go to Vancouver.

Thu, 06/05/2014 - 14:31 | 4827542 IndyPat
IndyPat's picture

Vancouver is sweet this time of year I hear. Good timing, then.

Thu, 06/05/2014 - 14:08 | 4827476 UggSmash
UggSmash's picture

The way it works is that the metals are being used as collateral. When you have a bank reposess collateral, they sell it, to get their money back (what they lent). All this selling makes the price go down. This isn't a case of "high demand for metals". It's a case of faking the amount of collateral you actually had. 

Same exact thing happened with the subprime insanity in 2008-2009: subprime people couldn't pay the mortgage bill, so the bank reposessed the collateral on the mortgage (the houses), then sold them to get back the money they loaned. And what happened to the price of houses at that time? 

They went down!

It especially hurts prices when a LOT of reposession and selling goes on (as you can imagine). This is also partly why shadow inventory in U.S. housing ("homes held off the market for other reasons") is so high: banks are still scared to list the houses for sale to get back losses, because they'll take such a loss if they actually sold (for such low prices). 

And that brings us to how banks currently use "Mark-to-Unicorn" accounting for valuing their assets. i.e. if they actually recorded the market-price of those houses in the assets section of their accounting books, some (many? most?) banks would be insolvent or have serious problems. 

Thu, 06/05/2014 - 14:31 | 4827540 luckylogger
luckylogger's picture

I will give it a try.... you have physical copper that does not exist. you have shorts on in the futures market to hedge the copper that does not exist. When you find out you were not actually hedging but actually speculating on the price of copper going down. The public has now lost its trust of copper financing. You cover the shorts in the futures market by buying back the short contracts. This makes the paper market go up. Two thirds of the financiers that had financed the fake copper have just lost all their money. The people that actually have the copper cannot use it anymore for financing deals. Therefor there is an oversupply of physical because it is only good for industrial use, not good for financing. The ones that have the physical just sell it for anyprice they can get as you now have a surplus of physical and a shortage of paper copper. Now that is probably clear as mud.

Thu, 06/05/2014 - 14:35 | 4827552 IndyPat
IndyPat's picture

Kinda like how the guy in Catch 22 did "business".

Chocolate covered cotton, or some such thing.

I get it now. Thanks for all the input from everyone that took a stab at it.

Thu, 06/05/2014 - 17:41 | 4828149 Kayman
Kayman's picture

IndyPat:

It kinda depends...

If Lying China Metals Company supposedly had 60,000 tonnes of copper for collateral to China Bank and 20,000 tonnes wasn't really there, you can be damn sure China Bank will liquidate the other 40,000 tonnes, thereby suppressing prices.

If China Bank has zero collateral then they have nothing to dump. But people trading paper, who never see what backs it up, get nervous and only those that actually consume copper remain in the market. Again, less demand ergo falling prices.

Ultimately, China, the country, is founded in larceny. It is part of their culture- "if you're dumb enough to let me fuck you and you get fucked, shame on you, not me."

And we are rapidly becoming the same culture, as evidenced by our fearless leadership.

 

Thu, 06/05/2014 - 18:15 | 4828242 IndyPat
IndyPat's picture

I get your point, but wouldn't it be more accurate to say China took one from our play book and ran it?

The Corzine Quick Pitch on three, ready....
....break.

Seriously, I'll suffer a thief before a hypocrite....we gotta own our bit...and it's a dozie.

Thu, 06/05/2014 - 14:38 | 4827559 Piranhanoia
Piranhanoia's picture

more questions.  Where did the metal go?  ZH has been calling this pattern of collateral damage for a long time, and here is the proof the collateral is damaged or non existent today.  The virus has certainly spread, as the first report was 2 years ago?  

Thu, 06/05/2014 - 15:16 | 4827680 dontgoforit
dontgoforit's picture

Seems like I also remember that Goldman-Sachs was doing the hidey-seeky thing with PM in UK not long ago, or did I dream that one?  It gets so hard to keep track of all the scandal.  Like 'Days of Our Lives' meets Abbott & Costello.

Thu, 06/05/2014 - 13:25 | 4827319 madcows
madcows's picture

Do the chinese have a commodity equivalent to our housing "Mark to Make Belive"

Thu, 06/05/2014 - 15:17 | 4827682 dontgoforit
dontgoforit's picture

Ching Yu Banged!

Thu, 06/05/2014 - 13:34 | 4827357 buzzsaw99
buzzsaw99's picture

chump change

Thu, 06/05/2014 - 13:42 | 4827382 Winston Churchill
Winston Churchill's picture

Not if its been used 42 times like Bear Stearns did.

Thu, 06/05/2014 - 14:25 | 4827377 HardlyZero
HardlyZero's picture

Seriously.  Except for those living in China...if the shadow banx collapse who would notice ?   Yes there will be many losses ... there.

I agree it is a shame of the modern finance rehypothocation culture... and there may be Chinese pitchforks and sticks in the streets...but what happens in China stays there ?

Maybe we should all take notes to see how these things go around the fiat economies...like Zimbabwe, Cyprus and Greece.  RESET leaders.

Thu, 06/05/2014 - 16:59 | 4828038 Panafrican Funk...
Panafrican Funktron Robot's picture

Consider the involvement of the US banking sector in China since 1996, and to what extent our financial/economic system depends on that sector being solvent.

That should help answer your question re: how this affects us here stateside.

Thu, 06/05/2014 - 13:44 | 4827389 Madcow
Madcow's picture

posession is 9/10 of the law ...

Thu, 06/05/2014 - 13:48 | 4827401 IndyPat
IndyPat's picture

I've always wanted to know what the other 1/10 was....

The law of zee jungle? Nuke stockpiles and a twitchy finger?

Or just filler that lawyers can bill more for?

Thu, 06/05/2014 - 13:57 | 4827442 DoChenRollingBearing
DoChenRollingBearing's picture

The other 1/10th?  Burglars, other criminals and cops (but I repeat myself).

Thu, 06/05/2014 - 14:03 | 4827463 HardlyZero
HardlyZero's picture

...and the 1/100 are always part of the 1/10.

Get some.

Thu, 06/05/2014 - 15:19 | 4827686 dontgoforit
dontgoforit's picture

Last time I got some she asked if I thought the ceiling needed painted.

Thu, 06/05/2014 - 18:16 | 4828246 1stepcloser
1stepcloser's picture

should of said I'll right on that after I paint your cervix white

Thu, 06/05/2014 - 13:50 | 4827413 Obama_4_Dictator
Obama_4_Dictator's picture

The only way to win is to not play....cut expenses....buy pyhsical.....reduce tax exposure....stop having kids.....if you have a business move it or close it....fire employees....if you own a farm, only grow what you need to feed yourself.....end this game by not playing

Thu, 06/05/2014 - 15:12 | 4827666 Legolas
Legolas's picture

Had to down you for the "stop having kids" part.  Everything else is spot on.  Your kids are almost always going to have the same persuasions, so we should all "start having kids".  It's a numerical advantage thing.

 

 

Thu, 06/05/2014 - 15:20 | 4827691 dontgoforit
dontgoforit's picture

Yes, and for God's sake, please don't quit growing cabbage!

Thu, 06/05/2014 - 16:15 | 4827912 Obama_4_Dictator
Obama_4_Dictator's picture

Come on, you want your kids to get involved with this mess.....not me....even if we all had kids it would make no difference, it's too late to stop this collapse / police state stuff....

Thu, 06/05/2014 - 16:41 | 4827986 Rusty Loads
Rusty Loads's picture

“Your kids are almost always going to have the same persuasions”

 

Only if YOU home school them.

 

http://www.youtube.com/watch?v=69HqxE74P5w&list=PLmmQ8peduhspYv4j-Cj6zppAO75vDP-_t

 

http://www.youtube.com/watch?v=YQiW_l848t8&index=2&list=PL463AA90FD04EC7A2

 

http://www.youtube.com/watch?v=nmIrj-P9Bgs&list=PL9FF6283FE41B6215

 

“ Dumbing Us Down: The Hidden Curriculum of Compulsory Schooling”

“The Underground History of American Education”

"Deliberate Dumbing Down of America"

 

Thu, 06/05/2014 - 13:54 | 4827429 youngman
youngman's picture

This probably will affect Mercedes sales and fancy watch sales too

Thu, 06/05/2014 - 13:56 | 4827437 Dr. Gonzo
Dr. Gonzo's picture

Was it the completely empty warehouse that tipped off investigators something might not be quite right?

Thu, 06/05/2014 - 14:29 | 4827535 Joebloinvestor
Joebloinvestor's picture

It was when they didn't get their weekly envelopes.

Thu, 06/05/2014 - 13:59 | 4827453 general ambivalent
general ambivalent's picture

Off-topic, but I didn't see anything on this.

Manhunt after man shoots three police officers.

http://www.cbc.ca/news/canada/new-brunswick/moncton-shooting-rcmp-surrou...

This will be big in gun politics as he reportedly made a lot of social media comments regarding gun control. And obviously the comparisons to Boston will be prominent.

Thu, 06/05/2014 - 14:02 | 4827459 One of We
One of We's picture

Fractional reserve commodities.  Wonderful....  Can I rehypothecate tax exemptions?

Thu, 06/05/2014 - 15:22 | 4827699 dontgoforit
dontgoforit's picture

Sure, why not?  Through the next 16 generations.  They do it, so why can't we?

Thu, 06/05/2014 - 14:12 | 4827491 Joebloinvestor
Joebloinvestor's picture

Wishful thinking that somehow gold is gonna be the exception.

Might be different if one saw jewelry stores closing because of a shortage.

Thu, 06/05/2014 - 14:15 | 4827498 NoTTD
NoTTD's picture

So, we find out there is far less of these commodities than thought and the price goes down?  If we find out the entire thing is a fraud and there is no copper or aluminum, does that mean they drop to zero?  And the US stock markets hit new all time highs?

 

The fuck, you say.

Thu, 06/05/2014 - 14:24 | 4827521 HardlyZero
HardlyZero's picture

I say Zimbab-way.

Thu, 06/05/2014 - 15:20 | 4827694 Conax
Conax's picture

I'm witcha. The price is falling because they are unloading their (maybe) worthless warehouse receipts.  This shouldn't cause a drop in the price of the phyzz underlying, in fact it should spike. 

Someone said they are selling off the collateral because their deal went sour, yet the gist of the story was that there wasn't any metal there,

So how do they sell non-existent copper and aluminum?

Zzzt.. kapop... pew.. a bit of smoke rises from the ears..

"Mongo doesn't know. Mongo just a pawn in the game of life.."

Thu, 06/05/2014 - 15:23 | 4827702 dontgoforit
dontgoforit's picture

Maybe they appropriated all that copper for plumbing on all the empty cities they built?

Thu, 06/05/2014 - 15:31 | 4827730 Conax
Conax's picture

This is why they call it 'High Finance'.

You have to be high as f--k to understand it.

The first rule of High as F--k Finance:  Whatever happens is bad for metals prices.  Any ripple on the pond and -

DOWN GOES FRAZIER!

DOWN GOES FRAZIER!

I get it now.

Thu, 06/05/2014 - 17:53 | 4828177 IndyPat
IndyPat's picture

That's was great stuff, there!

Thu, 06/05/2014 - 20:23 | 4828591 IridiumRebel
IridiumRebel's picture

No shit. They could find that eating a gram of gold makes you live an extra 50 yrs and the fuckin shit would drop by 100 bucks overnight. Fuck these bastards. Until then....patience.

Thu, 06/05/2014 - 15:39 | 4827757 ebear
ebear's picture

Warehoused copper used for collateral keeps copper off the market.

Don't forget, this thing started with actual copper in warehouses.  The multiple lending therof cam later.

So, the original copper gets liquidated and when loans for which no copper exists get called, the underlying assets purchased with the loans, ie. real estate, also get sold driving down prices and reducing demand for new construction which uses copper.

As I see it, anyway.

Thu, 06/05/2014 - 17:06 | 4828064 Panafrican Funk...
Panafrican Funktron Robot's picture

What's being sold are paper claims on copper.  Now, consider the demand for these paper claims vs. the supply.

This is where FOFOA is accurate in his depiction of the paper gold market eventually going down to around the $700 at some point.  Supply/Demand for paper contracts often has very little to do with supply/demand for the underlying physical commodity. 

Thu, 06/05/2014 - 14:51 | 4827605 Obamanism
Obamanism's picture

Some junior was put in charge of the audit process. They went into the warehouse counted 1000 tonnes and expected 100,000. They did not know that the same 1000 tonnes had to be counted 100 times. Previous Audit documents had 100 ticks after each amount.One tick represents a Hypo.

To be kind may be 99,000 tonnes are being moved in transit. to create a shortage.

Now Copper will increase by 100 as everyone though there was 100 times the amount of copper around but there is not, so we have an actual shortage rather than a glut.

Thu, 06/05/2014 - 15:26 | 4827708 dontgoforit
dontgoforit's picture

It was on Flt MH370 out of Jakarta - too much cargo - plane down.

Thu, 06/05/2014 - 14:58 | 4827626 SmittyinLA
SmittyinLA's picture

Would the Chinese on a state scale inflate their domestic OIL, COAL, IRON Ore, and Copper production levals all in an elaborate ruse to both dupe foreign buyers of state enterprises and suppress raw material import prices on account of China has few resources and a huge sociopathically pragmatic population? 

Would they do that?

Prediction no collapse in raw material prices in the event of a slow down or collapse, just the opposite, stagflation high prices low wages. 

Human arbitrage sucks.

Thu, 06/05/2014 - 15:10 | 4827660 withglee
withglee's picture

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.

Putting this in perspective, thats $129M worth of aluminum and $124M worth of copper ... together, about 2 hours of QE. Less than what Barclays was fined for rigging Libor.

This might not bring the end of the world as we know it.

Thu, 06/05/2014 - 17:57 | 4828190 IndyPat
IndyPat's picture

That's the valued collateral, as I was told above.

How many notes are on it? And the currency trades associated as mentioned above.

I learned some shit today.

I'm buying a warehouse.

Thu, 06/05/2014 - 15:13 | 4827668 Inthemix96
Inthemix96's picture

Just wait till the western world susses out the graft started by B.Liar, Bush, and the one eyed scotch cunt 'McRuin' Broon, and find their retirement plans have been flushed down the shitter.

Copper and other such things will be the least of your worries.

Can two failed, war mongering criminals, and a scotch, one eyed paedophile be re-hypothicated?

These cunts, I am more than sure, will be ripped limb from limb, when the fucking slow to catch on lot, catch up.

You hear that NSA, GCHQ, pension provisions?  It affects you just as much as us you willfully ignorant cunts, and I would hazard a guess you could fuck these three child molesters over, quicker than we could anyhow.

If you lot get there before me, keep the swine cunt B.Liar for me, this cunt deserves nothing less than peeling alive, and I am just the man, with a stomach to suit to just that type of work.  The hateful, nation wrecking bastard deserves no less.  The memories, and anguish of 1,000,000 dead Iraqis call for it.

And bring Bush, let him watch, he deserves the same.

;-)

Thu, 06/05/2014 - 16:20 | 4827926 Inthemix96
Inthemix96's picture

Touched a nerve there eh?

Come on then, take the swear words out and refute what I have spoke.

You not have one thought run through your disgusting head why 1 million Iraqis had to die for lies and untruths from two disgusting pieces of filth from the same gene pool as you?

Does that not fill you with disgust?  The 45 minute hit time from made up, not real, imagined lies from two of the worlds most prominant leaders of the time?  Do you not feel shame of what is done in your name on fabricated lies?  The men sent to fight for nothing, and die, all based on the very worst of lies and deciept?

How do you sleep at night?

Your life is a sham, you believe in something that isnt even there.

These two cunts, both Bush and B.Liar deserve prolonged death, years of it, it cant be argued, it cannot be forgotten, these men nearly destroyed a people, and region, with your consent, all based on lies.

How could you live with that?  How do you?  Nothing more to say, but you condone what these men done?  In your name?

Really?

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