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Western Banks Scramble As China's "Rehypothecation Evaporation" Goes Global
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 this week 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. It would appear our fears of global contagion (through various transmission channels) are now coming true as WSJ reports that as many as a half-dozen banks are trying to determine whether the collateral for loans they made to commodities traders was used fraudulently by a third party to obtain other loans. As we detailed previously, it appears the day when the Commodity Funding Deals finally end is fast approaching... and as we note below, why that will certainly be a watershed event.
As we warned would happen, The Wall Street Journal reports that as many as a half-dozen banks are trying to determine whether the collateral for loans they made to commodities traders was used fraudulently by a third party to obtain other loans, according to people with knowledge of the matter.
The banks, including Citigroup Inc. and Standard Chartered, provided loans to trading firms that were backed by metals such as copper and aluminum stored at one of China's biggest ports, the people said. The trading firms hold the deed to the metal, which can be used to secure financing, but the metal stays in a warehouse. Banks fear a private Chinese company may have used the metal as collateral to get multiple loans, potentially defrauding the lenders and trading firms.
Two of the people with knowledge of the matter estimated the value of the loans and collateral at several hundred million dollars.
The banks are frustrated because they haven't been able to get access to the collateral, the people said.
The metals are stored at Qingdao Port, which administers the warehouses.
An executive at one of the banks said the title documents from the warehouses may have been photocopied and used to secure the loans.
The vicious cycle has begun...
The fear in the copper market is that banks will become more cautious about allowing metal to be used as collateral.
Many traders and analysts believe a significant amount of China's metal imports are used for this purpose.
China is the world's top copper consumer, so anything that threatens imports can send shock waves through the metals market.
Copper prices have fallen 4% in the past four days after media reports on the potential fraud. In March, prices fell nearly 10% amid worries the Chinese government was preparing to crack down on copper-backed loans.
On Friday, copper for June delivery, the front-month contract, fell 3.8 cents, or 1.2%, to $3.0530 a pound, on the Comex division of the New York Mercantile Exchange.
The potential fraud raises questions about the integrity of commodities warehouses in China, one of the world's largest users of commodities, and how trading is financed.
There has been concern among policy makers that commodities in China are being used to get financing for cash-strapped companies. As credit tightens and the nation's economy slows, some investors worry that the commodities will be dumped onto the market as banks seize collateral, potentially knocking down prices.
There is also concern that demand in China will collapse because so much of the metal had been stockpiled in warehouses.
This is not just a Chinese banking system issue anymore as major Western banks and trading shops are now directly affected... and are scrambling...
Two of the trading houses that may be exposed to the possible fraud are Geneva-based Mercuria Energy Group Ltd., which mostly trades oil, energy products and industrial commodities, and Glencore PLC, the Switzerland-based mining and trading company, according to people familiar with the matter.
Mercuria, which in March agreed to buy the physical commodities business of J.P. Morgan Chase & Co., didn't respond to requests for comment. A Glencore official declined to comment.
In addition to Citigroup and Standard Chartered, the banks potentially affected include ABN Amro Bank NV, BNP Paribas SA, Natixis and Standard Bank PLC, the people familiar with the matter said.
Standard Bank said it is investigating "potential irregularities at the port at this time and will be working with the local authorities as part of its investigations." The bank said it couldn't quantify any potential loss.
ABN and BNP declined to comment. Natixis didn't respond to a request for comment.
As we detailed previously, it appears the day when the Commodity Funding Deals finally end is fast approaching.
Here is Goldman's take on what will certainly be a watershed event - one which will certainly dwarf the recent Chaori Solar default in its significance and scale.
Financing deal concerns mounting as CNY volatility rises
Concerns on an unwind of commodity financing deals trigger selloff
The recent sell-off in copper and iron ore prices reflects the market’s ongoing concerns regarding the impact of a potential unwind of Chinese commodity financing deals, though the weak underlying market fundamentals should not be discounted. The concerns intensified following the recent CNY depreciation which has raised uncertainty regarding the profitability of the deals and the impact on different asset classes were they to unwind. Up to 1mt of copper and 30mt of iron ore could be released were the deals to unwind, which would be bearish given the relatively limited physical liquidity to absorb the shock.
CCFDs are facilitating China’s total credit growth
We believe CCFDs are ongoing and facilitating ‘hot money’ inflows into China by providing a mechanism to import low-cost foreign financing. In general, the profitability of most hedged commodity financing deals remains substantial (iron ore is the exception), due to a still positive CNY and USD interest rate differential, limited depreciation in the CNY forward curve and available commodity supply. In 2013, ‘hot money’ accounted for c. 42% of the growth in China’s monetary base of which we estimate that CCFDs contributed US$81-160 bn or c.31% of China’s total FX short-term loans. Given this, it is crucial for the government to manage the immediate impact of ‘hot money’ flow changes on the economy and markets.
More commodities are used; a medium-term unwind is bearish
An increasing range of commodities are being used to raise foreign financing, which now includes iron ore, soybeans, palm oil, rubber, zinc, and aluminum, as well as gold, copper, and nickel. CCFDs create excess physical demand and tighten the physical markets artificially; in contrast, an unwind creates excess supply and thus is bearish to prices. We think CCFDs will be unwound over the medium term, mainly triggered by an increase in Chinese FX volatility, as indicated by recent CNY depreciation and PBOC’s latest move to widen the daily trading band. FX volatility could result in a higher cost of currency hedging, effectively closing the interest rate arbitrage. Higher US rates are another likely catalyst for an unwind in the long run. A continuous CNY depreciation in the short term, however, would trigger some deals to be unwound sooner than expected, and hence place downside risks to our short-term commodity price forecasts.
It should now become apparent why the ongoing sharp devaluation of the CNY, far more than merely impacting a few massively levered speculators, and recall that the European Knock In point of maximum vega is about USDCNY 6.20 as discussed previously, will have a far more broad hit to asset levels not just in China but across the world if and when the inevitable moment of CCFD unwind finally begins, and in a reflexive fashion, initial selling begets more selling, more CNY devaluation, greater margin calls, further CCFD unwinds, and so on, until finally the PBOC has no choice but to come in and bail out the financial system one more time.
For those unfamiliar with the concept of CCFD, and too lazy to read our previous article on the topic, here is Goldman's Roger Yuan with a succinct summary of just why these key component of China's shadow funding mechanism are so important on the way up... and down.
Days numbered for Chinese commodity financing deals
As part of a broader shift in China’s funding base from domestic to various foreign funding vehicles, Chinese commodity financing deals have become increasingly prevalent, owing to the combination of the relatively high level of Chinese interest rates and the existence of Chinese capital controls. Financing deals use commodities and other goods as a tool to unlock the interest rate differential, with potential implications for Chinese growth, China’s linkage with ex-China interest rates, CNY volatility and commodity market pricing.
In contrast to some media reports, we find that the bulk of Chinese commodity financing deals are ongoing, facilitating ‘hot money’ inflows into China and providing a mechanism to import low cost foreign financing. In general, the profitability of most currency and commodity hedged Chinese commodity financing deals remains substantial, owing to a still positive CNY and USD based interest rate differential (>4%), limited depreciation in the CNY over the past month (<2%) and the CNY forward curve (limited cost of hedging the currency exposure), and a lack of tightness in the underlying commodity (i.e. limited cost of hedging the commodity). Returns in copper are still >10% (Exhibit 1), and up to 1mt of physical copper could still be tied up in deals (Exhibit 2).
While triggered by concerns about Chinese credit following the Chaori default, an unwind in iron ore financing deals, and concerns about an unwind in copper financing deals, the recent copper price weakness has reflected the combination of sluggish Chinese demand growth and strong global copper supply growth, rather than a financing deal unwind. Supporting this assertion is the fact that nickel (to an even greater extent than copper), and zinc both have a sizeable amount of exposure to financing deals, and their prices have substantially outperformed copper. Further, were this a true copper financing deal unwind, Chinese bonded copper prices would have led the price declines (instead they lagged the domestic Shanghai copper price declines), Chinese bonded stocks would have declined (instead they have risen) and the LME futures curve would likely have moved into contango (it remains in backwardation).
More broadly, the main reason why the government has not shut down ‘hot money’ inflows in an abrupt fashion to date, in our opinion, is that a complete shutdown could have major consequences for China’s short-term liquidity. Indeed, China’s economic growth is increasingly supported by different types of FX inflows, including those from commodity financing deals, as they can bring in low cost foreign funding and increase China’s monetary base, the foundation of both China’s rapid credit growth and solid economy growth. In 2013, we estimate that c.42% of the increase of China’s monetary base can be attributed to the low cost foreign funding or the ‘hot money’ inflows (Exhibit 3).
These FX / hot money inflows are of substantial size and high volatility (Exhibit 4) and the government attempts to smoothly manage the short-term liquidity cycle in response to these flows. When these flows are very strong China tends to respond (Exhibit 5), as in June and December 2013, as well as February/March 2014, with bearish implications for equities and commodities (Exhibit 6).
There are three main drivers of ‘hot money’ inflows: commodity financing deals, overinvoicing exports, and the black market. In this article, we focus on the Chinese commodity financing deal channel, which has by our estimates facilitated roughly US$81-160 bn of FX inflows since 2010, which is c.31% of China’s total FX short-term borrowings (duration < 1 year) (Exhibit 7). Of these deals, gold, copper and iron ore are three leading commodities, followed by soybean, palm oil, natural rubber, nickel, zinc and aluminum.
One reason why the range of commodities and the amount of each of those commodities being used for financing purposes has increased since mid-2013 is that the Chinese government moved to reduce the amount of money that can be borrowed per commodity unit. This reduction in apparent financing deal ‘leverage’6 (to c.3-10 times the value of the commodity from much higher levels a year ago), has meant that larger amounts of commodities are needed to raise the same amount of low cost foreign funding. In copper’s case for example, the amount of copper used in financing deals could have risen from 500kt to 1mt over the past nine months, as shown in Exhibit 2.
Looking ahead, our view is that Chinese commodity financing deals will gradually unwind over the medium term (the next 12-24 months), driven by an increase in FX hedging costs, which would slowly erode financing deal profitability and eventually close the interest rate arbitrage. Indeed, we expect that the government will continue to increase FX volatility in order to manage the hot money inflow cycle, thus increasing FX hedging among broader market participants, and raising the cost of hedging the currency for commodity financing deals. This FX policy outlook would be in line with the government’s policy targets of gradually increasing the CNY trading band before eventually loosening the nation’s capital controls, and is likely to occur before the CNY/USD interest rate differentials close, based on our Economists’ forecasts. Finally, an abrupt government crackdown on Chinese commodity financing deals, even with an offsetting monetary stimulus package, is unlikely in our view, given the potential negative impact this could have on credit and thus economic growth.
With respect to the impact of an unwind in Chinese commodity financing deals on China’s economic growth, we expect that the government will actively manage the impact on domestic credit creation, however we note that this process, if not managed perfectly, will not be without downside risks to Chinese growth.
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 (ZH: unless of course momentum algos take offsetting commodity futures hedge selling in, say, gold and boost, or "ignite" the downward momentum to a far greater degree than the offsetting physical buying, making a recursive pattern whereby buying physical ends up resulting in a lower physical price as has been the case with gold over the past year). This reflects the fact that physical inventory is much smaller than the open interest in the futures market (Exhibit 9). 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 (Exhibit 10).
In this context, 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) (Exhibit 11).
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?
* * *
One more thing... we don't remember seeing "the breaking of infinitely rehypothecated collateral chains" in the Stress Test documentation... makes you wonder just how much collateral is really there on the balance sheets of the West's biggest banks...
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Better find an empty chair, bitchez!
Yes, the S&P sets a record on Friday! Everyone is all in and this crap is coming down the pike. Hang on!!
How does the world wide Ponzi come crashing down?
This works for me.
Ponzi. That was the guy from Happy Days right? With one punch he could break banks
Actually, he could get the music started again...
Not only commodities are rehypothecated and used for further leverage in endless collateral chains. Stocks held by related party cartels are also used in this way, with the price manipulated up in "market" value, so the cartel holding the shares can borrow more, with the leverage used for further manipulation. This related party fraud is now rife in Australia too, to the point where there are organisations that openly offer to ramp small caps for a fee. Check out my newly updated blog covering Australian financial crime.
http://drbenway.blogspot.com/ncr
Global contagion. Sounds about right.
"commodities will be dumped onto the market as banks seize collateral, potentially knocking down prices.
There is also concern that demand in China will collapse because so much of the metal had been stockpiled in warehouses."
- I think the problem is the opposite. Commoditiez won't be dumped onto the market, because they weren't actually stockpiled in warehouses...
Jamie dumped in March....good timing or good luck?....
re: warehousing of metals, here's a boots-on-the-ground report:
went with paw-paw to a "coin store" last week
a total of 20 ounces of us gold and 10 ounces of foreign gold
"I'm upside-down on gold .. I bought some at more than thirteen, but I can't sell it at current prices"
a total of 200+ ounces of silver
"silver is easier since it's been down in the eighteens. but the problem now is trying to get people to sell it to me for less than that"
lots of large-size cents
also some "national bank notes" for sale
http://en.wikipedia.org/wiki/National_Bank_Note
those things were priced pretty high, so good luck getting them
Gold to the moon bitches!
After big bowl of borsch, boris is like to dump commodity, but is waiting until all dinner guest is all go home.
"My word is solid as the oak. Trust me. your copper is safe and sound."
http://cbf.houriganconstruction.com/wp/wp-content/uploads/2013/08/fallen...
trust me you gold will be safe and secure at the bottom of my lake-tia.
who can trust who...
Here's a receipt for your gold deposit.
Hell.....here's another one.
Have one to give to your friends....I can write this crap all day.
long etns, short mining stocks FTW
holy shit mate great idea, long cme short iex too while yer at it!
Exactly, in fact these "stockpiled commodities" are currently inside Chinese ghost cities and bridges to no where.
Maybe just trucked/shuffled around a bit?
Strannick, thanks for posting this as I thought the same....but maybe the probem is 2 fold.....there is original ACTUAL hard commodity that was financed...this is what will be sold to cause the possible contraction in the physical spot market....
the 2nd issue relates to the multiple fraudulently rehypothecation of the original ACTUAL hard commodity....which creates synthetic credit, which of course leads to rapid debt deflation, bank and shadow bank losses and the attendant consequences....
of course there is a possible 3rd issue in that the Actual commodity is not in the warehouse at all....put all three together and well Madoff looks like a walk in the park.....
In my career, EVERY SINGLE MARKET TOP has been ushered in by the influx and proliferation of penny stocks and pump and dump shitty companies....as Mom and Pop try to chase the overall market, and want to "cash in" on worthless shitty companies of no worth or value....
Sucks to be mom and pop then.
And bang many a chick at Inspiration Point
I hope this doesn't qualify for a tax payer bailout......oh wait
But he could do it for free!
No. There were TWO guys on 'Happy Days' -FOnzi and POtsi. One had a leather jacket and jumped the shark, and the other one had no leather jacket and merely watched said shark jumping.
"Mercuria, which in March agreed to buy the physical commodities business of J.P. Morgan Chase & Co., didn't respond to requests for comment. "
Sounds like JPMChase unloaded their commodities short/repo financing biz just in time.
I wonder if JPM also shorted Mercuria with the money from the sale knowing how little collateral stood behind the book they had just dumped...
Nice to see you throxx.
Holy fuck, You can see Me?!
Kidding of course. Hope You are well and in good spirit.
We met on TF if I remember correctly? I have not bothered to wander masked within KD's den in a while. -So few of the contrarians and contemptuous mutants that made it exciting are left..
Yep we did some good things at karls place. I am still doing well. I do mis the old gang.
Glencore v JPM?
That could get real ugly. Some accidents might def. happen.
Not sure about hang on. How about check on the gold, steel, lead and beans?!
Gonna' do some preventative maintenance on the guillotine as well.
Did the music just stop, Chuckie Prince?
Someone just swiped the record
Exquisite timing by JPM, and Barclays selling their commodities businesses.
Just a little too exquisite. Nothing to see here, move allong
Well, when you have one down day out of 1,000,000, you know you are blowing the right people.
We're caught in a trap
I can't walk out
Because I love you too much baby
Why can't you see
What you're doing to me
When you don't believe a word I say?
We can't go on together
With suspicious minds
And we can't build our dreams
On suspicious minds
Elvis the Pelvis
Wouldn't it be nice if the Chinese were to "Raise the Red Lantern" for Mr. Dimon?
Soros has already bailed. The old money has fled and moves first.
What does it mean, what does it mean? Jack's Obsession...
https://www.youtube.com/watch?v=F9s9b18y-KE
The chain is only as strong as its weakest link
Don't chew be talkin' bout Barry like dat;)
Weakest link or missing link?
That would be the Mrs;)
More like Manchurian link.
'A tong is only as strong as it's weakest chink'...old San Francisco proverb.
Hahahaha, hohohoho, hahahaha, fuck all the western (central) banks! Hope they burn for being the biggest bloodsuckers on the planet!
Asians and particularly the Chinese are the most corrupt business people on the planet. They will look you in the eye and lie to you with a straight face. If western bankers are relying on Chinese numbers, they are fucked.
"Truth telling" and "numbers" are two different things.
The Chinese are REALLY GOOD at numbers.
This is a question of truth. "Is it there yes or no?". This is not a numbers question.
In Wall Street parlance " as long as no one questions the numbers the numbers are good."
absolutely......
And for Wall Street, the 'media', and the corrupt DOJ, if you don't get caught there's no crime. Nothin' to see here folks. Move along...
They will look you in the eye and lie to you with a straight face.
Ah, I don't know if you've noticed or not but this trait is not confined to "Asians" or the Chinese. Have you had a chance to listen to the bullshit coming out of the mouths of the "western" bankers in the last few DECADES? How about the same kind of lying bullshit coming out of the mouths of our so-called political leadership in the west (particularly the US government)?? I seem to recall that all these lies were told to the people while the lying bastards had sincere looks on their faces.
I say, "Let banks print as much as they like in their national currency and stop all this beating around the bush." Additionaly, allow me to start the bank of Q99X2.
Problem solved.
Could see a run on gold if this sets off panic for physical. It could end up wiping out the manipulators, but then again, they can just appeal for a bailout as usual. You? Not so much.
This is what you get for holding paper.
dream on - gold in the grips of manipulation. your fucked!
This a carbon copy of leadership in DC.
Everyone expects it to be there, and has bought into the SCAM.
The Great Salad Oil Swindle of 1963, here, no expiration dates on the Elements.
There will be some arrests, a few hangings and the CB's will print it all away.
China just needs to do what the rest of the world does with gold. Keep one pile on hand and show it to anyone that wants to see it, telling them 'that's your gold'.
When the collapse comes, the same thing will happen with the FDIC and banks. The FDIC has only a token amount of cash, but can tell every bank that 'it's your cash if you need it'.
Taking advantage of the interest differential requires huge leverage, but the big profits seem to be in not paying back the loans. After all they are backed by non-existant collateral.
You do realize that all these commodity scare stories (like the fake gold) are the last ditch desperate efforts to support fiat by discrediting physical and stoking fear. They've lost control of the GLD (put selling with slamdown no longer working and it has been the key source of physical to meet Asian demand), so now they enlist the "gold bug" site to stoke fear of GLD. The right answer is to dump any float scam stocks (NFLX, AMZN) which will certainly crater if there are broad cascading defaults and raise physical cash and buy physical gold (or the GLD because that it their source of physical)
While you may be correct, I must say that if they had/have lost control of gold, it would at over 5,000 TP-Dollars.
Just my 1913 $1.
this too will be papered over. imo there will be no great unwind.
As much as I would like to see an unwind I think you are right buzz. Maybe I have become cynical after years of this nonsense.
Wait 'till they lay a big fat ole tax on your gold.
LOL
....sayyyyyy 50% or so.
What gold?
I know right! It took me two years to repair my hand made fibre glass canoe after we hit some fast water rapids up north. We hit between two large bolders that caught us then turned and flipped us. We tumbled down the river for about 100 yards before being able to control ourselves enough to swim to the shore. Besides bumps, bruises, we were also bloody. The canoe had one fist sized and two 18x4-ish holes ripped into the sides. We were lucky to escape with our lives. There is no way we could find the gold and silver in that hellish place.
Tragic.
The shiny makes poor ballast.
Stack On
Hey! I'm using the tragic boating accident story, dammit.
I spent all mine, on Politicians and hookers..
+1 ... Except ...
When they make it illegal to trade it for food and stuff ... and then they offer extras food rations to those who report their neighbor for trying to ....
A metal-jacketed brain implant will deal with such a neighbor.
A metal-jacketed brain implant will deal with such a neighbor.
Yeah buddy . . . that's what 7.62X54R's and a 10X scope connected to a MS M91-30 are for. You can get the whole package for less than $300 with a new composite stock. Sighted in properly it could repeatedly hit within a 12" circle at 300 yards. Best bang for the buck in the "personal defense" firearms market IMHO. . . . .
It's illegal to sell drugs.
Working great huh?
If you haven't noticed already, laws are only good if people obey them. Ask anyone in Washington.
Yeah motherfucker....what fucking gold?
Exactly. Which means...
Wait 'till they lay a big fat ole tax on your gold.
They have to find it first. Good luck on that.
If the price of copper is plummeting in the rehypothecation ponzi, will gold be any different?
China is the world's top copper consumer, so anything that threatens imports can send shock waves through the metals market.
Copper prices have fallen 4% in the past four days after media reports on the potential fraud. In March, prices fell nearly 10% amid worries the Chinese government was preparing to crack down on copper-backed loans.
Ergo Gold? Bring it on! I love a good sale!
So your gold drops twenty percent in value next week while my treasuries go up twenty percent.
At a personal level this does make sense to me....
I'll keep my physical. You can have all the paper you want.
You can't eat UST's.
Financial engineers have engineered a disaster. Not their first. The debt age is showing signs of decay.
Actually, they engineered a robbery.The problem is the victim's money was borrowed.
The victim is yet to be determined.
Well Jesus, how about that. Might we get in touch with the actual supply that will take gold to its fair market price of $4000?
" until finally the PBOC has no choice but to come in and bail out the financial system one more time."
With US treasuries?
" until finally the PBOC has no choice but to come in and bail out the financial system one more time."
With US treasuries?
More Federal Reserve chrome dome check kiting will kick the can a little bit more.
/Sarc
GHOST COLLATERAL & attendant PHANTOM GDP !
Been thinking about this for a few days when other things haven't been demanding attention...
Thoughts, observations, questions...
The statement: "Quingdao Port administers the warehouses." leads Me to wonder what other frauds are being perpetrated by or being facilitated by the Management of the Port.
Photo-copied warehouse receipts my ass. Banks don't generate collateralized loans with a hand-shake and a photo-copy.
Official documents are being falsified en masse by officials managing such documentation at the port is the only explanation.
IF the Port is administering/regulating the associated warehouses then the management should be being rounded up by now and being questioned with the usual Chinese efficiency and brutality, their private accounts reviewed, etc.
-That is, IF the whole scheme doesn't reach high up into the corrupt Chinese Gov't Bureaucracy and Party Leadership.
IF this occouring at one Port it is almost certainly occuring at ALL Ports in/under Chinese jurisdiction; -and may well be a modus operani of MANY ports all over the World.
It might be prudent for the Feds to start sending teams of forensics investigators into the major ports in the United States and have a good long look around...
IF the warehouse records are being falsified, as it appears obvious at this point; nothing coming in or out of Quingdao Port can be trusted: amounts, contents, ownerships, claimed origins or destinations, etc... ALL products deriving from or associated with buisinesses from said port should probably be shunned and denied; assumed to be tained and unsafe, stolen or otherwise subject to claims...
IF I were a prudent and responsible manager I certainly would not trust ANY claimed bill of lading or manifest, nor the contents of any shipment made to a business or client from Quingdao Port or associated facilities and businesses at this time. One must assume that any inspections or assurances from associated businesses and persons are questionable at best...
The empty warehouses are a mirage of prosperity and commerce, a reflection of the uninhabited and to some extent likely uninhabitable 'ghost cities' and empty shopping malls, etc.; that China has built.
Reported figures for Chinese GDP are as fraudulent as the hyper-rehypothecated Ghost Collateral and photo-copied warehouse receipts that have been tallied to produce such statistics.
Exactly!
This reminds me of when ZH assembled and shorted a Chinese stock "fraud bucket" a couple of years ago (which generated, I think, an 80% return):
http://www.globalsecuritieswatch.org/Chinese_investment_bank_alleged_operate_fraud_school_creating_fake_Chinese_companies_listing_on_overseas_exchanges.pdf
Gold will skyrocket, but it will cost 20% for authentication and assay.
I'm not lazy I jjust stop reading because yet again the Tyler's are constantly leading the witness instead of letting the data flow and thus allow informed opinion to be generated.
That's why we all have blundered so spectacularly in an advisory capacity here.
The irony of course is that this has all the makings of A Big Deal but to get it on the sidelines we have to get right to shitstorm since most find this stuff too abstract to believable... and indeed "the most" have been right.
So here's my deconstruction plus headline:
"Bullion Banks Raise Solvency Issues."
This is the central issue via a vis the DEBT bubble in housing under W...namely WHO OWNS THE ACTUAL PROPERTY.
The rule is REALLY simple. "POSSESSION IS 9\10th's THE LAW."
the problem of "who has title" is not some minor issue when dealing with CDO's. And now we might be discovering not merely "bad collateral" but collateral that does not exist.
Since bullion banks maintain the physical on site before they do any business they will ask the question "does the collateral exist."
This sounds minor...and is not presented here...but exactly who is lending into this dog of a recovery again? More to the point WHO IS SECURITIZING BASED UPON AN ASSUMPTION THAT RECOVERY IS WELL UNDERWAY.
And the answer of course is ALL OF WALL STREET.
hmmmmmm.
"And suddenly we have a collateral call."
In short "one ounce of non existent gold can mean there is ten trillion DOLARES missing too."
That is how I read the Tyler's writings on rehypothecation and this story's SALIENCY to it.
If that hits the wire line...then indeed "headline risk made real at ZH" and in Disabledvet fashion (DV ©®™) "the next move in this opera is Glencore\XSTRATA which has hundreds of billions in debt LEVERED TO PRICE IN A COMMODITY THAT MIGHT NOT EXIST"!
clearly people round here have no clue what happened to steel in the seventies.
Gee...I thought your boy, Fuckbama, was supposed to end this.
I'm long treasuries dude...and I see trillions in issuance for War with Russia and Chinese fraud of epic proportions...damn right "he's my buddy."
That combo will create American Samurai Bonds if the former happens and the latter is true.
Not saying the folks who voted for him understood what they were getting of course.
I do agree "thinking you can take Moscow with a 250,000 man Army" is probably a tad on the optimistic side.
That's why we all have blundered so spectacularly in an advisory capacity here.
I don't what to speak for ZH but I think you are grossly overestimating your "role" (our "role"??) when it comes to the articles that are published on this site. Just sayin' . . .
P.S. Your comment was way too long . . . . keep it under 250 words in the future and someone might read the whole thing.
"Banks fear a private Chinese company may have used the metal as collateral to get multiple loans, potentially defrauding the lenders and trading firms."
Defrauding lenders? Umm, isn't this exactly what fractional reserve banking does by multiplying the underlying capital to create money out of thin air?...oh wait!
You just can't make this stuff up. Banks get screwed in their own game and call it defauding. When they do it, it's called banking.
Yup, some non-party flunky will get executed, the US and Euro banks involved will be screwed, and the copper will have been lost in a tragic boating accident.
Doomerism that will probably not come true for a couple years...
Doomerism that will probably not come true for a couple years...
Don't bet the farm on that. If you have followed Clif High's predictive linguistics work at HalfPastHuman.com you will have seen this type of issue coming for about 6 months. While some of his predictive analysis has missed completely many have been spot on months, if not years, in advance. His ALTA (written) reports and weekly Youtube summaries of near term event predictions are entertaining if nothing else. BTW - he initially started this work back in the late '90's to predict the movement in the financial markets.
http://www.halfpasthuman.com/ALTA_Sales_new.html
Question: Why is prostitution an attractive profession for some women?
Answer: You got it, you sell it, you still got it.
Question: What’s even better than prostitution?
Answer: Re-hypothecation. You don’t have it, you sell it, you never need it.
Hey, the Chinese have been using phony paper gold for years now to keep gold cheap. Short your phony paper to make money, and buy more real gold. Hypothecate that to keep the price down. Wash, rinse, and repeat.
When the victims want their gold delivered ... another tragic boating accident.
Looks like JPMorgan off loaded their commodities busines just in time. Almost like they knew what was to come.
"as in it never was there to begin with."
same with my first wife.
:)
o/t:
great article. i gave it a "5".
Yep. This one could hit the wires.
Miners should charge a premium for the dore they deliver to smelters. Guaranteed gold/silver content.
Miners should just sit on their metal. Take out loans to keep mining. Pay the loans off when a billion dollar note will only buy a cup of bad coffee.
" it appears the day when the Commodity Funding Deals finally end is fast approaching... and as we note below, why that will certainly be a watershed event."
amen to that.
its not like its free for everyday folk to carry that scam on their backs when they actually pay to use commodities.
artificial inflation born of unfettered 'stimulus' must mathematically yield unfettered non-inflation when said stimulus is withdrawn.
:)
Spose this is why the ABN Amro banker & his family were gunned down?
Hundreds of millions is ass wipe in this world, aside from that I was wondering were Linda Green was working now.
What does a Chinese warhouse and the US White house have in common?
Sorry couldn't resist.
Neither contains anything of substance.
What does a Chinese warhouse and the US White house have in common?
They're both full of foreigners looking for things . . .
In other words, all this commodity-financing is just another Yuan carry trade.
And by extension, this is just one of many symptoms of the abundance of cheap credit available in the west causing not unexpected financial ripples in China's credit market, right when they are trying to reform their system and tighten loose credit.
The only irony was we thought all that credit bubble in China was their own "irresponsible govt policy lending"(MSM meme), now it turns out there are foreign 'hot money' tubes going into it after all.
The only thing that shits me is this:
All it took was a photocopier and a few cents worth of paper?!
to think I spent all that time sitting in my mom's basement jerking off and dreaming up elaborate plots and clever scams to get rich, all it took was a few friggin PHOTOCOPIES?!
What's the world coming to for intelligent criminals and smart scams that used to make you woo?!
Hmmm ( strokes non-existant goatee ) ... I've got a photocopier ...
7.62x54r
I definitely dig your handle my man . . . . . MS M/91-30 - hoo-yaa!
You people don't get it. With infinite leveraging comes infinite wealth. Instead of stocking up on food and ammo, you should be deciding on the custom interior of your Lear jet. We're just one accounting gimmick away from being RICH... RICH I tells ya!!!
Lears are soooooo 20th century... Gimme a Gulfsteam G650 and I will definitely be pimpin' my ride.
http://www.gulfstream.com/products/g650/
;-D
Lears are soooooo 20th century... Gimme a Gulfsteam G650 and I will definitely be pimpin' my ride.
All Lears and Gulfstreams are yesterday's news. Me? I'd much rather have a Moller Sky Car 400. It's like chosing between a Bentley stretch limo and a Lamborghini Countach (yeah, I'm old school when it comes to cars).
http://moller.com/dev/index.php/sky-car/m400-specs
Mercuria, and Goldman's "Roger Yuan." This post has it all!
Wanna bet Mecuria suffers no loss?
Ben Green, Linda Green ..... hmm.....you don't think?
& the other one has left a (Liam) Brown patch with help from yellow people doing the wong kind of grass hopping.
China and Russia should arrest Jamie Dimon and Loyd Blankfein.
Lloyd & Jamie will need to be perforated first to avoid any uneven distribution.
Left brain - Right brain will be the big issue.
Any volunteers?
https://i.imgur.com/S7mGtP3.png
https://i.imgur.com/S7mGtP3.png
Fake blood and he looks like he just ended a month long tweak-a-thon. What's that gold thing in his hands? I thought BTC was an electronic form of "money".
I find it hilarious that all of the banks dumped their commodities trading units not even a few months ago. Someone knew something was up...
And China is the only country doing this. LMFAO!!!!
Leveraged assets whereby the assets don't exist. But these invisible assets have been leveraged only once.
ROTF-LMFAO!!!!
Not sure if that's better or worse that over valued assets used as leverage.
Act II is about to commence.
If I just buy in at. . . the. . . right.. . time. I'll get unbelievably wealthy! No one wants to think about how far out on a limb this economy is. It's not even a ponzi anymore, just one big roulette wheel to see who gets to eat the shit sandwich.
Question for those that still have common sense... If you were China Inc (and remember, it still is a centrally planned/controlled economy), would you flood the market with gold from the unwind of these deals OR would you use your $3T in USD ForEx and $1T in UST to keep all that physical gold on your shorelines?
We will have the answer soon enough... I predict they choose gold over USD... So, let's take a poll. If you think the Chinese will choose to keep possession of the gold in the CCFDs and use their USD Reserves to do it, click thumbs up. If you think China will flood the market with gold to preserve their USD reserves, click thumbs down.
I think this was the strategy all along.
The slate is being cleansed in preparation for a new monetary system.
China has just used the western bankers methods against them.
That's what I have been trying to help people see for a long time. As a tech entrepreneur that has had to compete with China Inc, I've realized how it plays for the long term. Further, at a time of its choosing, it can tank the USD and let the RMB gain with fractional gold backing. Its people will see rapid increases in purchasing power and will transition to a more balanced economy in the process. We will have consumed all of our wealth by "investing" in financial assets of retail, food and entertainment companies... instead of investing in productive assets in the real economy.
Almost everyone is upside down right now...
Ummm...
Sell the worthless gold and keep that valuable printed paper?
One's just a lump of unproductive metal and the other is backed by the full faith and credit of The Armed Forces of the United States of America.
And it's made from real rags.
That is only half the question:
The real question is will the Chinese repothicate and fractionalize their GOLD holdings like the US has?
"Copper prices have fallen 4% in the past four days after media reports of the potential fraud."
Why doesn't this happen to the stock market when FED manipulation is exposed?
So - when copper, iron ore, soybeans aluminum are used as collateral the unwind will cause prices to drop
I understand why - as item held as collateral gets liquidated .
But when gold is used as collateral the unwind will cause gold prices to spike higher?
I don't get it.
Can someone fill in the missing link?
I have the same question as all-priced-in. Anybody? Bueller?
Don't understand how the gold commodity back re-hypothecated unwind will end any different from copper or aluminum? Is it because gold has a different sense of 'worth' than copper to where parties would be loathe to unload in the physical market as the paper 'future' hedge is bought back during the commodity lease unwind?
Let me take a stab at this.
In short, people holding paper claims on gold want the actual physical, and there's a physical shortage of gold right now, so any physcial will be bought to fill that claim. People holding paper claims on copper(banks, lenders, traders) only want MONEY(money which happen to be denoted in copper, for lack of a better term), they don't want the actual physical copper and they'll sell off any physcial copper for money.
Ignore all the paper prices of gold/copper etc and look at physical supply and demand. Reality is, there's a physical shortage of gold and a physical excess of copper.
There's a shortage of physcial gold compared to the amount of paper gold claims, any physcial gold that becomes available will be snatched up to cover their paper claims.
Even though copper situation looks the same, it's actually the opposite, there's a physical excess. Reasons are:
- Part of the demand for copper was artificial, driven by use for loan collateral, not industrial purposes.
- People holding paper claims on copper don't want the physical either. The empty paper claims on copper, on the books of the banks who loaned the money, is a claim on its collateral value. Meaning: the people holding the paper copper claims don't want the actual physical copper, they want the money to the value of said amount of copper.
Banks(or traders) don't want physcial copper, what do they want that shit for? They want MONEY, money to the value of that copper, not the physical metal stuff itself.
Banks are now crying boo hoo when someone has done the same tricks to them, When they have been found out doing the same it is tough luck aka MF Global.....
I hope they are royally screwed and have to eat crow.
Why has cooper prices fallen? If the significant amount of copper has be used a number of times over (10-50) and put in as inventory and there is only 1/10 or 1/30 of actual copper, surely the price of copper should rise being less that "actual".
Just thinking? Again only buy and take physical delivery of any item.
I am sure about 2 years ago there was a warehouse scandal were JPM or GS could not account for someones copper or something and had told them it was being moved to another warehouse....... all 50,000 tonnes or was I just dreaming?
Does this mean that the Chinese will act exactly like the US FED with all their GOLD?
GOOD.
Commodities should not be speculated upon. They are to be used for manufacturing and consumption, not for money making by the non productive.
I guess it is good for the GDP, if they make a moneny/goods circulation.
Kinda like subprime mortgages huh?