Was Asia's Largest Commodity Trader The Big Silver Seller?

Tyler Durden's picture

We first brought the world's attention to Noble Group in 2015, as commodity markets crashed and what was Asia's largest commodity trader faced near-bankrutpcy as trading partners lost faith, bonds were dumped, and CDS protection was bid. In the months since, panic subsided and everything  - as it always seems to have been - was fine... until last week!!

Which brings us to the recent price action in Silver (as well as various other commodities). As The Macro Tourist's Kevin Muir asks (and answers) -

Was Noble The Big Silver Seller?

I don’t want to goocher it, but it looks like I might have fluked into picking up some silver last week near the bottom (Wallace prepares to buy some silver). That post is just proof that some of us were lucky enough to be born smart, while others, were smart enough to be born lucky. I count myself firmly in the latter camp, just without the foresight to chose that group. But rather than focusing on trying to time the short term squiggles, I would like to discuss the cause of the absolute drubbing the commodity markets took over the past month.

The easiest, and most obvious, explanation centers around the rise in US dollar real yields. A month ago, the US 5 year real yield (as measured by the TIPs market) was almost negative 30 basis points. Last week, at its worst, the real yield had pushed up to just a hair under positive 20 basis points. That’s almost 50 basis points of real tightening.

http://themacrotourist.com/images/2017/05/TIPMay1517.png

This occurred during a period of US economic underperformance versus expectations.

http://themacrotourist.com/images/2017/05/CESIMay1517.png

I am unsure if the poor economic performance was coincidental or causal, but it doesn’t really matter. Higher real rates, combined with an economy rolling over, are a poor environment for commodities.

The cause of the rise in real rates is more difficult to ascertain (whether it is an overly tight Fed, or Chinese withdrawal of liquidity, is up in the air), but its effect on our precious metal friends cannot be argued. Precious metals hate rising real yields. In fact, given the backup in real yields, gold actually hung in there pretty well.

http://themacrotourist.com/images/2017/05/GoldMay1517.png

But, silver traded tick for tick with the US 5 year real yield.

http://themacrotourist.com/images/2017/05/SilverMay1517.png

It could be there is nothing more to this story. Real rates rose (for whatever reason), and commodities sold off. Nothing more, nothing less.

Yet when I look at the silver chart, it seems less than random. For the period of mid-April until last week, the trading action consisted of a persistent, steady decline.

http://themacrotourist.com/images/2017/05/SilverGIPMay1517.png

The selling was relentless, and much too uniformed. Although I know fundamentals were helping the decline, I contend there might be more lurking behind the scenes.

I am late to this news, but over the past couple of weeks, Hong Kong based commodity conglomerate, Noble Group, has gotten themselves into some serious trouble. Actually, serious trouble is probably understating the situation. It’s more like grave danger (like there is any other kind?)

First up, let’s have a look at the equity price of Noble Group:

http://themacrotourist.com/images/2017/05/NobleMay1517.png

Strangely, the decline in Noble’s stock price started the same time as silver, almost to the day.

And lest you think Noble is simply experiencing a share price decline that might be recouped, have a look at their most liquid bond issue:

http://themacrotourist.com/images/2017/05/NobleBondMay1517.png

At the beginning of May, this bond was still trading at slightly under par. Over the past week, it has declined to just over 50 cents on the dollar.

The bond market has abandoned Noble. Something’s wrong. Really, really, wrong.

When I was researching this situation, I stumbled upon this great blog from Iceberg Research. In their research, they outline the short thesis for Noble. I am not judging the merits of their case, but I trust the bond market. And the bond market is screaming that Noble is in trouble.

And what do you trading companies do when they are in trouble? They sell stuff to get liquidity. Inevitably they don’t sell the stuff they should, they sell the stuff they can. It’s a tale as old as time. We saw it with Long Term Capital Management, with the Bear Stearns real estate credit hedge funds, and even with Lehman.

In Iceberg’s research, they outline a whole host of illiquid commodity assets they claim Noble is marking too high. If this analysis is correct, then these assets will be the last thing Noble pitches. Instead, liquid commodities, like say, silver, will be given the boot…

I could be whistling in the wind, but I wonder if silver’s decline over the past month has been a desperate attempt to shore up some liquidity at Noble. Although we probably will never know for sure, I take solace in the fact that if I am correct, then most likely Noble will have no more silver to sell. If the grim reaper of bankruptcy comes for Noble in the coming weeks, then all the good positions will have most likely already been sold. Don’t get too bearish on any Noble Group bad news, it’s most likely already in the price of all but the most illiquid commodities.

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dark fiber's picture

Bullshi by any other name.  Fuck that just hold on to your metals and add whenever you can.  Those who have thrown in the towel and given up, you will only have yourselves to blame when everything is said and done.

takeaction's picture

I keep selling into the rallies....You can keep preaching this for the next Decade.  I wasted a decade on this horse shit.

daveO's picture

Deflation, when debt/money dies.

assistedliving's picture

take, totally understand...but during last decade Ag went from $10 - $50

http://www.kitco.com/charts/popup/ag3650nyb.html

so i hope u made some.  I expect more of the same in this decade.

new game's picture

long comodes that matter. tp,  dry food, water purifier, some lead ect. and little shiney just in case...

Scuba Steve's picture

Sell PM Puts into the rallies, Sell PM Calls into my longs ... Buy Phyzz when fiat is excess thru the Options premium.

Pay me now or pay me later BUT you're gonna pay me.

Davidduke2000's picture

One would expect you to have sold all when it reached $18 few month ago. to me you look like somebody who bought the silver because of hype of some websites to realize it is an insurance policy and not a trading opportunity, sold at a loss and now you bash silver and probably gold.

Bill of Rights's picture

22 years in the Metals trade same tired old story of insurance or barter or whatever ... jr here acting as if he has all the answers... nothing I haven't heard. I know I know it's different this time any day now 100 silver 20,000 gold...

Bill of Rights's picture

Decade and then some here ... lost a lot of value in my , oh what the kids call it today ... insurance. The feel good term for losing one shirt...

SomethingSomethingDarkSide's picture

*Sum ting is wearry, wearry wong

3Wishes's picture

Its called a PINCER movement,  A big Paper Short selling and a Big Paper long that is standing for delivery ;)

SILVERGEDDON's picture

Dude, a pincer movement is when you drop a clean breaker into the commode, and the toilet paper comes up clean.

Just sayin'.

syzygysus's picture

Clear picture there. But these rigged PM markets are like the never ending wipe and you give up and take a shower.

Davidduke2000's picture

Pincer does not apply to manipulated commodities, nor any chart as the price is not real.

SRV's picture

Author needs to spend some time looking at the weekly Committment of Traders report on the COMEX... the Banks had a massive short position.

But he finally did nail it... whistling in the wind.

Davidduke2000's picture

It does not matter to me who did it, as from time to time we get an opportunity to add to the stacks , these silver bars would only be used when everything carshes , soon or late a crash would happen and people would not be able to buy silver, it is the currency for everyday purchases as in a crash nobody would accept paper money.

Davidduke2000's picture

I see a lot of small players trying to trade silver which is laughable unless you are playing the paper game, as the paper game is like the penny stocks.

Scuba Steve's picture

How about miners, whats your opinion on small players trading miners specifically junior miners?

Davidduke2000's picture

Junior miners with real gold and silvers are good trades, you have to have extra money that you do not next week as all miners are subject to a lot of shorting by people with inside information from the central banks, but  all companies that have the word  resources  in who are not really miners, they have some rights to some claims  and there are a lot of them are crap to stay away.

Bill of Rights's picture

Paper physical the fucks the difference both have lost their shirts ... it a shit trade and a losers bet... ya ya I know insurance for the end of the world that makes perfect fucken sence...

Mementoil's picture

Gold and silver are not supposed to make you rich overnight.
They are supposed to preserve your wealth and see it through a monetary reset event (which will not be the end of the world, and the likes of which have happened many times in the past).
Whoever throws the towel at this point is short sighted, IMO.

As a matter of fact, I see long time stackers losing faith as an increadibly bullish signal.

blargg's picture

I'd be happy to die and never have sold any of my PMs. It would mean that the world economic situation went well and therefore things were pleasant.