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.

bitcoin-bitchez's picture

Gave up and couldnt be more happy! fuck the gold and silver scam.

stacking12321's picture

gold and silver, unfortunately, are not backed by BITCOIN!

GUS100CORRINA's picture

I don't know about everyone else, but this kind of action is indicative of a very SICK market.

On April 13th, I bought DSLV as a hedge @ $20 because something looked very wrong. Once the order was complete, I put a limit sell order in for 29. To my utter shock and surprise, the sell order executed at 29 in early May'17.

While it is nice to make a profit, something is very wrong with this kind of thing. Can you imagine if this occurred in a much larger market? the Silver market is relatively small. 

natxlaw's picture

Are you shittin me? I made 40% today on ICGQF. I have long calls (Jan 2019) on SLV at 16 and 20, but I'm down 20% on them. I'm thinking about just putting it all in phyz, what say you?

SILVERGEDDON's picture

 


Metals are a longer time line. What is a Liberty twenty dollar gold piece worth today versus the original value ? What is a Morgan silver dollar worth in relation to funny bux today ? I don't hate Fonestar. I just think he was a Ponzi scheme ass hat.

Still is, in any of his sun fucked onion headed reincarnations, like you, for instance.. My shit has been going up since 1964. Catch up to me in fifty years, and we will compare net worth, short timer. I have over five thousand years of monetary history on my side. What's in your wallet ? Unicorn farts, skittle shit, androids dreaming of electric sheep, EMP's, and the government take over or outlawing of all digital currencies - except their own.

stacking12321's picture

you're wrong about so many things, geddon, but i have to give you credit for trying.

i'm not fonestar, but i give you points for your paranoia.

"Catch up to me in fifty years, and we will compare net worth" - thanks, but i don't need to have a penis-size measuring contest with you, i'm just not interested in how large or small yours is, got it? try and get over your ego, you'll have a better life.

and as far as government outlawing anything? i am my own government, i govern myself. no man has authority over me. i ignore the dictates of tyrants, just like when they told me LSD is illegal.

 

SILVERGEDDON's picture

I think you used too much of your own product. Flash back much ?

Government has been fucking over free men for a longer time line than your life line, grasshopper

You were that chemist who brewed up the really good LSD 25 at Berkley back in the early sixties, right ? Right? 

stacking12321's picture

unfortunately i don't know how to make LSD, but one of my friends in high school did.

and what you call government is just an armed gang, a local mafia, nothing more - it's just a mind control trick they want you to belive in, that they are "the government", the authority.

but that vanishes like a mirage in the desert when examined closely.

 

SILVERGEDDON's picture

What you say is true. 

Unless you are locked up, and they are coming into your cell for another round of waterboarding with your balls wired up for electroshock therapy to cure your anti social deviant habits, like tax evasion.

Then, they are pretty real.  

stacking12321's picture

yes their violence is real, and their existence as an armed gang is real.

but they are not the real government, they are usurpers.

the true governance is self-governance, it is within oneself.

natxlaw's picture

Yeah they are. I got btc and I'll trade for PM, so they are backed by bitcoin.

giovanni_f's picture

a world without large commodity trading houses is like a fish without a bicycle

SomethingSomethingDarkSide's picture

Ha, see you at the finish line, pussy.

bitcoin-bitchez's picture

You will be dead long before you can collect, pussy

SILVERGEDDON's picture

Well, well, well. A couple of Fonestar fanboi wannabe's.

You boys keep riding that digital rainbow skittle shitting Bitcoin unicorn.  

When you are sitting on the sidewalk with a cardboard sign stating " I lost it all to the goverment on Bitcoin , please help. ", I promise - I will smile and wave on my way by your sorry Digital Dutch Tulip Crazed asses.

83_vf_1100_c's picture

  This stacker is jealous of those making bank on BC. If you got in early you won't be hurt when it crashes like a Lear 35A full of banksters. Shit that ramps up that hard crashes just as hard. If you are in 'Da Club' and know when to time entry/exit then great. Otherwise, welcome to Club Muppet when the club decides it has made enough money or has selected the next new digi-money. 

natxlaw's picture

Bitcoin is going to a million eventually. Think about the total amount of international trade annually, then divide that by 21 million. That's your rock bottom base line.

slimycorporatedickhead's picture

Bitcoin is going to $1,000,000 per coin? LOL. So your reason for that happening is that all citizens in all countries and all governments will embrace BTC and no other competing cryptocurrencies will exist. God dam. Good luck!! You should start borrowing money to buy BTC.

SeuMadruga's picture

I thought BTC was a libertarian-inspired creation, and not something eventually enforced upon the entire world at gun point, as is the case with current metal (lead)-backed, fiat-currencies since their inception...

Davidduke2000's picture

do not feel bad, it's a mirage , the day that you buy it could be the day it collapses, this thing went down to 1 penny a couple of years ago, but since you cannot short bitcoin and because the offer and demand you see the price up. any scheme with no shorting would be speculators gold mine. 

Bill of Rights's picture

Haven't given up but not buying it either, if anything I'm unloading ... I'm
Living for today as there may not be a tomorrow.....

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.

Rebel yell's picture

Great work Tyler!

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.