Posted on 05/06/2011 4:31:26 AM PDT by Perdogg
A cascading crash in commodities beginning with silver a week ago spread to oil and copper as exchanges took steps to rein in speculation, economic data pointed to a global selloff and big name investors took profits.
(Excerpt) Read more at cnbc.com ...
I find it amazing how effectively these people can coordinate their policies with the heads of the commodity exchanges and their pals at the big banks who are perennial shorts in the markets and have now managed to pluck the money out of hundreds of thousands of commodity trading accounts enriching the big banks (government sponsored hedge funds) in the process. Nothing like a freely operating financial system where the playing field is completely level and no one has an advantage over the next guy!
By their continued hiking of silver margins, the exchange effectively removed the liquidity in the silver market that the smaller specs have been providing. That left the market vulnerable to severe drops in price as these specs exited due to financial constraints which then removed a source of potential bids under the market as the CFTC commitments report has shown the small specs to be good buyers in the silver market. Even the bigger hedge funds are impacted by such a sharp hike in margins as their losses in silver then precipitate even more losses across other assorted commodity markets due to the cascading effect of mounting paper losses and margin calls and the need to raise cash.
As the silver market tanked the exchange officials could then warn about Clearinghouse integrity and have more reasons to drive margins even higher as they point to the increased volatility, volatility which I might add, they created themselves by hiking margins to such an extreme degree.
I find it hypocritical, if not downright wicked, that this is occurring against a backdrop of a senior executive at the CME Group, one Mr. Bryan Durkin to be exact, warning regulators against reining in High Frequency Traders. He parroted the usual BS about their presence providing much needed liquidity warning that any attempts to bring them under more intense scrutiny or curtail their activity would result in markets becoming less efficient. Does anyone besides me marvel at the temerity of these people who spout such idiocy and then go about deliberately instituting a series of devastating margin hikes which are deliberately designed to KILL LIQUIDITY guaranteeing less efficient markets and roiling the entire commodity complex in the process. Is this what an efficient market is supposed to look like when crude oil prices collapse nearly 9% in a single day because there are no bids or silver which is again down nearly 9% also in a single day?
The truth is that the exchanges are money hungry bastards that want the fees generated by the HFT crowd and do not want anyone to mess with their golden egg laying goose.
Regardless, this collusion on the part of the players involved has accomplished, for the time being only, what the Fed has been trying to do ever since it instituted its second round of QE, which by any standard of objective measurement, has failed. To wit - keep long term interest rates low to generate borrowing.
Unfortunately for the Fed, the bonds were not cooperating and were actually moving lower for a while as commodity prices were responding to the breakdown in the Dollar and holders of long term bonds were balking at hanging on to an "asset" that was priced in a collapsing currency while being threatened with a serious outbreak of inflation as a result of all the reckless money creation.
What could be done especially with the US Dollar within a mere point of crashing through a critical support level which would have seen the onset of a currency collapse and a resultant crisis?
Oh by the way, I might note here that the Japanese Yen has moved to within 58 pips of the level that brought about a massive coordinated intervention back in March that was tied to the tragic earthquake and tsunami. All of those billions spent on knocking the currency down have been wasted as the newest plan to derail the commodity markets brought about another unwinding of the Yen carry trade causing the exact same problem for Japan once again. In other words, less than two months later and after spending billions to derail the Yen and prop up the Dollar against it, we are right back to where we started on Dollar/Yen.
Next move guys???
Trader Dan's missive on the same subject
Still haven't noticed the kids slowing down or forgoing unnecessary trips.
As for copper, the decline in price is probably a good indicator of the strength of the economy and may point to a double dip recession.
Thank you for that
Maybe this will finally get me the second chance with FCX I’ve been waiting for.
Right on the money.
Looks like I’m the only one thinking all of this is a set-up for a significant revaluation of the Chinese Yuan.
Notice what’s happening is that commodities (dollar denominated) have been dropping fast - while the dollar is going up. As if the commodities are being divested in dollar terms. This would transfer the assets from commodities, initially to the dollar they are sold in.
Watch for the dollar to begin dropping next. As all those dollars are moved into Yuan.
Next week when America is pressing China about trade, China will finally agree to revalue - since the alternative is tariffs. Tariffs would be money for America, while revaluing the Yuan does not mean money for America. China will revalue. Making all those Yuan immediately worth much more.
Note at that point, the new more powerful Yuan will be redeployed - right back into all those assets which are being sold off - and you’ll see an asset bull run like never before.
Final value of all the (currently falling) assets, will be significantly higher than before the current drop - by the proportion of the revaluation.
If the Yuan value doubles - asset prices will double.
That’s my conspiracy theory.
Silver might find some support at $31.
In the same fashion as silver kept going up and up until there were no more buyers, silver will soon stop going down and down becuase there are no more sellers.
It has been a vicious correction. $49.50 to $33.50 in 5 days.
It might be possible to trade a revaluation - by buying Yuan first.
Now.
While the value of the Yuan is being held artificially low...
Or not. We shall see soon enough.
They've probably been begging Barry to do Osama in ever since he took office. I have no doubt that if people have been watching that house for years someone leaked it to the Saudis. They wouldn't care to be as careful as we might be, they'd want us to demolish the place just on the chance Osama was there.
While at one time they said just ignore him since he was ill and couldn't live all that long anyway, since mid-2007 they've had an increasing number of problems in the Kingdom and it can be tracked right back to Osama. At one point they figured Barry for a friend, but found out that in spite of his bending over and offering their King a BJ when they met, he is really only a friend to himself.
JMHO based on what some friends who have been working over there have said.
For later.
The drop in oil I expected, but I am ignorant of why silver dived.
Hunt Brothers II..............
An article I read a couple of days ago indicated that at $40+ for silver, a lot of industrial users of silver were looking to find other metals, thereby driving down demand.
Some hedge funds are short silver.
It makes sense that what finally got Osama was all the uprisings.
Why do you think Foxconn recently started work at a new factory in Brazil? I think within 7-10 years most of the consumer electronics built by Foxconn could be coming from Latin America, mostly because of lower transportation costs.
“Gas actually DROPPED 4 cents a gallon here in the fascist People’s Republic of Red Hampshire this morning...”
Diesel has dropped on the Seabrook areaquite a bit. It is now cheaper than gas. My 50+mpg diesel Jetta and 52 gal. tank on my Ram 4500 appreciate that for now. A $2.50/gal or so drop would be nice.
Mine is that Italy is really behind everything and will suddenly rise to rule Europe. Thinking, "been there, done that" after about a month, though, they'll hand control over to group in Kansas who collects antique Fiats. ;)
I like odd conspiracies instead of your run of the mill doom and disaster. Not that handing a bunch of Fiat collectors control of Europe couldn't turn into a disaster, it's just that no one expects the Kansas Imposition.
Sad about the silver, but very very good news if it causes oil prices to go down!
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