“Kate, who will now be known as Princess William of Wales, is the first woman from outside royalty or the aristocracy to marry so close to the throne for 350 years. When William becomes Britain’s monarch, she will be queen. Queen Elizabeth II, William’s grandmother, announced today that the couple will be given the titles of Duke and Duchess of Cambridge.”
The banksters make people starve. What has the evolution of derivatives done to the commodities market? All the longs pouring into the commodities market, will never eat the food….Good insight into the commodities and food market.
“But Goldman’s index perverted the symmetry of this system. The structure of the GSCI paid no heed to the centuries-old buy-sell/sell-buy patterns. This newfangled derivative product was “long only,” which meant the product was constructed to buy commodities, and only buy. At the bottom of this “long-only” strategy lay an intent to transform an investment in commodities (previously the purview of specialists) into something that looked a great deal like an investment in a stock – the kind of asset class wherein anyone could park their money and let it accrue for decades (along the lines of General Electric or Apple). Once the commodity market had been made to look more like the stock market, bankers could expect new influxes of ready cash. But the long-only strategy possessed a flaw, at least for those of us who eat. The GSCI did not include a mechanism to sell or “short” a commodity.
This imbalance undermined the innate structure of the commodities markets, requiring bankers to buy and keep buying – no matter what the price. Every time the due date of a long-only commodity index futures contract neared, bankers were required to “roll” their multi-billion dollar backlog of buy orders over into the next futures contract, two or three months down the line. And since the deflationary impact of shorting a position simply wasn’t part of the GSCI, professional grain traders could make a killing by anticipating the market fluctuations these “rolls” would inevitably cause. “I make a living off the dumb money,” commodity trader Emil van Essen told Businessweek last year. Commodity traders employed by the banks that had created the commodity index funds in the first place rode the tides of profit.” (FP)
“Japan is in bizarre economic territory. Bank of Japan Governor Masaaki Shirakawa isn’t exaggerating when he says the economy faces “strong downward pressure.” That dynamic, coupled with the cost of rebuilding Tohoku, means issuing lots of new debt.
You would think that with Japan’s debt-to-gross domestic product ratio — already 200 percent — set to widen, traders would be wary. You would think a nation with a shrinking population would be chastened by markets for over-borrowing and forced to find another way to boost growth.
No, traders are saying all is well and giving Japan the green light to sell bonds. One can only imagine the market surrealism that will begin once that light turns yellow or, worse, red.” (Bloomberg)
Like we wrote last week, there could be a bid for Lundin Mining by the Chinese. http://www.thetrader.se/2011/04/25/bid-war-in-commodities-complex/
In today’s The globe and mail, there is an article siting Chinese bid for Lundin being prepared.
“A Chinese-led consortium is preparing a potential bid to acquire Lundin Mining Corp. (LUN-T8.34-0.06-0.71%), marking the latest move by China to secure key mining and energy resources to feed its rapidly growing economy.
According to people familiar with the discussions, the buying group is headed by one of China’s largest base metal miners, Jinchuan Group Ltd., and includes the country’s giant sovereign wealth fund, China Investment Corp. (CIC) Jinchuan is China’s biggest producer of nickel and cobalt and owns a variety of mineral properties in mining frontiers such as Africa and Kazakhstan.”
From the creator of the silver bears, the tradenator, here comes the Bernank’s meeting explained in a very understandable way. Courtesey Omid Malekan. For full list of videos, visit, www.omidmalekan.com
Below a very good piece from BGC regarding 2011 Markets. Some great points on volatility (when Vix was fear index, yes we know skew is high), market dynamics, global momentum chasing, correlations etc. Courtesey BGC.
1. Markets Will Range Higher and So Will Volatility: The markets are in an interesting period in which both prices and volatilities are likely to see significantly higher levels during the year. Consistent with our Wolf Market framework we established last year, we also see the SPX as inherently range bound. Accordingly, we have identified near term “inner range” SPX targets of 1,220 to 1,360, suggesting unfavorable risk/reward in the immediate future
2. Wolf Market Dynamics Will Continue to Dominate: We are in an environment where we have the concurrence of 1) zero risk free rates and 2) continual debasement of the fundamentals underlying these risk free rates. These dynamics have undermined classic fundamental security analysis. Macro risk factors, sentiment, and technical analysis will continue to fill the analytical void left by the displaced fundamental framework. Top down analysis, algorithmic driven momentum trading and highly dynamic capital flows will continue to frustrate investors relying solely on bottoms up stock picking.
3. The U.S. Economy is Improving but Full Resolution Will Take Years: We believe that we are only about one half of the way through a complete economic resolution of the 2008 financial crisis. While several economic trends have demonstrated improvement, the housing and employment problems will take years, not quarters for resolution. The recovery underway is highly vulnerable to higher food and commodity prices; a stagflationary environment is a very real scenario.
4. Global Macro Risk Factors Continue to Hover: We see the global risk framework for 2011 as an interesting combination of after effects from monetary and fiscal responses to the U.S. and European financial crisis meeting with new macro shocks. In particular we are concerned about Japanese sovereign credit issues driving a global shift in sentiment towards developed market sovereign credit on a global basis.
5. A New Normal For Equity Market Volatility: The 20 year life of the VIX enjoyed a remarkably benign economic environment. The 2008 financial crisis has changed the framework for equity market volatility for a considerable period of time and we believe that VIX levels need to be considered in a different context. A VIX level of 15 in 2005 is quite different than a VIX level of 15 in 2011.
6. Risk On/Risk Off — Is Still On, But It Is Evolving: We have analyzed correlations across various risk assets, regions and industry sectors as well as on a single stock basis. Many correlations are still in “crisis” level high ranges while others have rapidly retreated. Asset allocation, country/region selection and sector weightings will continue to be key drivers of performance. Everyone is a global macro investor.
Full report below,
Inflation in China is getting more evident by the day…..
“China’s yuan strengthened beyond 6.5 per dollar for the first time since 1993, supported by speculation the central bank will allow appreciation to help tame the fastest inflation in more than two years.” (Bloomberg)
Good points regarding yesterdays Bernanke show. Full video, http://watch.bnn.ca/#clip457419
“The Fed’s balance balance sheet is likely to stay inflated for a long period of time; he won’t be able to sell assets back to the market without a very significant write down if that were to happen in the near/mid term. Consider that a an 8% write down on his $1 trillion in mortgage back securities would wipe out the Fed’s equity capital. From a political perspective this would drive massive angst among a wide range of politicians and very much put the Fed’s independence (something Bernanke holds dear) very much at risk”. (Michael Purves, BGC Derivatives)
Inside scoop about Goldman. Great article by Vanity Fair about high finance from the No1 Firm, Goldman.
“What tripped up Goldman’s traders was a massive wrong-way bet on interest rates. “Credit spreads just blew out,” Paulson explains. In February 1994 the feds raised interest rates, and “it just completely fucked up the firm’s trading position,” recalls another Goldman partner. “The firm didn’t really know what the risks were.” By the following summer, as the trading losses mounted, Friedman was increasingly frazzled. Bob Hurst remembers seeing him in Jackson Hole, Wyoming, where Friedman had a home, and thinking that the senior partner was hurting. “ ‘Your job’s impossible,’ ” Hurst recalls telling Friedman. “ ‘I have no interest in it.’ I said it from a perspective of I thought he had a couple of years to go and not that he was quitting that fall.” Another partner puts it bluntly: “Steve hated his job as C.E.O. He hated it because he felt he had lost control of his life.” (Vanity Fair)