Catastrophic Losses In Commodities May Shake London

[Realistbear]

http://www.telegraph.co.uk/money/main.jhtm.../ixcitytop.html

Banks face vast losses in copper mayhem

By Ambrose Evans-Pritchard (Filed: 13/05/2006)

The spike in copper prices over recent weeks has left a group of banks and operators on the London Metal Exchange (LME) nursing vast losses, raising concerns about the stability of the commodities market.

Simon Heale unexpectedly said that he would be stepping down by the end of the year

The banks have been caught out by a sudden

widening in the gap between the price of three-month futures and that of long-term futures, for December 2010 or April 2011.

Copper surged this week to an all-time high of $8,875 a tonne, rising almost 10pc on Thursday.

Yet futures prices for April 2011 are just $3,778 a tonne.

Copper has doubled in price this year even though industrial demand is flat.

"This is fairyland," said Richard Elman, head of the Noble Group.

"We have never seen such a disconnect between reality and pricing of raw materials.

The long-term story is sound but the short-term froth is patently frightening."

With futures pointing to a crash its a game of "Injun Poker" and perhaps time to get out of commodities in the event a crash in one causes a chain reaction in the others.

Edited May 13, 2006 by Realistbear

[CrashConnoisseur]

Not exactly a copper-bottomed investment then.

[MarkG]

This is what happens when you run artificially low interest rates for years and print vast trillions of dollars which have to go somewhere. They run around the world creating bubble after bubble until rates are raised high enough to destroy them through debt repayment.

[Buylowsellhigh]

Copper Futures 6 years out !?!! Bugger me, Bush43 will probably have had us all nuked before 2012 ! If you looked out the window of your time machine you would see that the near Copper Future finished the week very respectably. New all time contract highs, in fact. 450% higher than April 03.

Where do you dig this sh*t up ?

---

Edited May 13, 2006 by Buylowsellhigh

[vinny]

Copper Futures 6 years out !?!! Bugger me, Bush43 will probably have had us all nuked before 2012 ! If you looked out the window of your time machine you would see that the near Copper Future finished the week very respectably. New all time contract highs, in fact. 450% higher than April 03.

Where do you dig this sh*t up ?

---

I think you miss the point? (Although I'm not 100% sure).

They MAY have to buy at these high prices to deliver at lower prices later. Short term ramp (FAR beyond fundamentals) leading to a massive slump and continued losses futher down the line.

Or have I got this wrong???

[MarkG]

Usually higher prices today than in future would indicate a major supply shortage, but the article is claiming there's no supply shortage, so that pretty much only leaves speculators.

Someone will be making a killing, but the manufacturers and buyers will be losing a lot of money.

[Realistbear]

Copper Futures 6 years out !?!! Bugger me, Bush43 will probably have had us all nuked before 2012 ! If you looked out the window of your time machine you would see that the near Copper Future finished the week very respectably. New all time contract highs, in fact. 450% higher than April 03.

Where do you dig this sh*t up ?

---

Financial section of the Telegraph. Not sure if it is sh*t or shinola.

One of the major points was the damage this could do to the banking system:

The banks have been caught out by a sudden widening in the gap between the price of three-month futures and that of long-term futures, for December 2010 or April 2011.

"The dramatic differential we have seen over the past six weeks has cost them a huge amount of money," said a market source. "The bigger players can absorb the losses but smaller operators have nowhere to hide

."

Edited May 13, 2006 by Realistbear

[Buylowsellhigh]

RB,

The stability of the market has little to do with the losses of a few Banks, which deserve all they get in my view ...but then it would'nt be the first time that it was used as an excuse to collapse prices. With so little information available it's difficult to say, but to me this looks like a squeeze. Mr Heal may be taking the fall for it, who knows.

With regards to recent prices, I think it would be a mistake to discount the possibility that the producers themselves could be behind this rally. Indeed, why would'nt they be ? ..and if a few Banks get caught out along the way, all the merrier

http://www.financialsense.com/editorials/f.../2006/0504.html

One of the major points was the damage this could do to the banking system:

...and that's good, yes ?

They MAY have to buy at these high prices to deliver at lower prices later.

...that's definitely good !

---

[Realistbear]

RB,

The stability of the market has little to do with the losses of a few Banks, which deserve all they get in my view ...but then it would'nt be the first time that it was used as an excuse to collapse prices. With so little information available it's difficult to say, but to me this looks like a squeeze. Mr Heal may be taking the fall for it, who knows.

With regards to recent prices, I think it would be a mistake to discount the possibility that the producers themselves could be behind this rally. Indeed, why would'nt they be ? ..and if a few Banks get caught out along the way, all the merrier

http://www.financialsense.com/editorials/f.../2006/0504.html

...and that's good, yes ?

...that's definitely good !

---

IMO it all adds to the highly speculative nature of the markets these days. Its almost like high stakes musical chairs or, a few years ago, pass the parcel in an Irish pub. Don't be caught with your investment when sentiment suddenly shifts. Its the kind of environment that people like Warren Buffett sit out. I am following his example.

[Buylowsellhigh]

Don't be caught with your investment when sentiment suddenly shifts.

Sure. The gap open on Thursday got my attention(island?). I should be ok though as I've been practicing them for 6 weeks.

---

[Foobar]

This is what happens when you run artificially low interest rates for years and print vast trillions of dollars which have to go somewhere. They run around the world creating bubble after bubble until rates are raised high enough to destroy them through debt repayment.

Agreed. It's not good, it just produces instability economically, politically and socially.

[MarkG]

Agreed. It's not good, it just produces instability economically, politically and socially.

As someone said up above, it turns the markets into a game of musical chairs. The money jumps from one market to the next, devastating them one after the other as it goes... if you get in and out at the right times, you make a lot of money, but get caught buying at the top and you're out of the game.

IMHO if rates aren't raised enough to suck up much of that cash, it's going to cause major failures of the entire global financial system.

[OnlyMe]

What happened to that Chinese "rogue trader" that got blown out, of course he/she was just working their own book without the knowledge of their master.

As has been said let out a few trilllion in cheap debt and it will pop up in all sorts of places. Looks like some banks have been caught on the hop, well that is the game. On the basis of what central bank profligacy has done recently in producing bubbles of epic propertions we have seen in the past then how long can this one last beyond fundamentals? Days, weeks, months, years even? Obviously hurting enough to get the press involved.

[the end is a bit nigher]

this difference can happen on a month on month basis (though not usually so pronounced) - nothing to worry about