Readings: Commodity speculation, MF crunch, Base metals
- Wall Street Journal: The New Chemistry of Speculation
In just two months, investors and hedgers took on more than $500 million of notional exposure — about 2.7 million metric tons — making this one of the biggest commodities markets to spring up almost overnight.
Through Goldman Sachs Group Inc., clients can invest in palm oil and other biofuel components. Deutsche Bank is trading ruthenium, an obscure metal used in fountain pens. Along with other firms, Deutsche is expanding into rhodium, used in catalytic converters.
Mr. Masters urged Congress to investigate the iron-ore contracts and similar deals, claiming they could help investors buy natural resources, sit on them until their price rises and then sell them. “This is Wall Street innovation run amok,”
This is very important - it’s so new that we have yet to understand how much of commodity inflation (if any) is caused by the new speculator/trader/hoarder class.
- Economic Times: MF firms face post-boom profit crunch
The MF industry grew more than four-fold over the period to manage Rs 5.5 trillion ($129.8 billion) by the end of 2007 . . . equity fund inflows fell to their lowest in June since August, 2006 and new stock funds have collected just Rs 18.3 billion so far in fiscal 2009, compared to Rs 63.35 billion rupees in the year-earlier period.
. . . profitability for the industry could drop to below 15 bps this year. By comparison, the industry’s operating profit as a percentage of average assets was 12 bps in the UK and 18 bps in the United States.
Tough times ahead, especially for managers whose compensation is not tied to performance.
- Zeal LLC: Base Metals Stockpiles & Prices 4
LME stockpiles account for about 75% of the above-ground measurable supply when the stockpiles of the other major metal exchanges (SHFE and COMEX) are factored in. This explains the major influence LME stockpile levels have on global base metals prices . . . 87% of the daily behavior of copper from early November 2007 to current could be explained by the inverse movement of its daily LME stockpile levels. This is a very tight inverse correlation.
Copper, zinc, and lead are currently adhering to this inverse correlation based on their historically low LME stockpile levels. Flows and ebbs in these low stockpile ranges allow lofty risk premiums to come and go. But nickel and aluminum are currently going against trend. Nickel because of its high stockpile-to-consumption ratio and aluminum thanks to environmental factors closely tied to the soaring price of energy.
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