Category: U.S. Economy/Budget

Here we go again…

Goldman’s Quants Knuckleheads Are At It Again!

One would think after teetering on the brink of going under, that Goldman Sachs would be a little more cautious about investing.  But alas… no. Reuters and The WSJ reveal that Goldman are accumulating aluminum metal. Could Goldman be attempting to ‘corner the market’ in aluminum. How are they doing this? Here is how;

Goldman commodities brokers are buying aluminum metal, and storing it with their subsidiary Metro International Trade Services. Metro rents warehouses to store aluminum,  Metro charges Goldman rent to store the aluminum. Buyers of aluminum metal, (yes the actual metal, not the option), buy the aluminum from Goldman. Metro ships the metal and collects, shipping and handling charges. This doesn’t sound too bad, BUT WAIT!

The aluminum buyer can’t get all the newly purchased aluminum out of Metro’s warehouse, in a historically timely fashion, because Metro isn’t shipping out as much as they can. Metro is exploiting an LME rule, and is only shipping out the smallest amount required by the LME, every day. Metro ships part of the purchased aluminum and then the buyers are stuck paying rent to Metro(Goldman), on the balance of unshipped aluminum. This wasn’t a problem in the past because warehousers actually tried to ship the aluminum to the buyers as quickly as possible, not so with Metro. What used to take weeks to get delivered is now taking months. How much aluminum is this?  Metro warehouses about 25% of all the aluminum, with the London Metal Exchange(LME).

Now Goldman and Metro have more aluminum coming in, then going out. Buyers are complaining to the LME about the delays getting aluminum and the increase in rents and service charges.  Metro is getting increased revenue’s with higher rent and service charges to expedite shipping. The LME is working to change the rules to raise the minimum tonnage of metal shipped per day.

Everyone knows that to make money, you develop a new technology or you exploit an inefficiency or have better intelligence(data) or your the first one into a market. Clearly, Goldman and Metro have exploited the rules of the LME to their own advantage. Kudos. There are two problems worth mentioning here.

The first problem lies with the fact that they maybe cornering the aluminum market. Cornering the market is loosely defined as, “to purchase enough of a particular commodity, asset or stock to allow price manipulation.” One could argue that they aren’t actually cornering the aluminum market, but clearly their warehousing practices are allowing them to “indirectly” manipulate the aluminum market. History has shown over the last 100 years, that those who try to corner a market get burned in spectacular fashion. Anybody recall the billionaire Hunt Brothers attempt to corner the silver market in the 1970s and 1980s? No longer billionaires. Porsche trying to get control of Volkswagen in 2008? Porsche now an integrated automotive group led by Volkswagen.  Onion futures, anyone?

The second problem is the US government or “you and me” are still owed money from Goldman for TARP. If the LME does not change these rules quickly and market forces cause an upheaval in aluminum prices that could leave Goldman on the wrong end of the deal. Prices are going down as the global slowdown continues.  The US government may have to rescue Goldman AGAIN. In order to protect “our’ money, this could pave the way for the government to pass more  laws to regulate more commodities. It doesn’t take much imagination to see arguments for the government to increase regulation of  “commodities” like paper stock, integrated circuits, rare earths and Frozen Concentrated Orange Juice(FCOJ).

Yes it sounds silly, but look how well our representatives have done trying to balance the budget. Do you really want this current batch of representatives to be involved with the commodities? Don’t forget these are the same folks who passed laws making CDS and CDOs possible.


Sources :

  1. http://mobile.reuters.com/article/idUSTRE76R3YZ20110729?irpc=932
  2. http://online.wsj.com/article/SB10001424052702304186404576389680225394642.html
  3. http://www.steelguru.com/metals_news/One_third_of_global_aluminum_sector_running_at_loss_Perpetual/236020.html

Keynes vs Hayek economic theory rap

I will let the videos speak for themselves. I discovered the first video here a while back. Round two was posted in April of this year. For those who want to understand why Keynes got it wrong and Hayek got it right, here are the videos for your consideration. For those who have not paid attention to this stuff at all, going back to before the presidency of Franklin Roosevelt, Keynes has been the guy everyone has listened too. So this is not just about understanding the theories, but then realizing we have to get our government to realize that Keynes just got it wrong.

Here is the first go around. Enjoy.

Here we go with part 2.

All in all, I think I may have learned more about Hayek and Keynes with these two videos than I did in two years of college economics. If you are left wanting more details, check out the books in the reading room for some great ways to get all the details.

Silence In the House of Representative Speaks Louder Then The Message

Seven term U.S. Representative from New York Rep. Joe Crowley, D-NY during the budget debate let us know how he feels about the first 100 days of the GOP being in the majority. Rep. Crowley used a written message to communicate his message, instead of speaking the words.

This video is likely soon to go viral, as it is novel and hits the common Democratic speaking points, attacking the GOP, taxes, health care, women and unemployment/jobs.

The beauty of this method of communicating is the viewer gets to think about what is being said in a more mindful way. This viewer wondered what Mr. Crowley had done to increase employment in the last 100 days and what the GOP had done to increase employment in the last 100 days.

Clearly there is power in silence, which any Quaker will tell you. It’s too bad that Mr. Crowley didn’t use this for a more meaningful message, because it is unlikely that this will work more then this one time.

Rep. Paul Ryan on the debt

Rep. Paul Ryan (R – Wisconsin) has created a video where he spells out his take on our budget and what needs to happen to bring back fiscal responsibility. The numbers he shares are a shocker.

http://www.youtube.com/watch?v=Xwv5EbxXSmE

Also worth your time is Rep. Ryans response to some critics on April 5th.
http://www.youtube.com/watch?v=MYCb-UyHc90
His response is encouraging. If we can get members of congress more concerned with the work that must be done than worrying about re-election, we will all be better off.

The Founders on debt

Our founding fathers had some pretty firm ideas on national debt. They considered it to be a “curse” and more threatening than the standing army of an enemy. Here are some selected quotes from a few of the founders on debt. Continue reading to see the quotes.

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