Senator Levin: Fed Enabled Banks To Elbow Way Into Commodities, Manipulate Prices

Apparently Senator Levin is not expecting many $250,000 speaking engagements from Wall Street after he leaves the Senate.

The Wall Street Banks have NO business using their subsidized banking funds and deposits to speculate in global markets for their own accounts.

This was the basic safeguard provided by Glass-Steagall for almost sixty years that was overturned in a bipartisan political effort at gettin' paid.

US Senator Carl Levin Opening Statement, Day Two

"The Federal Reserve is considering arguments that Wall Street banks provide hard-to-replace services in these areas. But the separation between banking and commerce has served markets and our economy quite well for decades. And the erosion of that barrier is clearly doing harm today.

Any discussion of these physical commodities activities must begin and end with the need to protect our economy from risk, our markets from abuse and our consumers from the effects of both.

Wall Street banks with near-zero borrowing costs, thanks to easy access to Fed-provided capital, have used that advantage to elbow their way into commodities markets.

Bad enough that this competitive advantage hurts traditional commercial businesses; worse that it opens the door to price and market manipulation and abusive trading based on nonpublic information."

Read the entire statement here.

Plutarch, De Superstitiones 171

... but with full knowledge and understanding they themselves offered up their own children, and those who had no children would buy little ones from poor people and cut their throats as if they were so many lambs or young birds; meanwhile the mother stood by without a tear or moan; but should she utter a single moan or let fall a single tear, she had to forfeit the money, and her child was sacrificed nevertheless; and the whole area before the statue was filled with a loud noise of flutes and drums took the cries of wailing should not reach the ears of the people.

Big Commodity Trading Firms Took $250 Billion in Profit Since 2003

This sort of outsized profit obtained from gaming the system is a tax on the real economy.

The price distortions they create disrupt legitimate business, and harm the ability of the economy to produce and distribute key resources.

And it is a trade that goes deep and far, with nothing sacred. Witness the havoc that Enron was able to wreak on the energy markets, causing rolling brownouts, while the regulators turn a blind eye.

And as the Chairman of the multinational Nestlé recently observed, access to safe water is 'not a public right.' And the public sources of water should be privatized. And opened up to speculative excess no doubt.

Is it so really hard to understand that widespread corruption and fraud is not productive, and that no amount of austerity or even well-intentioned stimulus given to the corrupt financial system can fix this?

The Banks must be restrained, and the financial system reformed, with balance restored to the economy, before there can be any sustainable recovery.

Commodity Wars: JP Morgan Stockpiling Inventory to Influence Prices, the Flow of Goods, and Rents

"We are witnessing the death of abundance and the borning of austerity, for what may be a long, long time."

Bill Gross

Crony capitalists are never interested in the risk and rigor of 'free markets,' only in the surety of monopolies and obtaining a license from the authorities for extracting rents from them. They alternately create artificial abundance and scarcity to influence prices, with the objective of lining their pockets.

This move by JP Morgan to enlarge their warehouses and stockpile key commodities helps to demonstrate the growing scramble for resources which is a recurrent theme, and at the same time it shows the pernicious influence of mingling government guaranteed customer money and subsidized Federal Reserve funds with what is essentially private speculation.

JP Morgan is a bank that was rescued by public funds, and that exists at the sufferance of the US government and their money. Some of the pampered princes of the Republic would like to turn the financial sector into a new House of Lords.

Still, there may be a mutual interest between the government and their bankers in influencing the world's flow of key commodities. And if a few friends become wealthy in the process, well, so much the better.

Reuters
JP Morgan adds muscle to metal warehousing money
By Josephine Mason and Susan Thomas

NEW YORK/LONDON (Reuters) - Investment bank JP Morgan (NYSE:JPM - News) is bulking up its metal warehousing facilities in Rotterdam and Chicago, industry sources say, in a business that consumers complain deliberately delays delivery of metals to boost revenues from rent.

London Metal Exchange rules allow warehouse companies to release only a fraction of their inventories per day, much less than is regularly taken in for storage, creating long queues to get metal out and guaranteeing rental income.

JP Morgan's aim is to fill its Henry Bath warehousing arm with inventory in the two port cities large enough to rival trading house Glencore's Pacorini and U.S. bank Goldman Sachs'(NYSE:GS - News) Metro.

The Pacorini and Metro facilities in Vlissingen, Netherlands and Detroit combined are estimated to hold around half of the global London Metal Exchange (LME) aluminium stocks which stand at just under 5 million tonnes.

Sources at JPM say the bank is pursuing a strategy to consolidate warehousing in the two locations to create the next Detroit or Vlissingen. A JPMorgan spokesman declined to comment.

"They (JPMorgan) are rebuilding stocks again," a high-level industry source in the Netherlands said.

Complaints about long queues, particularly in Detroit, prompted the LME to raise minimum delivery rates - 3,000 tonnes a day for operators with stocks of over 900,000 tonnes in one city - but traders and analysts say the new rules will make little difference when they come into effect in April.

The JPM strategy is likely to inflame consumers and traders already angry about the influence of warehousing companies on the flow of metal.

J.P. Morgan is already preparing to store aluminium in Europe's largest port, Rotterdam, where it has over 30 sheds.

The bank, the largest by assets in the United States, was behind the cancellation of 500,000 tonnes of LME aluminium warrants in Vlissingen, just 50 miles away from Rotterdam, on December 21, traders and warehousing sources told Reuters. Cancelled warrants show metal is earmarked for delivery.

"They are taking material from producers or traders, or trying to get it out of the market place - they were lucky to get 500,000 tonnes out of Vlissingen -- and moving it to Rotterdam," said the industry source.

Citigroup analyst David Wilson said there had been a large number of copper cancelled warrants in St Louis and New Orleans, many carried out by JP Morgan.

"It wouldn't be a surprise if they wanted to move metal into their own warehouses," Wilson said. "The cancellations don't fit in with the underlying demand picture."

It is unclear how much metal JPM wants to eventually hold in the two locations, but to compete with its two closest rivals, it will require millions of tonnes, most likely aluminium which has the most ideal characteristics for long-term storage deals.

Glencore drove Pacorini's emergence as a dominant force in New Orleans and Vlissingen. The Dutch port holds nearly one million tonnes of aluminium.

Traders said Metro holds most of Detroit's 1.4 million tonnes of aluminium stocks, and is ideally located to attract surplus aluminium in North America.

There were other signs in recent weeks that the bank's focus has shifted after traders reported JPM sold a large number of warrants, or ownership titles to metal, to release funds.

"JPM have dumped a large amount of warrants or sold very cheaply," a senior source at a warehousing company said. "They've let go of a lot of warrants they were holding onto."

Read the rest here.

Silver Short: Days of World Production To Cover Certain Commodity Short Positions

There is a case to be made that world production is not the only issue, but the available supply is just as important, if not more.

In the case of gold, a relatively small portion of supply is consumed, as the bulk of it is held as jewelry and bullion. One might say that if the bullion banks get into a pinch, the central banks can bail them out by 'leasing' gold to them for sale. In fact there is quite a bit of circumstantial evidence that the central banks have been doing this for some time, and would be in serious difficulty if they faced external audits.

In the case of silver however, quite a bit of it is used in industrial production. The counter case is that as the price rises, additional material is available in recycling operations from scrap. There is also a significant supply of bullion, but unlike gold it is widely dispersed in ownership, with central banks holding little or none in their reserves.

There is a remarkable concentration in the short position in silver and gold.

All things considered, silver looks like an accident waiting to happen to a handful of banks who may have crossed up one market too far.



chart courtesy of Sharelynx

JP Morgan's Commodities Trading Head Blythe Masters to Troops: "Don't Panic"

Note to Blythe Masters: Sorry to hear about your losses in the coal market because of a 'rookie error' in taking on overlarge positions. But an epic short squeeze is coming for your massive and untenable positions in silver and gold, and hell is coming with it.

And the vampire squid and its minions are going to wrap themselves around your neck, and inexorably suck the life from you, while the hedge funds lick your wounds. Your protectors in the government will not even return your calls, because they will be running for their own lives away from the disaster that you created, denying all knowledge of it, any of it.

And then, by all means, you may panic.

Bloomberg
JPMorgan's Masters Urges No `Panic' as Commodities Unit Slips
By Dawn Kopecki
Aug 03 2010

Blythe Masters, JPMorgan Chase & Co.’s head of commodities, sought to reassure her team on an internal conference call after “extremely difficult” dismissals, defections and a first half in which some results were as much as 20 percent below expectations.

“Don’t panic,” she said in summing up the 35-minute call, a recording of which was obtained by Bloomberg News. “No one’s going to get screwed. We’re not going to do crazy things on compensation at the end of the year.”

Masters, who was named to run the business in late 2006, said the bank began dismissals on July 21, a day before the call, to trim overlap after buying parts of RBS Sempra Commodities LLP. The bank cut less than 10 percent of the combined front office, even as the oil unit lost “key people” who needed to be replaced, she said. She was discussing results with top executives after “we made a bit of a rookie error” that left the firm “vulnerable to a squeeze,” she said.

The 41-year-old banker, who helped develop credit-default swaps while at JPMorgan in the 1990s (kharma, ain't it a bitch - Jesse), delivered her talk from a conference room in New York, where the bank is based, less than a month after the firm closed its $1.7 billion RBS Sempra purchase. The deal almost doubled the number of corporate clients the bank can serve for commodities, Jes Staley, Chief Executive Officer of JPMorgan’s investment bank, said in February....

...“You should think of this [the layoffs] as business as usual and definitely not a reaction to losses in coal, or anything like that,” she said. “It’s not because we are panicking. It is not because we are changing our minds, backing off, backing out, backing down, running away, none of the above.” (When an executive has to say this, they are indeed panicking, and ass-covering at the highest levels is already underway - Jesse)

Masters said had she spent the previous several days in meetings with Staley, Chief Executive Officer Jamie Dimon and the investment bank’s operating committee and was preparing a “deep dive” with JPMorgan’s board and Chief Financial Officer Doug Braunstein. (When the perfect metals storm hits their derivatives positions, Jamie is going to be throwing up in his wastebasket, and JPM's stock price is going to be doing a deep dive of its own as people realize that they are Lehman writ large. - Jesse)

“When you have a bad quarter or a bad year, you should expect to spend a lot of time with senior management explaining yourself,” she said. (ROFLMAO - Jesse) “I have worked very hard, number 1, to own responsibility for what went on and to acknowledge it and not excuse it. We made an error of judgment. Frankly, we made a bit of a rookie error. We got overexposed in the market and made ourselves vulnerable to a squeeze. (Their position losses in coal compared to their risk exposure in silver is like a broken pipe in the wall compared to the 2004 Indian Ocean tsunami - Jesse)

‘‘But if you take that out and recognize that we’re not going to allow that to happen to ourselves again, the rest of the story really ain’t that bad,” she said. “In fact, if you look through it all, it’s extraordinarily encouraging.” (The 12 steps start with Step One - overcoming denial - Jesse)

Coal derivatives trader Chan Bhima made an error of judgment, not of character, (lol, this sounds like Michael Scott excusing Dwight's fire drill fiasco at Dunder Mifflin - Jesse) in “taking a risk on our behalf,” she said. Coal prices plunged 24 percent from January through March and then surged 35 percent through June. Marchiony, the bank spokesman, said Bhima wasn’t available for comment.

The company took an oversized position both relative to their fledgling operation and relative to the market, Masters said. The error cost the company as much as $250 million, the New York Post reported June 8, without saying where it got the information...

In the meanwhile here is some light reading while you consider you options with those oversized short positions China Seeks To Widen Gold Market

"My Son...Went Inside There And Basically Saw that the Vault was Empty."

Every day when I think I am going to get a day off from this story, some revelation seems to come out, each as compelling, shocking, and suspicious as the others, but all fitting together in what looks like a nasty picture of reckless behaviour gone wrong developing.

Apparently some banks and brokers had been selling gold and silver which they do not have. We know it happens because Morgan Stanley was caught doing it, and was even charging storage fees from unsuspecting investors.

Do these banks not have auditors? Are the regulators sweeping this under the rug? Are the insiders and their spokespeople correct in just dismissing this as a problem, as was done with the subprime market even by Ben Bernanke himself before it collapsed into a bank run that shocked the financial system?

Now, we have to carefully distinguish between allocated metal, in which one holds a certificate and are assured of a firm ownership of actual metal, and an unallocated holding in which you hold basically a paper claim on metal, for which you may be an unsecured creditor, even if you are paying regular storage fees. But in the cases I am hearing about it is a firmly stated ownership of something that does not exist, and cannot be obtained at current prices.

This is important because although there is always shorting, and some fractional reserve aspect to all banking , even in the case of bullion banking, in this case the proportion or leverage of the selling of the assets starts to look more like a Ponzi scheme than a rational and efficient market. There is a point at which 'speculation' becomes fraud, and the fraud becomes large enough to start risking the health of the bank.

And in our under-regulated and excessively leveraged financial system, that becomes a problem because it all looks to be a pyramid scheme of sorts. JPM alone is holding derivatives with notional values approaching a very large portion of World GDP.

The banks seem to be pointing to bullion supplies elsewhere, such as the LBMA in London, or in this case Hong Kong, and saying, "See if certificate holders demand their bullion, we can easily fulfill their requests." The problem with this is that it appears that they are ALL doing this, overleveraging their supplies, becoming counterparties and potential sources of supply to each other, with few having a full supply of what they say they have.

Make what you will of this. It is important to understand what is stated by the bank or institution on the certificate for bullion that you hold. As outlined above, you might just be an unsecured creditor to an unallocated account. There is no fraud in that, only a risk of actual delivery should you ever ask for it.

I am sure more will be coming out, eventually. But for now this information is barely penetrating the radar of the mainstream media. These fellows may be wrong, but so far no one is denying specifically what they are saying with any persuasive proof. They just seem to be hiding behind secrecy and opaque transactions, saying 'Prove it, prove it.'

As I have stated before, the problem I have with this is the lack of transparency and auditing in these markets, which makes them absolutely ripe for fraud and excessive leverage by the usual suspects in the TBTF banks.

This seems to be exactly what caused the subprime crisis and the bank run in 2008: a lack of liquidity and the mispricing of risk. How can one not be suspicious? We have just seen it happening, even though the herd behaviour is to simply ignore it because it is too alarming, too inconvenient.

Let the truth come out. Let justice be done.

Have we learned nothing?

Is the Price of World Silver the Result of Legitimate Market Discovery?

"...one US bank, JPMorgan, now holds 200 million ounces net short in COMEX silver futures, fully 40% of the entire net short position on the COMEX (minus spreads). As I have previously written, JPMorgan accounted for 100% of all new short selling in COMEX silver futures for September and October, some 50 million additional ounces. As extreme as JPMorgan’s position is, there is a total true net short position of 500 million ounces (100,000 contracts) in COMEX silver futures. Try to put that 500 million ounce short position in perspective. It equals 75% of world annual mine production, much higher than seen in any other commodity.

This makes claims that the COMEX short position represents a legitimate hedge of mine production a lie. The total short position represents almost 100% of the total visible and recorded silver bullion in the world, and 50% of the total one billion ounces thought to exist."

One cannot tell what is truth here easily, because of the still much too opaque nature of the US markets. But I do have a bias here, and I must disclose it up front. I have little confidence in the ability of the US regulators to do their jobs competently, and now approach anything that is said by the Obama administration regarding the financial markets with great skepticism.

In a fair market with transparent and symmetric distribution of key price information the identity of any holders of positions of over 5% of the market would be made known, so that people might understand the character of the market.

Further, any justification for these outsized positions and the 'backing' for them should also be made known publicly, and not just to a few insiders or regulators who expect to be trusted when past history shows that US regulators cannot be trusted to manage their markets reliably.

If this information about the silver market is indeed true, if J.P. Morgan is this short the silver market and unable to deliver even under duress, then perhaps the US should close down the Comex, because it has shown itself unable to be the price setter for the rest of the world in a metal with such broad industrial usage.

If it is not true, then the CFTC should publish its findings from its latest study of the silver market, and give the public the assurance that there is no manipulation in the silver market, and most importantly, why.

We have little confidence in the Obama Administration these days, which includes CFTC chairman, Clinton Alumni and ex-Goldman partner Gary Gensler as well, despite tough talk about position limits to quell speculation.

"The time for talk is over" should be a general theme in the Obama presidential term. They talk a good game, but never seem to deliver any meaningful reforms already promised, except those that might favor their own special interests.

This is important. It is important because in free markets producers must commit substantial amounts of capital in exploration and production to insure an adequate supply of any industrial commodity. And purchasers and other buyers and investors must be able to make their decisions with confidence.

Other parts of the world are moving towards establishing their own market clearing mechanisms in oil and key commodities outside of the sphere of the Anglo-American exchanges. If London and New York would prefer to continue to see their importance decline, then failing to regain the trust of the world through transparent reform after the enormous scandals that are still shaking world markets and financial systems would be advised, as they continue to do today.

It is not about pay. It is not about worrying that the traders might leave. It is time to show some concern for your customers, and about honest price discovery in a fair market, and making good after you have engaged in a massive fraud which the US and the Wall Street banks seem loathe to discuss when they worry about 'confidence.'

Is Mr. Butler wrong? Good, then show us why, not by belittling him personally, or picking details out of what he says and twisting them to try to undermine the whole of what he has to say. Public records show that there is an enormous short position in the silver metals market, that looks to be utterly out of bounds with physical reality and deliverability. If this is just a paper game then we need to know who is doing it and why, and why the world should accept this sort of nonsense as a basis for real production and real capital allocation.

And if this extreme speculation in silver is shown to be true, how do we know if this is the case in other US exchange based markets, like oil, and energy, and other metals, and food? Can the world afford to allow the US to set prices given the flaws which have been disclosed in their risk ratings and pricing mechanisms of late, despite the stony silence of their compliant media and the assurance of captive regulators? The pervasive fraud involved in the latest banking scandals has not yet been addressed adequately, and it is part of a pattern of misconduct going back to the 1990's at least. And even now, little or nothing has changed. The Partnership Between Wall Street and the Government Will Continue Until the System Collapses?

Show us the market. Show us who is holding the outsized longs and shorts, and what their motivations might be, whether it is a hedging producer, or as an agent for users and who they might be. And who the speculators are, and what limits on speculative manipulation might exist.

What sort of leverage is JPM employing? Are they hedging proven reserves for legitimate customers, or are they shoving prices around the plate using derivatives, simply because they can. It does not reassure us that in the not too distant past the London group of AIG was a major short side speculator in the silver market.

There is too much trading in insider and asymmetric information in the US markets, which is the cause of their opacity and the recent successes of con men, sometimes despite the repeated attempts by concerned market participants to bring suspected abuses to the attention of the regulators in what were later found to be obvious and outrageous frauds.

And as for reassurances that the regulators have conducted a study, with the details withheld, and have in their considered opinion found nothing amiss, don't make us laugh. After the Madoff Ponzi Scheme, the Enron energy manipulation, and the mortgage CDO scandal, US regulators have amply demonstrated their inability to manage their stewardship honestly and competently. At this stage they should be making amends and regaining confidence, and not dictating terms to a bunch of helpless domestic customers who continue to accept such shoddy and arrogant treatment by self-serving financial institutions, who dare to charge even good customers 26% credit card interest rates and outrageous fees, in the spirit of the Obama financial reform.

If the world were of a mind to it, they could buy those futures contracts, and demand physical delivery, and bring Wall Street to its knees. Except as we know it would not work, because the exchange would dictate terms, a settlement in paper, and Ben would provide it, at the buyer's ultimate expense. This is the degraded nature of the US dollar reserve currency regime as it exists today. It is become, as they say in Chicago, a 'racket.' Time for honesty again. This is the reform for which the American people elected a new government.

But yet even today, there is a lack of self-awareness, a lack of proportion and an ignorance of history, that allows many otherwise educated and responsible people to make statements like this excerpt quoted below, a neo-colonial variation of the white man's burden, and bet their future that this dependency on the Wall Street banking cartel will be sustained in perpetuity, because it is a kind of a natural law. This point of view is not an aberration, and underlies the comments of many Anglo-American financial institutions today.

"The dollar is the backbone of the world central banking system. It is the backbone of the China money system. The white cliffs of Dover are as likely to collapse."

I am not saying that Mr. Butler is right. I am saying that I no longer trust your markets and their integrity, and the honesty and competency of your agencies and regulators. And there is a groundswell of people around the world, and a quiet but growing majority in your own country, who feel the same way.


Extreme Speculation
By Ted Butler

...The main reason for my recurring thoughts that silver trading may be terminated on the COMEX someday is because that exchange is at the heart of the silver manipulation. If we are closer than ever to witnessing the end of the long-term silver manipulation, as I believe, it must mean an end the extreme concentration on the short side of COMEX silver futures. But the concentrated short position in COMEX silver futures is so extreme, that it is hard to imagine how it can be resolved in an orderly manner. The most recent data from the CFTC indicate that one US bank, JPMorgan, now holds 200 million ounces net short in COMEX silver futures, fully 40% of the entire net short position on the COMEX (minus spreads). As I have previously written, JPMorgan accounted for 100% of all new short selling in COMEX silver futures for September and October, some 50 million additional ounces. You have not seen anyone refute those findings, nor is it likely that you will.

So extreme is JPMorgan’s silver short position that it cannot be closed out in an orderly fashion. How could such a large position be closed out quickly, or otherwise, without strongly disturbing the market? If it could be closed out, it is reasonable to assume it would have already been closed out or greatly reduced to avoid the allegations of manipulation it raises. It’s not like the banks are presently universally loved and admired. The intent of anti-concentration guidelines and surveillance is to prevent the precise monopoly that JPMorgan has amassed on the short side of COMEX silver. Having erred egregiously in allowing this concentrated short position to develop, the CFTC is stuck with coming up with a solution to disband it. There is no easy solution.

Further, it is not just JPMorgan’s 200 million ounce COMEX silver short position that threatens the continued orderly functioning of COMEX silver trading. As extreme as JPMorgan’s position is, there is a total true net short position of 500 million ounces (100,000 contracts) in COMEX silver futures. Try to put that 500 million ounce short position in perspective. It equals 75% of world annual mine production, much higher than seen in any other commodity.

This makes claims that the COMEX short position represents a legitimate hedge of mine production a lie. The total short position represents almost 100% of the total visible and recorded silver bullion in the world, and 50% of the total one billion ounces thought to exist. These are truly preposterous amounts. By comparison, the net total short position in COMEX gold futures, admittedly no slouch in the short category, represents a little over 2% of the gold bullion that exists (45 million oz total net COMEX short position versus 2 billion oz). When it comes to the amount of real material, or mine production, in the world backing up the COMEX silver short position, the word “inadequate” takes on new meaning.

Because of the extreme mismatch between what is held short on the COMEX and what exists or could be produced to be potentially delivered against the short position, a very dangerous market situation exists. It is this dangerous situation that haunts me and causes me to contemplate a closing of the COMEX silver market. It has to do with what I see developing in the silver physical market and by putting myself in the other guy’s shoes. The other guy, in this case, is Gary Gensler, chairman of the CFTC.

It seems to me that there may be real stress in the wholesale physical silver market. All the factors I look at, including flows into ETFs, the shorting of SLV, the decline in COMEX silver inventories, the strong retail and institutional investment demand in silver, the now growing world industrial demand, etc., suggest tightness and the potential for a silver shortage like never before. This, in essence, is the real silver story. In spite of a large and growing concentrated short position, the price of silver suggests that it is the manipulation that is under stress. At some point, a physical silver shortage will destroy any amount of paper short selling. We may be very close to that point.

When the silver shortage hits, the price will explode. On this, there is no question. Industrial users, at the very first sign of delay in silver shipments, will immediately buy or try to buy more silver than they normally buy, in order to protect against future operation-interrupting delays. This is just human nature. The world has never experienced a true silver shortage ever, so the price impact is clearly unknown. I’ll try not to overstate how high I think the price will go in a true silver shortage and how quickly it will occur, so that I don’t sound too extreme. But the price move will give new meaning to “high” and “fast.”

Please remember, I am only talking of the price impact of the industrial users scrambling to secure silver supplies for their operations. This has always been my “doomsday machine” future silver price event. I am not speaking of new investment demand or short covering. Users, anxious to keep their assembly lines running and their workers employed will care less about price and more about availability and actual delivery. The users will buy with an urgency and reckless abandon rarely witnessed. That the price explosion caused by user buying will destroy the shorts is beyond doubt. So certain and devastating will be this destruction, that you must start asking questions as to what the regulatory reaction is likely to be. This is where you must try to put yourself in the other guy’s shoes. When the industrial silver shortage hits and prices explode, what would you do if you were Chairman Gensler?...

Read the rest of Mr. Butler's essay here.

GAZ and UNG: A Classical Gas

An intriguing divergence for two funds that are purported to have a .99 correlation and are tracking essentially the same thing.

Right now, for example, UNG is down .67% for the day and GAZ is up .61%.

UNG is considerably more 'liquid' as they say on the Street. Does that make it a more efficient price discovery mechanism?

Or more amenable for gaming the retail markets?

Martin Hennecke: Protecting Your Wealth in Volatile Markets

"Hennecke stressed that investors should go for physical forms of gold and other
precious metals rather than "paper gold investment scheme where there isn't full
backing, where the metal might be leased out or used for derivatives. That's
crucial because there is 80 times more paper gold in the market than actual
physical metal in existence in the planet."

For the most part alternative currency trades remain 'highly specialized' investments, not often seen in the 401k, IRA, or the average brokerage account.

If gold and silver go mainstream, which they often will do in times of crisis of confidence, the rally may be rather impressive on short covering alone. Expect the exchanges to invoke special rules to allow for settlement of delivery obligation in cash or kind rather than bullion, and at artificially low, albeit significantly higher, prices.

But this may not help those who are holding gold in 'custodial accounts' where the same gold has been lent out to the market and sold, or is loosely mingled with multiples of uncertain ownership.

Can't happen? Who would have thought that one of the largest retail commodity brokerages, Refco, could roll over? Counter party risk is always an issue when you are 'off-exchange.'

“The desire of gold is not for gold. It is for the means of freedom."
Ralph Waldo Emerson

Go for Gold and Silver: Strategist
By CNBC
Wednesday, 2 Sep 2009 2:44 AM ET

China's key stock index recovered its poise on Tuesday, rising nearly 0.5 percent after diving 6.7 percent the day amid liquidity concerns and worries that lending growth may slow in the country. In August alone, the Shanghai Composite lost nearly 22 percent, snapping a seven-month winning streak.

If those stock gyrations are hard to stomach, there are other investment options to help ride out the wild swings in China, according to Martin Hennecke, associate director at Tyche.

For one, Hennecke liked convertible bonds in China, saying he is bullish on the Chinese economy given its fundamental strength, compared to Europe and the U.S. (No thank you for now, its a bubble and a bit less than free market environment, even given its bawdy good time with capitalism over the past ten years. - Jesse)

"Valuation is not as cheap anymore compared to the beginning of the year. Hong Kong-listed China companies are slightly cheaper than (those in) Shanghai," Hennecke said on CNBC Asia's "Protect Your Wealth". " One who plays more cautiously -- convertible bonds in China are an option."

Gold and silver ranked among Hennecke's top recommendations, as China, the world's largest gold buyer this year, is likely to buy more of the yellow metal going forward.

"Whether we see a further crisis or a recovery globally, with inflation coming back up again...gold should do quite well and it hasn't risen much this year yet," said Hennecke.

Hennecke stressed that investors should go for physical forms of gold and other precious metals rather than "paper gold investment scheme where there isn't full backing, where the metal might be leased out or used for derivatives. That's crucial because there is 80 times more paper gold in the market than actual physical metal in existence in the planet."

Hennecke also preferred exposure to direct agricultural commodities, as opposed to investing in commodities through equities, where markets have already rallied sharply.

"Agricultural commodity prices are similar to precious metals. (Prices) across board are mostly dropping, apart from sugar and a few items. So direct commodities are quite undervalued and quite cheap now," he explained. "Agricultural prices are likely to rise quite substantially."

Hennecke expected the investment environment to be volatile, as the U.S. will be saddled with a massive debt load over the next ten years.

"It's tricky to see where stock markets are heading, it depends on how fast inflation feeds through as a result of the debt problems." (Precisely correct, except for those who prefer to see what they have already decided *should* happen. They are often wrong, but rarely uncertain. - Jesse)

Is the USO Oil Fund "Like a Pyramid Scheme?"

Some very hard words being said about the USO Oil Fund ETF, sparked by comments from the Schork Report.

Certainly the USO oil fund has not been tracking the performance of the commodity it attempts to represent, and has severely lagged the recent rally in West Texas Intermediate Crude.

This is in contrast to ETFs which target a percentage of the continuous commodity contract such as GLD or SLV. However, one should never mistake the commodity for what is essentially a derivative position, with little or no underlying guarantee of taking delivery of the commodity, as opposed to the futures markets.

This is different from the issue with levered ETFs which we reported on back in December, which reset their basis every day. But we think they also are contributing to volatility particularly in the last hour of trade.

Here is the information on USO. We do not believe in holding the ETFs for long periods of time, which in our lexicon is more than a couple of weeks. We understand that the CFTC is setting revised rules for "commodity pool operators."

"So how is this like a pyramid scheme? A pyramid scheme is funded by a constant flow of dollars into the venture by new investors. The second investor knowingly and willingly pays the first investor on the assumption he will get paid by the third investor… and so on. It’s similar to a Ponzi/Madoff scheme, with the key difference, investors don’t know (or don’t want to know as long as those alleged returns keep rolling in) they are being scammed.

The USO is being funded by a proliferation of new retail investors looking to diversify into “alternative investments” (which as far as we have been able to ascertain, alternative investment is a euphemism for Las Vegas style bets on commodities by retail investors tired of watching their 401Ks drop). More importantly, these investors are obviously out of their league, i.e. taking buy-and-hold positions in a contango which raises their cost basis every month they roll into the higher priced deferred contract.

We assume they are buying the USO because they are bullish. But in a peculiar way, their actions could be helping to prevent the market from rallying. These new investors are not funding a pyramid per se, but they are helping to fund storage. That is to say, with global demand in the doldrums, the contango will persist. And, as long as it lasts, traders will continue to front-run the rolls, which in turn will exacerbate the contango, which will then incentivize storage builds further, which will then ultimately weigh..."

USO: A Self-Propelled Pyramid? - Financial Times

USO Oil Fund or Just a Pyramid Scheme? Stockmaster.com

USO Oil Fund: All of the Drop and Some of the Gain - Phil's Stock World

Special thanks to Ilene over at Phil's Stock World for the comparison chart. We also enjoyed this quote from their article.

"In fact, it’s very possible that if you did an proper investigation (perhaps a Congressional one) you would find that MOST of the oil traded on the NYMEX has nothing to do with real demand at all but is pure speculation that is sold to retail investors as "commodity investing" or "inflation hedging" but what kind of inflation hedging loses 33% a year PLUS TRANSACTION FEES before a profit can be made? Oh and a funny note - who handles USOs cash and places trades on the ICE and NYMEX for them? Aw, you guessed it - Goldman Sachs!

So here you are giving your money to an ETF that gives its money to the biggest shark in the ocean, who chews off your legs in transaction fees and contango spreads BEFORE they even bother to circle around for the kill by gaming the market. NOT ONLY THAT, but the idiotic rules of the fund lead them to PUBLISH THE DAYS THEY ARE ROLLING IN ADVANCE so every little shark in the sea knows exactly when and where to feast on your bloody, bobbing carcas this month - and the next and the next and the next. Don’t worry though, once you are chewed up and digested, there will be a fresh round of suckers herded back into commodities and the commodity pushing stocks and ETFs every time GS, MS or Cramer need another payday. "

Should a bank guaranteed by public funds and the FDIC be active operators in speculative markets? Or should they be confined to the more conservative realms of commercial banks as they were under the Glass - Steagall regime?

We think the answer is obvious, especially given the fact that a great deal of the problems we face today are a direct result of the repeal of Glass-Steagall and the mixing of public funds with private greed in a coopted political and regulatory regime.

Natural Gas and Crude Oil: An Interesting Spread to Watch

The spread between Natural Gas and Crude Oil is now at an 18 year record low.

Nat gas has fallen from $13 to $3 while Crude Oil soared to $70.

Either crude is incredibly frothy, or natural gas represents an outstanding bargain.

A few years or so ago I published a fairly comprehensive study of the seasonality of natural gas, and some relative relationships with demand and supply. I will look for it, and see if I can update it. Since I no longer trade the futures I have not looked at this in some time. But I do remember the spreads and saw this one grown shockingly wide.

My first thought is that oil has been driven higher by monetary inflation and speculation, which are in some ways the same thing. Hot money craves beta and drives the prices of real assets to extremes.

Keep in mind that if enough people get in on this trade, the market makers who can see your aggregate holdings will use it to skin the speculators, without regard to fundamentals in the short term.

It's never easy.

China Invests in Production and Commodities While the US Feeds the Sharks

China is securing long term supplies of oil, aluminum, iron and other hard commodities at 'favorable prices for years to come.'

The United States is investing in increasingly worthless paper, insolvent banks, crony capitalist ponzi schemes, non-productive consumption, and enormous bonuses for Wall Street financiers.

After a visit to China a few years ago, touring their factories with workers quietly hunched over their worktables in fear, working whatever hours were offered in difficult conditions, Bill Gates observed that this was 'his kind of capitalism.'

The choices you make, what you choose to do or not to do, will pay significant returns, either good or ill, for your children and your children's children.

Plus ça change, plus c'est la même chose.


NY Times
With Cash to Spend, China Starts Investing Globally
By David Barboza
February 21, 2009

SHANGHAI — With the world suffering through a tight credit market, China has suddenly gone shopping.

Beijing said on Friday that one of its big state-owned banks, the China Development Bank, agreed to lend the Brazilian oil giant Petrobras $10 billion in exchange for sending China a long-term supply of oil.

That investment came after similar deals were signed this week with Russia and Venezuela, bringing China’s total oil investments this month to $41 billion.

China’s biggest aluminum producer also agreed earlier this month to invest $19.5 billion in Australia’s Rio Tinto, one of the world’s biggest mining companies. And last Monday, the China Minmetals Corporation bid $1.7 billion to acquire Australia’s OZ Minerals, a huge zinc mining company...

China wants reliable supplies of crude oil, to fuel its growing transport sector; it needs iron ore for steel production, and copper and aluminum to build homes and consumer goods...

Analysts say China could continue to make deals for a variety of small oil and gas companies, mineral producers and mining firms.

This week, for instance, shares of the Australian miner Fortescue Metals Group rose after reports the company was in talks with China over a big investment to help the company expand.

In many cases, China has struck deals in countries that have access to large supplies of oil and minerals but where American and European countries are not well-positioned, like parts of Africa and the Middle East.

In one deal this week, China made an alliance with the government of Hugo Chávez, the president of Venezuela, who has denounced American leadership.

While the oil deals announced vary in terms, analysts say they ensure China a steady supply of oil for decades to come, sometimes at favorable prices....

China Is Shopping the World for Miners and Commodities

As anyone who has looked into this knows, the producers always lag the commodities in any recovery, and base materials lag precious metals.

China is showing remarkable foresight in using its dollars to secure supplies of key industrial commodities and oil now.

Bloomberg
China Feasts on Miners as ‘Bank of Last Resort,’ as Metal Falls
By Helen Yuan and Rebecca Keenan

Feb. 18 (Bloomberg) -- Wuhan Iron & Steel Group and Jiangsu Shagang Group Co., China’s third- and fifth-largest steelmakers, are shopping for iron ore mining stakes in Australia and Brazil, executives said in interviews.

“We are evaluating and selecting” candidates in Australia and Brazil, said Shen Wenrong, Jiangsu-based Shagang’s chairman. “Going overseas is the government policy, so I believe we will get financing from Chinese banks.” Wuhan spokesman Bai Fang said his company is “looking for opportunities” amid lower acquisition costs for iron ore assets in Australia and “won’t rule out other countries.”

The world’s top metal user, China already has acquired $22 billion worth of commodity assets this year after a 70 percent drop in metal and oil since July ended a six-year boom in raw materials. With U.S. and Australian banks still hesitant to lend, Rio Tinto Group and OZ Minerals Ltd., laboring under combined debt of $40 billion, agreed this month to sell stakes to Aluminum Corp. of China and China Minmetals Corp., respectively.

“China has turned out to be the bank of last resort,” said Glyn Lawcock, head of resources research at UBS AG in Sydney. “China is a net importer of copper, bauxite, alumina, nickel, zircon, uranium. China is looking for ways to secure supply of these raw materials.”

Commodity acquisitions by China would put increasing amounts of the world’s raw materials under control of their biggest consumer and may allow it to influence prices. The investment by Aluminum Corp. of China, or Chinalco as the state-owned entity is known, into Rio may bolster China’s bargaining power to set iron ore prices, China Iron and Steel Association said.

Steel Prices Surge

China’s plan to boost the economy with 4 trillion ($585 billion) yuan in spending on roads, bridges and other infrastructure has pushed up prices for steel and iron ore by as much as 37 percent and the cost of shipping commodities has more than doubled.

State-owned China National Petroleum Corp., the country’s largest oil producer, also is looking overseas in search of oil fields. China this week agreed to provide $25 billion of loans to Russia in return for oil supplies for the next 20 years.

Australia already has signaled concern that China is buying strategic assets on the cheap. Treasurer Wayne Swan last week tightened takeover laws when Chinalco announced its investment in London-based Rio Tinto, the world’s third-largest mining company.

Swan has the power to reject both that deal and Minmetals’ proposition with Melbourne-based OZ Minerals on national interest grounds. When Peter Costello was Australia’s treasurer in 2001, he blocked Royal Dutch Shell Plc’s bid for Woodside Petroleum Ltd. In 2004, Minmetals failed to reach an accord to buy Noranda Inc. amid objections from Canadian politicians.

Currency Reserves

China’s acquisition hunt is happening as the government ponders where to invest its currency reserves, which increased 27 percent in the past year to $1.95 trillion, about 29 percent of the world’s total. The country already owns $696.2 billion in Treasuries, about 12 percent of the U.S.’s outstanding marketable debt and has been stung by losses of more than $5 billion on $10.5 billion invested in Blackstone Group LP and Morgan Stanley in New York and TPG Inc. in Fort Worth, Texas, since mid-2007.

“China has burnt its hands in the past buying liquid assets like Blackstone, but here they have the chance to buy tangible, useful assets,” said Professor Liu Baocheng at the University of International Business & Economics in Beijing. “There’s no point putting money in the bank or in deposits with low returns.”

China consumes over a third of the world’s aluminum output, a quarter of its copper production, almost a tenth of its oil and it accounts for more than half of the trading in iron ore. Last year, China bought $211 billion worth of iron ore, refined copper, crude oil and alumina....

JP Morgan's Forecast of Commodity Price Changes From Index Rebalancing

You may click on the link as usual for the full story and a detailed breakdown of the analysis.

In summary JP Morgan's forecast of the commodity index rebalancing which will done around January 8-9th is:

...we expect the rebalancing to have the greatest impact in gold, COMEX copper, crude oil, gold, and live cattle. We estimate that the rebalancing of the two indices is expected to result in $877 million of selling in gold, $699 million of buying in COMEX copper, $528 million of selling in live cattle, and $523 million of buying in crude oil.

We would expect the impact of the index rebalancing to be felt this week because of 'frontrunning' of the index changes by the big commodity trading desks. Indeed we may find that by the time the changes are realized, the impact may be significantly discounted.

Financial Times - Alphaville
Beware, commodity index rebalancing ahead
By Izabella Kaminska
Jan 05 15:34

The major commodity indices rebalance their respective asset weightings once a year (or occasionally more) — and with that comes a mass dose of buying and selling. The 2009 rebalancing is expected to start sometime this week.

Luckily, JP Morgan has produced its best guess of how the 2009 reweightings of the DJ AIGCI and the S&P GSCI indices will impact the market.

The weightings for both indices are released ahead of time, but begin to kick in the first few working days of the new year. In the case of the DJ-AIGCI — which JP Morgan estimates has $25bn in funds tracking it — the new weightings come into force during the roll period that begins January 9th. The S&P GSCI index weightings kick-in after its January roll which commences January 8th. JP Morgan estimates about $50 bn of investment into that index...

The CFTC Is Failing to Regulate Commodity Market Ponzi Schemes

Christopher Cox recently admitted that the SEC has willfully overlooked significant abuses in the equity markets. One thing on which we agreed with John McCain was that his tenure at the SEC is a national disgrace and he should have been dismissed. Given the US stock market bubbles over the past eight years one can hardly disagree.

It is becoming obvious that there is significant price manipulation in the commodity markets, to the point where they have become nothing more than Ponzi schemes in which the object of the investment will never be delivered, and a market roiling default will occur.

Below is one example in the oil markets. Silver is an even better example. Ted Butler has documented the abuse on numerous occasions, and has been ignored in the same way those exposing the Madoff Ponzi scheme to the SEC were also willfully and repeatedly ignored.

The problem with commodities price manipulation is even worse than the manipulation of stock prices since it involves the capital formation of the means of production with significant lead times. Not only does this manipulation cheat investors and small speculators, but it causes significant, damaging misalignments in supply and demand in the real economy. The example of the electricity markets in California and the Enron fraud was the wake up call that was ignored.

It is beyond simple fraud. This has disproportionate and severely damaging effects on other countries in the global economy.

The perfect solution, the complete market restructuring is complex, and is detailed below. Expect the market manipulators to wallow in the complexity and create loopholes for future exploitation.

However, there is an 80% effective solution that is simple. Transparency of positions is a first step. The second step is to impose strict position limits for those who are not hedging actual and verifiable inventory and production.

The position limits for the 'naked shorting' is appropriate for those who believe that the market price is incorrect. But there comes a time when the naked shorting becomes so large that it IS the market, and the consequences of such outrageous manipulation are real and significant.

Constantly tinkering with regulations and making them more complex is not the answer. The root of the problem has been the lack of enforcement and the bad actions of a handful of banks that have become serial market manipuators since the overturn of Glass-Steagall. There really are no new financial products or frauds. There are just variations on familiar themes.

It is not clear that the solution can come from within the US. Violence never works, and writing our Congress and voting for a reform candidate have now been done, although we should continue this.

A practical solution may be ultimately imposed on the US by the rest of the world, and that is a less attractive prospect than an internal solution.



Reuters
NYMEX oil benchmark again in question
By John Kemp
December 23rd, 2008

The record differential between the front-month and more liquid second-month contracts at expiry last week once again raised pointed questions about whether the NYMEX light sweet contract is serving as a good benchmark for the global oil market, or sending misleading signals about the state of supply and demand.

The expiring January 2009 contract ended down $2.35 on Friday at $33.87, while the more liquid February contract actually rose 69 cents to settle at $42.36 - an unprecedented contango from one month to the next of $8.49.

Criticism of the contract is not new, and past calls for reform have been successfully sidelined. But with policymakers taking a keener interest as a result of wild gyrations in oil prices this year, and a continued focus on regulatory changes to improve market functioning in future, there is at least a chance changes will be adopted as part of a wider package of futures market adjustments.

AN UNREPRESENTATIVE PRICE

During the surge to $147 per barrel earlier this year, OPEC repeatedly criticized the NYMEX reference price for overstating the real degree of tightness in the physical market and causing prices to overshoot on the upside. (That was the point, see Enron for details - Jesse)

While rallying NYMEX prices seemed to point to an acute physical shortage and need for more oil, Saudi Arabia could not find buyers for the 200,000 barrels per day (bpd) of extra oil promised to U.N. Secretary-General Ban Ki-moon or the 300,000 bpd promised to U.S. President George Bush in June.

Bizarrely, rather than acknowledge there was something wrong with the reference price, some market participants suggested Saudi Arabia should increase the already large discounts for its physical crude to achieve sales in a market that clearly did not need the oil, and was not paying enough contango to make storing it economic (contango is where the futures price is above the spot market). (There is nothing bizarre about it. That is standard disinformation by the frauds and their mouthpieces - Jesse)

The NYMEX WTI price may have achieved unprecedented media fame as a result of the “super-spike”, but a futures price to which producers and consumers were paying ever larger discounts for actual barrels was clearly not a good indication of where the market as a whole was trading. (It was a fraud. Lots of people lost lots of money in it. It was a great excuse to build a Ponzi scheme in a market price, raise the price of gasoline to $4 gallon, and then take the market down. This is the 1929 model of market manipulation pure and simple - Jesse)

Now the market risks overshooting in the other direction. Intense pressure on the front month in recent weeks has more to do with the contract’s peculiarities (in particular storage restrictions at the delivery point) than a further deterioration in oil demand or a market vote of no-confidence in the 2.2 million barrels per day further cut in oil production announced by OPEC at the end of last week. (The beauty about price manipulation is that it works in both directions. Different damage, but the same jokers get to pocket their fraudulent gains - Jesse)

The collapse in NYMEX prices nearby risks exaggerating the real degree of oversupply and demand destruction, sending the wrong signal to producers and consumers about the wider availability of crude in the petroleum economy. (It may take a few countries along with it. But that may be by intent. Chavez and Putin are not on the Friends of W list - Jesse)

DOMESTIC PRICE, GLOBAL BENCHMARK

The NYMEX contract is for a very special type of crude oil (light sweet) delivered at a very special location (Cushing, Oklahoma) in the interior of the United States. It is not representative of the majority of crude oil traded internationally (most of which is heavier and sourer) and delivered by ocean-going tankers.

These specifications made sense when the contract was introduced as a benchmark for the U.S. domestic market.

U.S. refiners have a strong preference for light oils, for which they were prepared to pay a premium, because of their much higher yield to gasoline. The inland delivery location, centrally located and near the main Texas oilfields, rather than one on the coast, made sense for a contract that tried to capture the “typical” base price for crude oil paid by refiners across the continental United States.

But these specifications make much less sense now the NYMEX price is increasingly used a benchmark for the global petroleum economy, in which light sweet crudes are only a small fraction of total output. Just as NYMEX prices sent the wrong signals about physical oil availability on the way up, distorting the market and triggering more demand destruction than was really necessary, they now risk sending the wrong ones on the way down.

Earlier this year, the problem was a relative shortage of light sweet crude oils at Cushing, while all the extra barrels being offered to the market by Saudi Arabia were heavier, sourer crudes that could not be delivered against the contract. Moreover, extra Saudi crudes would have arrived by ship, and the pipeline and storage configurations around Cushing would have made it difficult to deliver them quickly against the contract.

Financial speculators were able to push NYMEX higher safe in the knowledge Saudi Arabia could not take the other side and overwhelm them by delivering physical barrels to bring prices down. The resulting spike exhibited all the characteristics of a technical squeeze: tight contract specifications ensured there could be shortage of NYMEX light sweet inland oils even while the global market was oversupplied by heavier, sourer seaborne ones.

Now the opposite problem is occurring. Crude stocks at Cushing have doubled from 14.3 million barrels to 27.5 million since mid-October. Stocks around the delivery point are at a near-record levels and approaching the maximum capacity of local tank and pipeline facilities (https://customers.reuters.com/d/graphics/CUSHING.pdf).

As a result, the market has been forced into a huge contango as storage becomes increasingly expensive and difficult to obtain, ensuring the expiring futures trade at a substantial discount.

But Cushing inventories are not typical of the rest of the U.S. Midwest (https://customers.reuters.com/d/graphics/PADD2_EX_CUSHING.pdf) or along the U.S. Gulf Coast (https://customers.reuters.com/d/graphics/PADD3.pdf), where stock levels are high relative to demand but nowhere near as overfull as in Oklahoma.

Once again the problem is geography. Coastal refiners have responded to the downturn by cutting imports of seaborne crude, limiting the stock build. But the inland market is the destination for some Canadian crudes that have nowhere else to go, and the pipeline configuration means they cannot be trans-shipped to other locations readily.

Light sweet crude has been piling up in the region, with refiners choosing to deliver the unwanted excess to the market by delivering it into Cushing.

NEW GRADES, NEW DELIVERY POINTS

The easiest way to make NYMEX more representative would be to widen the number of crude grades that can be delivered, and open a new delivery point along the U.S. Gulf Coast. Both reforms would link the contract more tightly into the global petroleum economy. (The easiest way would be to do exactly as I suggested above. It can be done with the stroke of a pen and the kick of a few asses - Jesse)

NYMEX already permits some flexibility in delivery grades. Sellers can deliver UK Brent and Norwegian Oseberg at small fixed discounts to the settlement price, and Nigerian Bonny Light and Qua Iboe, as well as Colombia’s Cusiana at small premiums.

In principle, there is no reason the contract cannot be modified further to allow a wider range of foreign oils to be delivered at larger discounts to the settlement price.

More importantly, NYMEX could open a second delivery location along the Gulf Coast, increasing the amount of storage capacity available, and linking it more closely into the tanker market.

If prices spiked again, a coastal delivery location would make it much easier for Saudi Arabia to short the market and deliver its own barrels into the rally. By widening the physical basis, it would also make it easier to support the market by cutting international production and avert a glut trapped around the delivery location.

So far, the market has continued to resist change. But there are signs policymakers might enforce one. (No one likes to give up a successful fraud voluntarily until the clock runs out - Jesse)

Earlier in the year, Saudi Arabia strongly hinted western governments should look at reforming their own futures markets rather than call for production of even more barrels of oil that could not be sold at the prevailing (unrealistic) price. (Saudi Arabia is the US's creature so any criticism is coming from a loyal source and credible - Jesse)

Naturally, some of the reform impetus has ebbed along with prices and demand. But policymakers continue to show interest in structural reforms, as was evident at last week’s London Energy Meeting, and there is an increased willingness to challenge unfettered market dynamics.

It is still possible the incoming Obama administration might force contract changes as part of a wider package of reforms designed to improve the functioning of commodity markets, reduce volatility and send clearer, more consistent price signals to the industry and consumers.