On Sat, 20 Jul 2013 21:37:23 -0500, Ignoramus8648
wrote:

On 2013-07-20, Ed Huntress wrote:
On Sat, 20 Jul 2013 17:53:08 -0500, Ignoramus8648
wrote:


snip

My best understanding of the story is that the storage costs are
imposed on commodity speculators who own metal and use it as
collateral, but do not hold it themselves. My heart does not really
hurt for them.

One more thing: The bottom line on all of this is that it has cost us
consumers over $5 billion over the past three years.


Whether this cost is consumers' cost, is exactly what is not so
obvious to me.

I think that this weird warehousing scam costs the speculators who pay
for warehousing services, as opposed to aluminum producers or direct
(off exchange) buyers of aluminum, or to the end users of aluminum
that was never sold on exchanges.

These costs are real, and Goldman is running a scam, but they are
speculators' costs, not consumer costs. I am quite convinced that I am
right.

I have a MBA degree from the University of Chicago, and I studied
quantitative finance, and when they discuss pricing of commodity
futures, the futures price depends on 1) interest rate and 2) storage
costs. This is true of any commodity and affects no-arbitrage pricing.

Storage costs is what Goldman is jacking up. But that only affects
futures pricing and settlement. It has no effect on off-exchange
aluminum trading.

i

'Dunno, Iggy. You may want to look into it further. If I was still
covering materials I'd call some friends at _American Metal Market_
for an explanation, but I'm not, so all I can do is repeat what the
consultants are saying.

But it parallels things that were happening in wheat markets a decade
or so ago, where the financial controllers of the futures markets, and
of grain storage, were indirectly setting the actual prices for red
wheat. Golden Sacks apparently is using their control and inside
knowledge to trade on their own behalf in the open market, so there
are a lot of pieces to that puzzle.

We'll see if any other parts of the financial press pick up on it, and
what they say.

--
Ed Huntress