On Sun, 21 Jul 2013 18:54:33 -0500, Ignoramus18103
wrote:

On 2013-07-21, Ed Huntress wrote:
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.


You do not have to call your friends, just think about that article,
and you will arrive to the same conclusion. This is a cost charged to
exchange participants and not to direct buyers.

I've read about four articles since. A couple seem to know what
they're talking about. They say that the net result is higher prices
to consumers, in the billions.

Take a look at my comments on the links that Unka' George posted.

There is no way, in a field like this, that I'd apply simple deductive
logic to a situation I know little about, and decide that I've reached
the correct conclusion, without hearing from multiple experts. That's
how I work. Most things I write about for publication are things about
which I'm not an expert. My task is to figure out where to get the
information from experts.

I'm waiting for more. There will be more, because the Fed is getting
involved in the general issue of banking firms warehousing commodities
(revisiting regulations enacted in 2003), and the financial press, at
least, will pick up on it.

--
Ed Huntress