Bamboo Innovator

Commodity warehousing, the interest rate connection

Commodity warehousing, the interest rate connection

Izabella Kaminska

| Jul 23 19:29 | 10 comments | Share

There are three things that must be remembered when it comes to banks, trading houses and warehousing plays.

• One is that banks and trading houses would not have an incentive to store commodities if the forward market did not compensate them for doing so — meaning speculators are as much to blame as anyone for the hoarding problems, because they are basically the ones donating money to ensure stocks of commodities are built up during times of plenty on the assumption that seven years of scarcity will follow, making it all worthwhile.
• Second, there would be no incentive to hold commodities as stock, even during a contango, if regular risk-free financial investments offered a better return. Contango is meaningless unless the yield that can be extracted from the forward markets more than compensates for your financing and warehousing costs. During high interest rate periods, chances are that it pays commodity players much more to sell stock as soon as they produce it, and to reinvest in yield-bearing instruments. During low interest rate periods, when safe returns are lacking elsewhere, the incentive to extract yield from storing commodities and futures rises.
• None of this is necessarily the product of a sinister plot. If there is manipulation, it is the result of collective responses to market dynamics that present exploitable arbitrage opportunities to intelligent agents. It is unwitting manipulation at worst. The question we should be asking is whether banks (who have fiduciary duties, unlike traders) consciously exploit or mislead institutional clients and investors in the process. It is entirely possible, however, that they not only believe in their own scarcity projections, but that they feel they are fulfilling an economic duty in bridging today’s oversupply with tomorrow’s undersupply. Read more of this post

Prices Fuel Outrage in Brazil, Home of the $30 Cheese Pizza

July 22, 2013

Prices Fuel Outrage in Brazil, Home of the $30 Cheese Pizza

By SIMON ROMERO

SÃO PAULO, Brazil — Shoppers here with a notion of what items cost abroad need to brace themselves when buying a Samsung Galaxy S4 phone: the same model that costs $615 in the United States is nearly double that in Brazil. An even bigger shock awaits parents needing a crib: the cheapest one at Tok & Stok costs over $440, more than six times the price of a similarly made item at Ikea in the United States. For Brazilians seething with resentment over wasteful spending by the country’s political elite, the high prices they must pay for just about everything — a large cheese pizza can cost almost $30 — only fuel their ire. Read more of this post

Investor alarm as India flashes amber; RBI’s unexpected steps renew focus on Delhi’s troubled finances

July 23, 2013 3:22 pm

Investor alarm as India flashes amber

By James Crabtree in Mumbai

The rains fall fast during India’s annual monsoon season. Unfortunately for the country’s government, the rupee has fallen just as quickly. The Reserve Bank of India responded last week with a slate of measures to trim liquidity, aiming to stop further tumbles in a currency that has dipped around 10 per cent since May, hitting repeated all-time lows. The moves are also designed to win back badly needed foreign capital, which has flowed out of many emerging markets, including India, in the aftermath of remarks by US Federal Reserve chairman Ben Bernanke last month about scaling back the central bank’s asset-buying programme. Read more of this post

China to Punish Hospital Staff for Kickbacks as Crackdown Widens

China to Punish Hospital Staff for Kickbacks as Crackdown Widens

China will punish 39 hospital employees for taking illegal kickbacks from drugmakers, reflecting widening efforts to root out medical corruption that includes an investigation of GlaxoSmithKline Plc. (GSK)

The hospital staff received inducements totaling 2.82 million yuan ($460,000) from two pharmaceutical companies between January 2010 and December 2012, China’s official Xinhua news agency reported yesterday, citing the National Health and Family Planning Commission. Read more of this post

In Paris, Chinese Shopping-Tour Buses Go Out of Fashion; Retailers Rethink Strategies as Fewer High-Spending Visitors Arrive en Masse

July 23, 2013, 5:01 p.m. ET

In Paris, Chinese Shopping-Tour Buses Go Out of Fashion

Retailers Rethink Strategies as Fewer High-Spending Visitors Arrive en Masse

NADYA MASIDLOVER in Paris and LAURIE BURKITT in Beijing

For her recent vacation in Switzerland, Wu Mengbei shunned the whirlwind bus tour of luxury stores many Chinese tourists take in Europe.

The Shanghai resident booked her trip independently and chose to spend more on other activities, such as sightseeing and dining. “On my first couple of trips to Europe I did a lot of shopping, but it’s not so much a priority now,” says Ms. Wu, a bank marketing manager in her thirties. Read more of this post

China’s NDRC Probes Old Veteran Jewellery Stores in Shanghai; Lao Fengxiang may have to uncouple some 250 million- 2.5 billion yuan from its profits for fines

China’s NDRC Probes Old Veteran Jewellery Stores in Shanghai

07-23 16:19 Caijing

Lao Fengxiang may have to uncouple some 250 million- 2.5 billion yuan from its profits for fines.

Following a sweep on baby formula makers and parametrical giants, the powerful National Development and Reform Commission accused gold jewellery association, Lao Fengxiang (600612.SH) and other famous jeweler stores in Shanghai of fixing prices in the latest antitrust probe. The companies under investigation could face a large sum of fine, if proves to be true, analysts say, at risk of eroding profits that have accumulated in years. Companies fixing prices in the market can be delivered a penalty equivalent to 1 percent of one year sales at the least, and 10 percent of one year sales at the most, under Chinese laws. Read more of this post

Presenting The World’s Tallest Skyscraper, Whose Construction Was Just Halted

Presenting The World’s Tallest Skyscraper, Whose Construction Was Just Halted

Tyler Durden on 07/23/2013 13:55 -0400

It appears reality is hitting home in the property bubble capital of the world. The so-called “Skyscraper Index” continues to show an unhealthy correlation between construction of the world’s tallest building and an impending financial crisis – for example, New York 1930; Chicago 1974; Kuala Lumpur 1997, and Dubai 2010. As The Dubai Chronicle reports, the record-breaking Sky Tower in Changsha, China, has seen its budget surge from $625 million to $855 million and completion dates pushed back to April 2014, after originally being scheduled for completion at the start of 2013. and here’s the dreamy video of what it will look like and how fast they were planning on building it… As Barclays notes, often the world’s tallest buildings are simply the edifice of a broader skyscraper building boom, reflecting a widespread misallocation of capital and in impending economic correction. Investors should therefore pay particular attention to China – today’s biggest bubble builder with 53% of all the world’s skycrapers under construction – and India – which with just two completed skyscrapers, now has 14 skyscrapers under construction.

Singapore’s foray into the $300 billion-a-year space industry may seem like a lucrative venture, but the path is lined with risks, especially in satellite manufacturing where Western firms have long dominated and entry barriers are high

Singapore plots economic lift-off with satellites, spacecraft

10:11pm EDT

By Kevin Lim

SINGAPORE (Reuters) – Singapore’s foray into the $300 billion-a-year space industry may seem like a lucrative venture, but the path is lined with risks, especially in satellite manufacturing where Western firms have long dominated and entry barriers are high.

The push into space technology, announced earlier this year, will initially focus on satellites to meet growing demand for top-speed Internet connections as well as high-resolution images commonly used in surveillance, forestry and energy exploration. Read more of this post

Buffett’s Wells Fargo deposes China’s ICBC as world’s biggest bank

Wells Fargo deposes China’s ICBC as world’s biggest bank

POSTED: 24 Jul 2013 1:47 PM
The Industrial & Commercial Bank of China (ICBC) has lost its standing as the world’s largest bank by market capitalisation to US-based Wells Fargo, data showed Wednesday, as China’s economy slows.

SHANGHAI: The Industrial & Commercial Bank of China (ICBC) has lost its standing as the world’s largest bank by market capitalisation to US-based Wells Fargo, data showed Wednesday, as China’s economy slows. San Francisco-based Wells Fargo & Co is worth $236 billion, according to the New York Stock Exchange, where it is listed, while Chinese figures show ICBC is now valued at $223 billion. Read more of this post

China starts 5-year ban on new gov’t buildings

China Bans New Government Buildings in Waste Crackdown

China banned government and Communist Party agencies from constructing new buildings for five years and told them to suspend projects that have already won approval as the country seeks to cut wasteful spending.

The ban includes construction for purposes of training, meetings and accommodation, the government said in a statement on its website yesterday, calling for resources to be spent instead on developing the economy and improving public welfare. All localities should report the implementation of the new rules by Sept. 30, according to the statement. Read more of this post

Fur Coats in Stores as Sweltering Britons Seek Bikinis

Fur Coats in Stores as Sweltering Britons Seek Bikinis

Finding t-shirts and bikinis during the U.K.’s longest heat wave in 18 years is presenting an unlikely fashion emergency for British shoppers.

Even as temperatures have topped 28 degrees Celsius (82 degrees Fahrenheit) for 17 consecutive days, coats and sweaters are starting to replace shorts and flip-flops in store displays as retailers roll out fall fashions, leaving little choice for customers seeking to replenish their wardrobes after two years of summer washouts.

“I want to buy summer clothes now and they’re all gone,” James Arscott, a 52-year-old data analyst, said in London. “They sell summer clothes in the spring and now they’re selling autumn clothes. It’s almost like they expect people to buy things too soon.” Read more of this post

China’s Coal-Fired Economy Dying of Thirst as Mines Lack Water

China’s Coal-Fired Economy Dying of Thirst as Mines Lack Water

At first glance, Daliuta in northern China appears to have a river running through it. A closer look reveals the stretch of water in the center is a pond, dammed at both ends. Beyond the barriers, the Wulanmulun’s bed is dry.

Daliuta in Shaanxi province sits on top of the world’s biggest underground coal mine, which requires millions of liters of water a day for extracting, washing and processing the fuel. The town is the epicenter of a looming collision between China’s increasingly scarce supplies of water and its plan to power economic growth with coal. Read more of this post

European Banks Face Capital Gap With Focus on Leverage

European Banks Face Capital Gap With Focus on Leverage

Europe’s biggest banks, which more than doubled their highest-quality capital to $1 trillion since 2007 to meet tougher rules, may have further to go as regulators scrutinize how lenders judge the riskiness of their assets.

Deutsche Bank AG (DBK), Barclays (BARC) Plc and Societe Generale SA (GLE) are among European banks that issued stock, sold units or hoarded earnings to bring capital, as a proportion of assets weighted by risk, into line with new global rules. Now some regulators are questioning the weightings, typically set by the banks’ own models, and embracing a broader measure of equity to total assets known as the leverage ratio that ignores risk. Read more of this post

UPS Shuns ‘Slash-and-Burn’ in Bid to Blunt Next-Day Drop

UPS Shuns ‘Slash-and-Burn’ in Bid to Blunt Next-Day Drop

United Parcel Service Inc. (UPS) is trimming flight hours and miles driven to reduce costs as customers shy away from pricier overnight packages to cheaper two-day and deferred offerings.

UPS is trimming main aircraft routes out of Asia to an average of 7.5 from 8, and will lower headcount through attrition and slower hiring, Chief Financial Officer Kurt Kuehn said. The company will also cut discretionary spending on projects that don’t have an immediate payoff, he said. Read more of this post

Bad Real-Estate Deals Return to Haunt Detroit’s Pensions

Bad Real-Estate Deals Return to Haunt Detroit’s Pensions

In 2006, businessman Robert Shumake asked trustees of Detroit’s two pensions to hand him $27 million to invest in real estate.

George Orzech, a fire battalion chief who still represents uniformed workers on their fund’s board, found one thing odd:

“Anybody who knows the first names of trustees in a first meeting has already had meetings with people,” said Orzech, who unsuccessfully opposed the plan. “It was a political deal.” Read more of this post

Bitcoin Ponzi Scheme Alleged by SEC in Lawsuit Against Texas Man

Bitcoin Ponzi Scheme Alleged by SEC in Lawsuit Against Texas Man

The U.S. Securities and Exchange Commission sued a Texas man over claims he operated a Ponzi scheme involving Bitcoin, the virtual currency that has recently attracted investors including Tyler and Cameron Winklevoss.

Trendon T. Shavers raised at least 700,000 Bitcoin starting no later than September 2011 through his firm Bitcoin Savings and Trust and improperly used currency from new investors to cover investor withdrawals, the SEC said in a complaint filed today in federal court in Texas. Read more of this post

Selling Off Detroit’s Art Could Depress Global Market

Selling Off Detroit’s Art Could Depress Global Market

Art experts yesterday reacted with concern at the prospect of masterpieces from the Detroit Institute of Arts, including works by Bellini, Rembrandt, van Gogh and Picasso, suddenly flooding the global market.

That possibility looms in the wake of the biggest U.S. municipal bankruptcy filing by the city on July 18. The Detroit collection has been valued at more than $1 billion. Read more of this post