Neue E.U.-Grenzen für Spekulation mit Nahrungsmitteln

New E.U. limits on food speculation.

As part of the reforms to the E.U.’s Markets in Financial Instruments Directive [much more comprehensible in German: financial markets guideline, Finanzmarktrichtlinie], negotiators from the E.U. Commission, Member States and Parliament agreed to create new upper limits capping possible food speculation, in an attempt to calm the markets and prevent investment-driven hunger around the world. Now that this agreement has been reached, it will take about 2.5 years for the Member States to implement the new caps in their national laws.

The British government under Prime Minister David Cameron (Tory party) held out for a long time against putting limits on commodities markets, even for foodstuffs. Proponents for the limits included some banks that voluntarily announced they would stop trading in food commodities. ARD tagesschau.de reported 100,000 people also signed a petition to the E.U. last year asking for this reform.

(NOY ah   eh OO grents en   fooeah   shpeck oo lah tsee OWN   mitt   GNAW roongz mitt elln.)

Kupferpreis

Price of copper.

After lobbying by firms claiming reducing copper supply would not drive up copper prices, in December 2012 exiting U.S. Securities and Exchange Commission chair Mary L. Schapiro gave the banks Goldman Sachs, JP Morgan Chase and BlackRock the S.E.C.’s approval to buy up 80% of the copper available on the market and hold it in warehouses as backing for new copper-based investment funds. The NYTimes.com article went on to say copper is used in so many manufacturing applications that it is sometimes tracked as an indicator for the economy as a whole.

(COOP fur prize.)

Erdgaspreis

Price of natural gas. A March 2013 article in Rupert Murdoch’s Wall Street Journal mentioned that the Commodity Futures Trading Commission said the Libor benchmarks manipulation scandal came to their attention after “firms and traders” were sanctioned for reporting false data to energy index compilers in attempts to manipulate natural gas prices between 2003 and 2005.

(ED gauze prize.)

Ölpreis

In 2011 a Goldman Sachs study apparently stated that market speculation had indeed helped drive up the price of oil for consumers. In 2012 U.S. Commodity Futures Trading Commissioner Bart Chilton said, “Using the Goldman Sachs research figure, and multiplying 10 cents times 233.9 million, would mean that theoretically there’s a ‘speculative premium’ of as much as $23.39 a barrel in the price of NYMEX crude oil.” Mr. Chilton has also said that the commodities business is a possible loophole for banks in the U.S.’s new frequently-postponed “Volcker rule” intended to reseparate banking from investment gambling.

Potential oil bottleneck points persist in privately held and/or operated oil infrastructure. Oil traders now own oil refineries. Pipelines are included in the infrastructure large banks have somehow acquired part ownership of. U.S. bank Morgan Stanley invested in the “global oil tanker operator” Heidmar in addition to “fuel chain supply manager” TransMontaigne. An F.A.Z. article described how the world’s three largest oil trading firms, Switzerland-based Gunvor, Vitol and Glencore—”prescient” commodity markets pioneer Marc Rich’s old firm—work today, supposedly on the basis of fast-computer-based price arbitrage rather than speculation. Moving into production, Glencore is now invested in oil wells, coal mines and metals mines, after its late-2012 fusion with Swiss competitor Xstrata.

Apparently a landmark 2003 U.S. Federal Reserve decision allowed U.S. investment banks to start “trading oil cargoes.” In July 2013 the Fed announced it was “reviewing” that decision. Though Fed deregulation may have unleashed the Wall Street side of recent international commodities speculation problems, the Fed probably cannot fix it now without simultaneous coordinated reforms from other regulators around the world.

(ILL prize.)

Spotmarkt

Spot market, where financial instruments or commodities are sold for immediate delivery, unlike the futures market where they are sold for delivery at a later date. Wikipedia said a spot market can be an organized market, an exchange or over-the-counter (O.T.C.).

Regarding the spot market price of aluminum: Goldman Sachs was accused of bottlenecking aluminum at Goldman’s Metro International aluminum warehouses outside Detroit, increasing customers’ delivery wait times since purchasing M.I. in 2010 from six weeks to sixteen months by first lowering prices to attract a stockpile (“50,000 tons in 2008” to “~1.5 million currently”) and then, actually, trucking a minimum daily regulatory-defined shipment amount of 3000 tons back and forth among the 27 warehouses. There were also accusations of understaffing, reduced shifts and prioritizing putting aluminum into storage over taking it out. The shuttle-shuffled delays raised a premium added to the price of all aluminum, driving up the spot market price “according to an arcane formula” even for metals bought directly from mines or refineries to bypass these warehouses. While delaying delivery the warehouses also continued charging rent on the stored metal. Perfectly legal according to current international regulations, apparently set by the London Metal Exchange.

The London Metal Exchange might need more disentanglement from the entities it is supposed to regulate. According to the NYTimes.com article, it still receives 1% of the rents collected by the ~700 warehouses it regulates around the world. Until 2012 it was owned by its member regulees, including Goldman Sachs, JP Morgan Chase, Barclays and Citigroup. Many of its metals warehousing regulations were written by a board populated by executives from banks, trading companies and storage companies. In July 2012 the L.M.E. was sold to Hong Kong Exchanges and Clearing, part-owned by the Hong Kong government, for ~$2 billion. A NYTimes.com description of the 2012 sale said it “will allow the Asian company to control the world’s largest futures trading exchange for metals like aluminum, copper and zinc, as emerging market demand for commodities remains strong.” In 2012 Hong Kong Exchanges and Clearing was supposedly hoping to get an exemption from Chinese laws preventing foreign companies from owning these sorts of metals warehouses in China.

The U.S.’s Federal Reserve Board could, said NYTimes.com, quit extending exemptions that allow banks like Goldman Sachs to invest in nonfinancial enterprises. Though the Fed’s stated conditions in allowing banks to diversify into commodities investment were “only if there was no risk to the banking system” and if the deals “could ‘reasonably be expected to produce benefits to the public, such as greater convenience, increased competition, or gains in efficiency, that outweigh possible adverse effects, such as undue concentration of resources, decreased or unfair competition, conflicts of interests, or unsound banking practices,'” yet many people would say its deregulation achieves the opposite effects, that big “diversified” banks’ risk management still appears to endanger U.S. and world economies and now banks’ having bought up important infrastructure might be presenting them with irresistable temptations such as artificial bottlenecking or even information advantages not all traders always refrain from using.

Update on 25 Jul 2013: The U.S. Senate’s banking committee has criticized that the Federal Reserve is not communicating well with them. However, wrote the F.A.Z., the U.S. Congress could pass its own banking reregulation rules without waiting for the Federal Reserve.

It’s unclear whether shadow trades are involved here, but it’s also unclear why everyone hasn’t gone broke if this is how they’re doing business:

“Industry analysts and company insiders say that the vast majority of the aluminum being moved around Metro’s warehouses is owned not by manufacturers or wholesalers, but by banks, hedge funds and traders. They buy caches of aluminum in financing deals. Once those deals end and their metal makes it through the queue, the owners can choose to renew them, a process known as rewarranting.”

If Goldman is indeed paying aluminum owners, fellow speculators, to rewarrant their metal and leave it in the warehouses piling up rent owed to Goldman, that might indicate some creative profits or at least useful losses are being made.

Aluminum is economically important enough that Chancellor Angela Merkel’s government has been giving aluminum refineries, notoriously high-volume electricity consumers, various electricity rebates that must be paid for by individual consumers or “ratepayers” in their home electricity bills because, Germany’s government said, the preservation of the aluminium supply was that significant for their economy as a whole.

(SHPOTT mocked.)

Außerbörslicher Schattenhandel

“Off-market shadow trading,” which der Spiegel says is also known as over-the-counter trading, done directly between speculators such as bank traders. May exceed trading in the (regulated) markets.

E.U. and U.S.A. regulators agree that they want to regulate O.T.C. trading. An F.A.Z. op-ed discussing recent U.S. Federal Energy Regulatory Commission (F.E.R.C.) fines mentioned that other U.S. financial authorities that could impose fines on international financial companies such as banks include the S.E.C. (Securities and Exchange Commission) and C.F.T.C. (Commodity Futures Trading Commission). It cited a quite-large Financial Times estimate of the size of global O.T.C. trading amounting to well over half a quadrillion dollars.

Regarding shadow-sector speculation in electricity: on 24 Jul 2013 the F.E.R.C.’s fine was upheld to London-based Barclays bank of nearly half a billion dollars to the bank (and $15 million to one manager and $1 million each to three traders) for benchmark manipulation affecting U.S. electricity markets between 2006 and 2008, including taking on-market losses in order to increase the value of off-market O.T.C. bets. Barclays intended to keep fighting the fine, however, and if the bank doesn’t pay it within the 30-day deadline the case could go to a U.S. federal court which could reset the fine. In January 2013 Deutsche Bank negotiated a settlement with the F.E.R.C. for the same electricity market gaming and received a fine of ~$1.5 million. On 24 Jul 2013 JP Morgan Chase was still negotiating with the F.E.R.C. about their fine for manipulating electricity prices in California and the Midwest; originally the settlement was said to be at nearly a billion but Chase succeeded in negotiating it down to less than one billion dollars though so far still more than Barclays’s ~$480 million.

Update on 30 Jul 2013: JP Morgan Chase’s F.E.R.C. fine for allegedly manipulating U.S. electricity markets was negotiated down to $410 million.

Regarding shadow-sector speculation in food commodities: The day before announcing its largest capital collection in its history as a mutual savings bank, on ~28 May 2013 Germany’s fourth-largest bank at the time published an open letter to the consumer advocacy organization Foodwatch.org saying their bank was joining their country’s second-largest bank and several smaller banks in pledging that they will no longer trade in or sell financial products based on agricultural commodities (such as grains). They recommended other banks also cease doing so in order to keep from driving up world food prices, remarking that investors’ demand to participate in food-based funds is low anyway. D.Z. bank said they have been and will continue to work closely with university academics to study and monitor world agricultural economics and the effects of food speculation. They requested government reregulation of both markets and of off-market trading to re-introduce “position limits” on the amount one entity, such as a hedge fund in the shadow financial sector, could wager on food-based financial products. After deregulation in the early 2000’s, “the speculators’ share in international commodity markets increased from 30% to 80%.”

At the time this D.Z. Bank letter was published, E.U. leaders intended to meet in late June 2013 to agree on regulations imposing these food-trading position limits but, said the head of the bank in question, “the financial sector” had already managed to introduce many loopholes into the drafts— “practically neutralizing the limitations on speculators,” said Foodwatch head Thilo Bode.

(Ow! ss ah BƏZZ lichh ah   SHOTTEN hond ell.)

 

“Wie wäre es, wenn…?” und “Warum nicht?”

“What if?” and “Why not?,” questions filmmaker Alex McDowell said fiction writers bring to the art and science of speculating about the future.

Finanztransaktionssteuer auf Wertpapiergeschäfte

“Financial transaction tax on securities transactions.” The responsible EU commission has submitted a draft proposal for a tax of 0.1% on transactions in stocks, loans, shares in investment and money market funds and derivatives in the EU, to be collected from large investors such as banks. Financial products for small investors are not going to be subject to the FTT. Some or all of the estimated >30 billion euros resulting from the tax will be used to bail out the large institutions paying the tax if new crashes occur in future, taking taxpayers off the hook for these institutions’ miscalculation of risks. The FTT will have to be approved unanimously by all EU countries before it can go into effect in Europe as scheduled on 1 Jan 2014.

Update on 12 Nov 2013: Apparently another English name would be a “Tobin tax,” named after Nobel economics laureate James Tobin. It’s a penalty he proposed decades ago on “short-term financial round-trip excursions” in order to “dissuade speculators.”

(Fee NONTS trons awk tsee OWNS shtoy er   ow! f   VAIR t pop EAR geh CHEF teh.)

Betongold

“Concrete gold.” Signs of an incipient housing bubble in Germany in statistics from ZDF heute journal, which reports that many investors, especially Greeks and Spaniards, are buying urban German real estate. They frequently pay in cash. Apartment sale prices are up 26% in Düsseldorf, 28% in Frankfurt/Main, 28% in Nuremberg, 50% in Hamburg and 73% in Berlin, according to the chart at 22:35. Financial reporter Sina Mainitz said low interest rates and uncertainty about the euro are helping drive the “flight into tangible property.” Unlike in the USA’s recent housing bubble, the Germans expect the ROI will be not from resale but from raised rents.

(Bay TONE gold.)

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