Business Insider quotes Jeffrey Carter, a former board member of the Chicago Mercantile exchange and writer of the blog, Points and Figures, who puts it this way: “They [Goldman] can influence the price heavily because they affect a price where the entire market pegs.”
Goldman also says this:
Recent news reports have inaccurately accused Metro of deliberately creating aluminum shortages and incorrectly asserted that Metro moves aluminum from one warehouse to another in order to earn more rent fees.
• In fact, it is the owners of the metal who direct warehouse operators to dispose of stored metal or transport metal from LME-approved warehouses to warehouses outside the LME system to meet their own needs or objectives.
The idea here is that at the behest of tenants, the company is moving the metal from the more expensive LME space to cheaper non-LME space, also owned by Goldman.
In an interview, Goldman spokesman Michael DuVally adds that the three forklift drivers quoted by name in the Times story discussing moving metal from warehouse to warehouse all worked for the company for less than two and half months, “so it’s possible that they didn’t understand what was going on.”
Now, the paper’s main point was about the shipping slowdown generally, that it was part of a deliberate strategy. But the Times does imply, even if it doesn’t state outright, that the metal shuffling was a way to hew to the strategy while narrowly complying with industry rules.
On the other hand, it’s possible that the workers knew quite well what was going on and that the Times’s unnamed sources confirming the general idea did, too. The possibility that the Goldman unit moved metal on its own, absent tenant orders, and that some made its way from one LME warehouse to another, is far from foreclosed.
As for what it was doing in the physical commodities business in the first place, the regulatory exceptions that allowed it, and the wider questions of the soundness and fairness of a financial institutions controlling the movement of a sizable share of a market in which it trades, the Goldman release is silent.
Strange your hunch flopped, but you carry on here as if it didn't. Even the points you call out don't pan out, and beyond that the article's strong narrative now seems an exercise in misdirection. It even obscures its sources by calling the piece a Times "investigation", so we can't really tell whose interests are being advanced, except what we might guess from a few quotes.
I guess you missed the factual point that the load out has increased, not "slowed to a crawl"? And we read LME is set to raise the minimum load out further, but perhaps not until next year.
The article implies Metro is shuffling aluminum between its own warehouses as a scheme, but responses indicate metal is shipped under the direction of the owner (which is never Metro) often to a cheaper warehouse. The Times should just concede the point that you call "far from forclosed" is in fact bogus unless they have more than innuendo in support.
The regulation point made in the article hardly seems like a clever connection that the author put together, rather it's clearly the point of view his sources are pushing to achieve some advantage. In that context, it might have made sense to point out that buying a warehouse operation, like office towers, etc, is a pretty ordinary merchant banking activity, and the banks with big commodity businesses have been in the space for a long time, not only recently due to looser rules.
The article is also written to confuse the dollar amounts, so that several publications' follow on pieces claimed GS earned $5B from the alleged schemes. Only further down we learn the whole operation was bought for $550M in 2010 and might now collect $250M rent annually, only some portion of which would be profit. We have to read other sources to learn Metro was apparently being shopped around in April, and we have to guess what might have been an acceptable sale price.
It does seem that LME is very clubby and metals storage in general is straining under market trends, with many end users unhappy about large stockpiles and long queues. But the piece tries to tell a villain story an invokes mysterious formulas that may not really exist in order to make a splash. In doing so, it is way too credulous about the huge suppliers and consumers in the market with dominating positions. It naively champions their pet political points while giving them anonymity and without pointing out any countervailing points. Overall not a good service to the public readership at all.
#1 Posted by Anonymous, CJR on Mon 29 Jul 2013 at 02:47 AM