Magical TBTF Commodity Trading

Posted: Aug 06, 2013 12:01 AM

Even as I grow older, I still remain an impressionable young child when it comes to the world of magic.  I continue to be enthralled with everything from the smallest sleight of hand trick to the ultimate large-scale illusion — it’s all so thrilling to me.  That’s why I marvel at the prestidigitation currently being practiced by Goldman Sachs, JP Morgan Chase, and of course let’s not exclude Morgan Stanley.

The skill of the magician, in essence, is to direct your attention to one area while the magician manipulates something in another area.  Thus it is that the great Goldman Sachs-ini, JP Morgan-ini, and Morgan Stanley-ini, continually redirect your attention from the actual manipulation of real commodities to the less offensive trading of commodity futures.  

Most people haven’t placed actual or real dollar figures on commodity trading revenue in years.  In fact, for analysts to determine profitability — due to a lack of cost, salaries, bonuses, etc., —it’s almost impossible.  This lack of information, however, is actually legal and blessed by the regulators.  Yet, the absence of full disclosure is starting to bother some members of Congress, who from time to time actually exhibit some degree of conscience.  

Here’s where the magic comes into play.  While the mainstream media, Congress, and even the regulators spent time, energy, and money investigating the lack of clarity regarding commodity trading, the real action is taking place in the physical commodity arena.  The magicians (the ini’s) are involved in every aspect of the actual commodity itself — from warehousing to delivery — and they can control, facilitate, or even disrupt the entire commodity market.  From JP Morgan tankers overloaded with oil and steaming in circles to Goldman Sachs aluminum warehouses that simply shuffle inventory, daily pricing is not only affected but it’s also controlled by our sleight of hand artists.  Much of the response (magician’s patter) is to point out that many of the biggest global commodity traders, such as Trafigura and Vitol, provide no disclosure at all.  (Notice the tricky misdirection of bringing other players in your line of vision, while also keeping you focused on trading — ah yes, the skill of a truly great magician.)  

Should the “ini’s” delay the delivery of a commodity; the law of supply and demand will naturally drive prices higher, and vice versa.  Either outcome will benefit the “ini’s” trading desk, as they will have bet accordingly.  Some people, like Martha Stewart or SAC Capital Advisors founder Steven A. Cohen, might complain that they were unfairly singled out since the “ini’s” are also dealing with insider trading.  

I would respond that Stewart and Cohen are desperately trying to implement the tactic of misdirection, but unfortunately neither of them has the skill of the (TBTF) “ini’s,” who are truly the master magicians of Wall Street.  After all, it’s not really insider trading, it’s just…magic!