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Is There No End To The Financial Insanity?

by | Monday, 14th February 2011
The last forty years have seen record levels of insanity in the financial sector. Drunk on the possibility of "making money", individuals with no thought to the impact on the lives of the real human beings on this planet, have demonstrated a willingness to do anything to make a quick buck. "I wish they'd get this war started," one such person said to me just prior to Blair's invasion of Iraq.

Over the decades we have seen bubble after bubble expand and burst. We've seen currencies attacked. We've seen banks collapse as a result of fraud, and the taxpayer bail them out, as a result of treason.

And today, we see the stock market back up over the 6000 mark, despite the fact that the real economy is dead, and Britain produces a mere fraction of its historic output. How can this be?

The truth is, it's as a result of yet another bubble. But this bubble is going to hurt us all in the long term. This is the bubble, that as it expands will kill millions of people through starvation. This is the bubble which is going to create price inflation, while at the same time, currencies are collapsing.

This is the commodities bubble, and yet again, it is based on fraud.

Exchange Traded Funds

An Exchange Traded Fund (ETF) is a pool of money; an investment fund. You give your money to the company which manages the fund, and they give you shares in the fund. The shares are traded on the stock markets like any other stock.

The value of the EFT is generally considered to be the net asset value of the assets owned by the fund. However, there is opportunity for speculation. If there is stong demand for a particular ETF, its price on the market might rise above the net asset value of the assets held by the fund for a short period. This gives institutional investors and hedge funds the opportunity to speculate during that short period of time.

What Assets?

Historically the assets held by an ETF would be stocks, bonds and other financial securities. Gradually things started to get a bit more complicated, with ETFs investing in derivatives. But in the last few years, companies managing ETFs have begun to invest in commodities.

Initially it was precious metals, but now its everything - gold, platinum, palladium, silver, copper, zinc, nickel, tin, oil, wheat, corn, cotton, sugar, soybeans ... the list goes on ...

And here's the danger - whereas in the past, ETFs have held futures contracts, now they are starting to store physical product.

Fraud & Market Manipulation

Make no mistake, this is a bubble, and it is fraudulent.

Market participants are attempting to control the supply chain at the same time they are also investing in futures markets.

To understand the scale of this, the Wall Street Journal reported at the end of December that a single entity, widely suspected to be JPMorganChase, that it now controls 90% of copper traded on the London Metals Exchange. That is approximately 50% of global supply.

So here we have an institution which has one department controlling supply of a product, while at the same time it has traders in other departments trading the futures markets!

How many others are there? Isn't that insider trading?

Another entity, suspected to be MorganStanley, controls 90% of the London Metal Exchange's aluminium. Another controls somewhere between 50% and 80% of nickel contracts; another 50% to 80% of zinc. And so on. You get the picture.

As a result - hold on to your hats - food prices which have been steadily rising throught 2010, rose by 18.3% in the week ending 25th December 2010. That's in one week.

Starvation For Profit

Now this kind of control of the raw materials that are used in the manufacturing industry is bad enough. But when it is extended to the basic necessities of survival - wheat, for example - then it gets really serious. Now we are talking about these people killing other human beings for profit.

Almost a billion people suffered from hunger in 2010, which was a rise of 150 million over 2009. When are we going to stop standing by and watching while others suffer so that someone with too much money can pay for a new yacht?

I leave you with a quote given to the Daily Telegraph by a trader concerned by these physically backed exchange traded funds:

Metals like copper are in intense demand. By buying futures contracts, investors have never impacted the physical cost or supply of copper. But allowing investors to hoard physical supplies is the equivalent of allowing investors to sit on warehouses of wheat while Tesco is short of bread.

In Britain, we can probably survive a shortage of bread. I'm not certain how many countries in sub-Saharan Africa have that luxury.

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