Drop In Prices For All Commodities Starting Monday

[Shokdee]

Some late breaking news. Likely drop in prices for all traded commodities starting Monday.

Zerohedge had this disturbing news late Friday (http://www.zerohedge.com/news/cme-goes-margin-defcon-1-makes-maintenance-margin-equal-initial-everything.htm)

Wikipedia: DEFCON 1- Nuclear war is imminent - Maximum readiness

Wikipedia: The Chicago Mercantile Exchange (CME) ... has the largest options and futures contracts open interest (number of contracts outstanding) of any futures exchange in the world.

Zerohedge reports: The most important news announcement of the day was ... a brief paragraph distributed by the CME long after everyone had gone home ... It is critical, because not only is this announcement a direct consequence of what happened with MF Global several days ago, but because also it confirms one of our biggest concerns: systemic liquidity is non-existanet. .... But what is very disturbing is that this is just as true at the exchange level, where it appears the aftermath of the MF collapse is just now being felt.

What exactly was the CME announcement? (http://www.cmegroup.com/tools-information/lookups/advisories/clearing/files/Chadv11-399.pdf)

Zerohedge continue: It is .. a margin call for tens if not hundreds of billions worth of product. Because as of close of business on November 4, today, the CME just made the maintenance margin, traditionally about 26% lower than the initial margin for specs, equal. For everything. Which means that by close of business Monday, millions of options and futures holders will be forced to deposit billions in additional capital to the CME just so they are not found to be margin deficient, and thus receive a margin call. Naturally, since it is very unlikely that this incremental amount of liquidity can be easily procured in one business day, we anticipate the issuance of hundreds of thousands of margin calls Monday, followed by forced liquidations of margin accounts across America... and the world.

There is a lengthy discussion in the comments section, but this sums it up.

Waffen: This sounds bad, but how bad is it really? How many dollars are we talking?

Tyler Durden (Zerohedge): Anywhere between double and triple digits notional. In the trillions that is. All of it levered between 20 and 50 times.

See also: Mother of all margin calls (http://silverdoctors.blogspot.com/2011/11/mother-of-all-margin-calls-cme-hikes.html)

[impulse]

I don't know you from Adam, and I'm not wishing you ill in your endeavors. But this looks a lot like what someone would publish if they were to have short positions in a lot of commodities and were praying for a nosedive.

I'm not saying it won't happen, and for the exact reasons pointed out in your links. But there have been several high profile lawsuits and prosecutions of entities shorting a stock or commodity and then publishing exactly this kind of information.

As for me, I'm thinking about stocking up on antibiotics which I'm figuring will be in high demand if the flood situation gets any worse. If this happened in the USA, I'd be stocking up on ammo as well. (Not really, but I'd do that before trusting "after hours tips" found on the web. )

Seriously, I hope it works out for you, but I'll be a spectator and not a speculator.

[Shokdee]

Hey impulse, I don't know you either but firstly, this is a heads-up message from a highly reputable website, Zerohedge, not my personal blog!

Second, you wrote "like what someone would publish if they were to have short positions in a lot of commodities and were praying for a nosedive". Since the announcement was from the CME itself - I repeat from the CME - you appear to be very confused about the source or motive.

Thirdly, I am long, very long, gold and silver (I have physical, never been interested in paper) so I'm sure everything will work out for me as fiat money goes bust. Clearly I am no speculator, maybe a realist.

Lastly, you apparently missed the irony of your own words. You write "As for me, I'm thinking about stocking up on antibiotics which I'm figuring will be in high demand if the flood situation gets any worse" and then conclude "I'll be a spectator and not a speculator". Why are you thinking of stocking up on antibiotics if you are not a speculator?

This post was mainly aimed at those with physical gold or silver (that probably excludes you impulse) to warn them of a potential big drop in prices over the next few days. If you were waiting to get physical, then the next few days might be the golden opportunity (some comments are that silver could go as low as 20 dollar an ounce). If you're thinking of selling, hold on tight for now, wait for the rebound.

[Naam]

this is a heads-up message from a highly reputable website, Zerojedge...

[Shokdee]

Opps, that first link is incorrect and does not take you directly to the news item!

Try this one http://www.zerohedge...tial-everything (the number of comments is already over 700 and the reads at 48,898 - this article is getting some traction).

Edited November 5, 2011 by Shokdee

[midas]

Hey impulse, I don't know you either but firstly, this is a heads-up message from a highly reputable website, Zerohedge, not my personal blog!

Second, you wrote "like what someone would publish if they were to have short positions in a lot of commodities and were praying for a nosedive". Since the announcement was from the CME itself - I repeat from the CME - you appear to be very confused about the source or motive.

Thirdly, I am long, very long, gold and silver (I have physical, never been interested in paper) so I'm sure everything will work out for me as fiat money goes bust. Clearly I am no speculator, maybe a realist.

Lastly, you apparently missed the irony of your own words. You write "As for me, I'm thinking about stocking up on antibiotics which I'm figuring will be in high demand if the flood situation gets any worse" and then conclude "I'll be a spectator and not a speculator". Why are you thinking of stocking up on antibiotics if you are not a speculator?

This post was mainly aimed at those with physical gold or silver (that probably excludes you impulse) to warn them of a potential big drop in prices over the next few days. If you were waiting to get physical, then the next few days might be the golden opportunity (some comments are that silver could go as low as 20 dollar an ounce). If you're thinking of selling, hold on tight for now, wait for the rebound.

what is your prediction for gold? US dollars 1300 to 1400?

[Darrel]

Gold, schmold.

What about my magic beans?

[Shokdee]

what is your prediction for gold? US dollars 1300 to 1400?

Could be, I have no idea, but the implication of the CME notice is that all commodities could drop as everyone sells off their paper in a frantic search for liquidity, as Zerohedge outline.

The recent volatility has been so extreme that I was losing sight of the big picture - getting sea sick in the choppy waters - and totally unsure about future moves. Buy? Sell? Gold? Silver? Hang onto cash? But then again, I did not want to be caught with cash only to find a sudden shortage of physical. So a few months ago I changed strategy completely. Now I ONLY FOLLOW THE GOLD TO SILVER RATIO. I do not concentrate on either gold or silver prices on a day-to-day basis. When the ratio changes dramatically I flip gold into silver or silver into gold and scoop up any cash for pocket money.

Since I am long silver, in other words I assume the ratio should be at least around 16 or 17 (possibly even 1 to 1 !!!) my overall aim is to increase my silver holdings. If anyone else is doing this, following the ratio and not actual prices, let me know and we can share tips. If you have not tried this yet, then give it some thought. It gives you a totally different perspective. For instance gold moves 287 dollars and silver moves 4.50 dollar (up or down), is that good or bad? I don't care, I just look at the ratio and from that my next move becomes clear.

A daily visit to http://www.24hgold.c....aspx?money=USD keeps me informed.

Edit to add that I am also very long magic beans, or more correctly permaculture, but close enough?. As for (sch)mold Bangkok residents seem to have cornered that market already, prices will drop and the market will be saturated!

Edited November 5, 2011 by Shokdee

[flying]

Actually it looks like it was a misinterpretation of what the CME was saying...

http://kiddynamitesworld.com/the-cme-margin-notice-that-has-everyone-in-a-tizzy

That aside it is IMO erroneous to focus on what CME said or not said

Instead look at things like MF Globals recent admissions.

This will leave a large hole...(another one )in the confidence of people/investors

have in this broken system.

If because of THESE types of things more & more close their accounts you have a flight to safety/liquidity.

That will impact volume. Prices will fall prey to wild swings...we ain't seen nothing yet.

But it will again IMO be the beginning of a more serious liquidity crash.

The banks of the western world are already stressed/stretched to the limits with their

derivatives that are valued at higher than the underlying commodities they represent.

I always thought this whole thing would eventually fold not only because of the

corrupt shenanigans that woke us up but ultimately because of the loss of faith

we will have in this broken system....Rightfully so IMO

Look at it & use *your* eyes & *your* brains to decide for *yourself*

where you want to put *your* hard earned cash.

Edited November 5, 2011 by flying

[flying]

But then again, I did not want to be caught with cash only to find a sudden shortage of physical. So a few months ago I changed strategy completely. Now I ONLY FOLLOW THE GOLD TO SILVER RATIO. I do not concentrate on either gold or silver prices on a day-to-day basis.

I have basically done the same since 2008.

I do not focus on the day to day.

I did go large physical Silver at 77/1 GSR plus of course gold in 2008

but at 35/1 earlier this year I transferred all into gold.

I recently missed the 60/1 & did not return some to Silver but will the next time if/when it hits if possible.

[muchogra]

"but the implication of the CME notice is that all commodities could drop as everyone sells off their paper in a frantic search for liquidity, as Zerohedge outline."

Are you sure Zerohedge is not playing with words what the CME had disclosed?

I admit I did not read the whole post from the OP and the others. But I did observe how floor actions were conducted on La Salle and Jackson were conducted many moons ago.

My nephew was a floor trader in the US and now he's posted in HK in charge of options in HK and Korea. I always think he's been paid too much together with his noo nong ! Now, what are you saying. Long or short?

[fletchsmile]

Take a valium or drink a camomille tea. you sound in panic mode

Zerohedge - never heard of it

[flying]

Take a valium or drink a camomille tea. you sound in panic mode

Zerohedge - never heard of it

Actually it may have been ZH that reported it but it was CME that put out the bulletin.

I am sure you have heard of them...yes? the Chicago mercantile exchange

Anyway the actual bulletin is here

http://www.cmegroup.com/tools-information/lookups/advisories/clearing/files/Chadv11-399.pdf

But it is possible ZH had misunderstood the phrasing...

as explained here

http://kiddynamitesworld.com/the-cme-margin-notice-that-has-everyone-in-a-tizzy

But overall this distraction masks a much larger problem

[cloudhopper]

OOPS never mind

http://www.zerohedge.com/news/cme-issues-clarification-margins-usher-more-risk-less-liquidity-mf-aftermath

[Naam]

Our gut interpretation was that "Unless we are completely reading it incorrectly, it is nothing short of a margin call for tens if not hundreds of billions worth of product." Judging by the broad response, our initial reaction is what a prudent, logical human being would assume: after all, it is precisely the undercollateralization of customer accounts, and general underfunding at MF Global that is what brought that particular company down.

signed:

yours truly reputable bullshitter,

Dyler Turd

[kennalder]

Looks like ZH did indeed misinterpret the notice. The following from the CME this Sunday morning. To the best of my knowledge this clarification was not available Saturday evening. As Yingluck would say :Don't panic", and as I would say, At least not yet. It is my opinion, the world financial system is on the brink of disaster as Central banks have no ammo left to deal with another crisis of the 2008 proportions. Also the taxpayer will not foot the bill again. Around the world and especially in the US with high unemployment and a rebellious movement already established, any shock to the system will be Big Bang II (Forget QE III.)

CME Group today is clarifying its notice to clearing firms regarding margins. In light of the issues customers transferring out of MF Global are facing, while still maintaining appropriate risk management protections for the market, CME Clearing is setting the "initial" margin upcharge at zero. This upcharge is normally applied to customer accounts when they are receiving a margin call.

The intent and effect of these changes is to decrease the size of any margin calls resulting from the bulk transfer of MF Global customers to new clearing members, not to increase them.

Yesterday, CME Group successfully transferred MF Global customer positions to a new clearing member with part, but not all, of their funds, as approved by the bankruptcy trustee and the court. By reducing the initial margin "ratio" to 1.00, we ensure that margin calls that are issued to these transferred MF Global customers will be limited to bringing their accounts into compliance with the lower, "maintenance" margin levels. Maintenance margins are set to provide appropriate risk management coverage. Initial margins are set to provide an additional buffer against future losses in the account.

This is a short term accommodation to maintain market integrity and provide temporary relief to customers whose accounts have been disrupted by this event. We apologize for any confusion our initial advisory may have created.

Edited November 6, 2011 by kennalder

[flying]

It is my opinion, the world financial system is on the brink of disaster as Central banks have no ammo left to deal with another crisis of the 2008 proportions. Also the taxpayer will not foot the bill again. Around the world and especially in the US with high unemployment and a rebellious movement already established, any shock to the system will be Big Bang II (Forget QE III.)

They could have/ should have taken the high road in 2008

At least we would have been 3 years into the recovery where as we have not even started & have only increased the problem

Instead mainly those who caused the problem have again profited both down & up both sides of it.Not one jailed for it.

[waza]

Wow a storm in a tea cup, it was hard to believe CME would fall on their sword.

[Nisa]

UPDATE: The CME confirms that there won't be some mass liquidation tomorrow

http://www.businessi...-monday-2011-11

Edited November 6, 2011 by Nisa

[PattayaParent]

I thought this was going to be about cheaper shopping in the supermarkets.

[Shokdee]

The CME have been forced to issue a "clarification" of the initial announcement and it concludes "We apologize for any confusion our initial advisory may have created." No kidding! Surely they should have been "clear" in the initial announcement, no need to post a follow-up 2 days later. The whole debacle stinks - where they vague on purpose to test the response? You know things are coming undone when total confusion reigns. Remember that this week we also saw a dramatic U-turn from Greek Papa concerning a referendum. The "markets" are clearly in flat out panic.

Note, however, the CME margin call is open ended and also it will apply to all NEW trades, so the problem has not gone away. Any way you read it, liquidity is drying up and the situation is getting worse.

Will this mean cheaper commodities, save you a few baht at Tesco next month? Factor in the flood damage and supply chain disruptions (hard drives in Japan shot up 20% last week) and prices will probably stay the same. But this does raise the important debate around inflation versus deflation.

- - - - - - -

Mr flying, you wrote "earlier this year I transferred all into gold." At the moment I'm all into silver, so we seem to be playing the same game from opposite sides! Maybe we can trade with each other and cut out the middle man. Since silver is subject to sales tax and gold is not, this could be a method for us both to save on sales tax when we do the flip. My next flip, into gold, will be when the ratio hits around 40:1 Let me know if you have any thoughts on this, be keen to read your insights.

- - - - - -

Also thanks to Kennalder, Waza, Nisa for their input.

[flying]

- - - - - - -

Mr flying, you wrote "earlier this year I transferred all into gold." At the moment I'm all into silver, so we seem to be playing the same game from opposite sides! Maybe we can trade with each other and cut out the middle man. Since silver is subject to sales tax and gold is not, this could be a method for us both to save on sales tax when we do the flip. My next flip, into gold, will be when the ratio hits around 40:1 Let me know if you have any thoughts on this, be keen to read your insights.

- - - - - -

Well Shokdee that would be difficult as I am in the US

I do spend a few months a year at our Thailand residence & may live there full time in the not so distant future...

(Especially given the way things are going here )

As for swapping I use to use the 55/1 as a rule. Lately I have been a little reluctant hence the waiting for 60/1

The only reason I missed that was it occurred at night here & I watched it but could not do anything about it.

I am 100% physical so it entails swapping during business hours.

As I said the last large acquisition was at 77/1 for silver.

I literally backed up the truck to buy at $9.45/oz

So swapping at roughly 35/1 some less but average 35 was nice because of sheer weight reduction.

I did miss the 29/1 mainly because I got greedy & thought this was it & we would finally see it go

to 20/1

Anyway good luck to you & I think GSR is the way to go.

It is a logical way to grow your stack

Like you I do not get caught up in the spot

prices.

Edited November 6, 2011 by flying

[ExpatOilWorker]

Oil will still be above $100 on Monday and next week and next month........

[pomchop]

Why would anyone waste their time reading all these long boring reports on the internet?

If you want to know the future price of gold or silver or the Thai baht exchange rate or if your next girlfriend will have a tatoo on her butt there is a much easier way.

Right outside the beer garden on soi 7 there is a Thai lady with a stack of tarot cards. For only a 100 baht or so she will read the future for you and she is 100% accurate. I know this because a girl from the beer garden told me it is so.

Problem solved.

[kennalder]

Why would anyone waste their time reading all these long boring reports on the internet?

If you want to know the future price of gold or silver or the Thai baht exchange rate or if your next girlfriend will have a tatoo on her butt there is a much easier way.

Right outside the beer garden on soi 7 there is a Thai lady with a stack of tarot cards. For only a 100 baht or so she will read the future for you and she is 100% accurate. I know this because a girl from the beer garden told me it is so.

Problem solved.

MMMMmmm BEER, the cause of and the solution to all of life's little problems - Homer

Have another!

[Shokdee]

Flying: "I literally backed up the truck."

Yup, that's the way I do it too. I did my last flip a month ago, walked in with a handful of gold, pushed out a trolley loaded with silver. Silver supply is robust in Thailand, only once did I have to wait a few hours for delivery.

Flying: "... we would finally see it go to 20/1."

Oh yes, waiting patiently for the day,

Thanks for your comments, it was good chatting to you, all the best.

[nong38]

More scare mangering? Well I guess we will see on tuesday morning, I think we will see things same as usual. Somebody regularly claims that the world is going to end as well on ........... but I still get up the world I am familiar with, may not be perfect but it what we have.

[craigt3365]

Here's an excellent article on the impact of Monday's margin calls. Not as bad as zerohedge.com reports:

http://www.reuters.com/article/2011/11/03/us-mfglobal-margin-idUSTRE7A27Y020111103

I like this review of ZH:

Biggest Bears on the planet

Post a lot of good stuff, but a lot of it is propagandist BS. Read for entertainment only or you will think the world is ending each and every day.

A good article on ZH:

http://curiouscapitalist.blogs.time.com/2009/10/01/wall-streeters-like-conspiracy-theories-always-have/

[A]s his posts got more detailed, a theme began to emerge: Wall Street was a vast conspiracy. Nothing could be trusted. All markets were corrupt. The darker his vision the more popular he became.

[mccw]

Hello.

Nott too sure about the article; but I do think a major liquidity crisis is looming and think many commodities will fall. However; long term it makes sense that metal backed currencies will be the way to restore confidence after real meltdown; so I'm starting to collect physical gold and silver.

Thank you for sharing your way to 'increase your stack'. It hadn't occurred to me but seems like a really good idea. Can I just clarify I've got this right?

At themoment it's about 54 silver to 1 gold; so I buy silver as a starting point; then wait till the gap narrows to about 20-1 and switch it to gold, then wait for widening again and repeat this process indefinitely. Anything I'm missing? Any tips would be great; like historically standard best ranges to look out for?

Although I like this idea; I still think I'll keep a % of total holdings behind and only do the switch with about 80% . do you literally do 100% switch every time? In the event of total collapse I'd like to be holding some of each.

Thanks

[flying]

Hello.

Thank you for sharing your way to 'increase your stack'. It hadn't occurred to me but seems like a really good idea. Can I just clarify I've got this right?

At themoment it's about 54 silver to 1 gold; so I buy silver as a starting point; then wait till the gap narrows to about 20-1 and switch it to gold, then wait for widening again and repeat this process indefinitely. Anything I'm missing? Any tips would be great; like historically standard best ranges to look out for?

Although I like this idea; I still think I'll keep a % of total holdings behind and only do the switch with about 80% . do you literally do 100% switch every time? In the event of total collapse I'd like to be holding some of each.

Thanks

Hi

Yes basically you have it correct....

Although the GSR ratio is now at 51.38 as I type...

General thinking was if you have none & you wanted to buy silver or gold...

General thinking would be if the GSR is high buy silver as it is undervalued

If it is low buy gold as it then would be considered undervalued or over sold.

The gap has not seen 20/1 in many years & the lowest I have seen in recent years was approx..29/1

I bought silver at 77/1 I did not swap gold into it. Although it would have been a good idea

physical gold was in short supply at the time.

The price of silver was 9.45 oz at the time + $2 premium for coins so $11.45 total per oz

Later I swapped that into gold at 35/1 average. At that time gold was selling for $1500+ per ounce

All things equal & no money added It was equal to buying gold for $11.45x35= $400.75/ounce

Yes I could have sold the silver & pocketed the money some will say.

Keep that in mind....One ounce of gold for $400.75 when gold was selling for over $1500/oz

Now if the GSR hits 60/1 I will swap again so......

I am buying 60 ounces of silver for again $400.75 or $6.67 per ounce - any premiums?

Yes you will pay a premium on the silver maybe $1 per ounce

So you still do not need cash but you need to allow for the premium

60x$1= $60 you can pay for that with silver of course if say silver is $30 per ounce when you swap

you give up 2 ounces to pay it.

So now you have 58 ounces of silver bought for $400.75/58= $6.90 per ounce

When swapping you need a dealer that is fair. Because not all treat premiums the same.

I usually do quite well with premiums as I have had the same dealer for a long time.

I hope I have not confused you too much

To make it simple look at it this way....Lets leave out premiums to keep it simple for now

You bought silver at 70/1 GSR...Say 1000 ounces

So you have 1000 ounces of Silver

Now the GSR drops to 35/1

You swap your 1000 ounces of silver at 35/1

You now have 28.5 ounces of gold

You wait & the GSR returns to 60/1

You swap your 28.5 ounces of gold for Silver you now have 1710 ounces of Silver

So 710 more ounces than you started with.

Yes it is profit & some sell instead of swap.

All depends on your premise for having bought in the 1st place

Anyway.......I hope I have not confused you

Here are some historical charts

http://goldprice.org/gold-silver-ratio.html#1_year_gold_price

Here is an older article that deals with swapping

http://the-moneychanger.com/articles_files/mmm_files/silver_files/silver_will_outperform.php

PS: we have a thread called where is gold going here running a few years now.

If you want you can maybe find even more info on metals in general & the market

Edited November 7, 2011 by flying