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’Beware the ‘Splash Crash’
Introducing ‘the splash crash’.
Like the flash crash but worse because it involves the “flash” spreading cross-asset class to everything from forex to commodities.
The idea springs from John Bates,
Silver and short covering – a theory
John Kemp at Reuters has already written about how it wasn’t necessarily the froth in the market that caused the parabolic rise in silver over April:
Now, on Friday, Pragmatic Capitalism has a post explaining why the CFTC’s committment of traders report possibly proves it was indeed short covering which was responsible for the rise,
The ‘Asia connection’ to the commodity rout
Our colleagues on the paper-side drew attention last week to the fact that silver trading in Asian hours experienced a clear pickup into the lead up to the commodity rout.
Jack Farchy wrote, citing Edel Tully,
It wasn’t the ‘froth’ that caused the commodities rout
Contrary to popular belief, analysis of the latest CFTC position data is beginning to show that it wasn’t so much the ‘froth’ in the market that was responsible for this month’s run-up and subsequent commodity price collapse,
The 2001 shift
Kevin Gaynor at Nomura — long-standing side-kick to Bob ‘The Bear’ Janjuah — has had an epiphany.
The crisis didn’t begin in the subprime fuelled mid-naughties.
It began in 2001, when the world experienced a structural shift like none other.
ETF investors mistimed the commodity correction (again)
Here’s an interesting observation regarding this month’s commodity sell-off.
It comes from short-selling data firm, Data Explorers, and it concerns commodities ETFs:
The other theme running through this week has been further drama in some of the commodity markets,
UBS on the commods crash – and getting ready for the next one
We’ve heard from Deutsche Bank, who blamed the coming end of QE for last week’s precipitous price moves.
UBS have now added their view to the causes of the commodities crash. In a nutshell, they’re citing:
Crackageddon
The justification for Wednesday’s commodity rout is still that RBOB futures fell (or crashed) after the EIA reported larger than expected US stockbuilds in gasoline. The more than 8 per cent move, in the usually much more stable contract,
Chinese commodity imports are falling
It’s probably fair to say that in the commodity world, all eyes are now very firmly set on the state of Chinese imports.
Some interesting signals are now emerging. Namely — and perhaps not surprisingly to some — that Chinese imports are struggling with high global commodity prices.
The deflation risk is still out there, SocGen says
This is what happens when markets are built on sand (silicon QE, anyone?).
They can crumble all too quickly.
A reminder of market fragility, from Societe Generale’s cross-asset research team:
Presumably you need the Baltic Dry line in the first chart — an indicator of ‘real’ economic recovery — to match up with commodities prices,
Man alive
We’d been wondering how those trend-following black boxes performed during last week’s commodity rout and now, thanks to Man Group, we have an inkling.
The following went up on the hedge fund managers website on Monday night and shows the AHL strategy lost 5.3 per cent last week due to the wild swings in commodity prices and to a lesser extent,
The financing pyramid and margin debt
Here’s an interesting point from Cullen Roche at Pragmatic Capitalism on Monday.
Margin debt — the amount that speculators borrow to buy stocks (or other assets for that matter) — is rising quickly.
Commodities on Monday, just a bad dream?
Was it all just a bad dream? Signs on Monday that commodities prices are at least stabilising amid positive economic news from the US, China and Europe might come as a relief markets after last week’s rout wiped a whopping $99bn off the overall market value of commodities prices,
Deutsche chimes in on the commodities rout – it’s the QEnding
Still pondering possible reasons behind the recent commodities rout?
Deutsche Bank says it’s all because of the coming QEnding, or the end of the Federal Reserve’s second bout of quantitative easing,
Commodities VaRy extreme right now
Hark — the standard deviation devils sing (again).
As Reuters columnist John Kemp pointed out yesterday, recent swings in the commodities complex have produced some impressive probabilities figures.
What drove the commodities rout?
The quick answer is… nobody knows.
Although JBC Energy has come up with a helpful summary of points that they feel could be behind the Thursday rout.
Here’s the list:
-”disappointing global economic headlines”
Fall-out from the imploding commodities complex
It was inevitable that Thursday’s commodites rout would claim some victims … just as Friday’s further slide in commodities prices will inevitably cause more casualties.
The FT’s Lex column, describing the sell-off as an “epic rout”
Rout
A bloody day across the commodities complex.
Commodity sell-off 2011: is this it?
Some commodity market curios on Thursday May 5, 2011:
Number 1 – Standard deviations.
Courtesy of Reuters’ John Kemp, and regarding the day’s exceedingly epic oil price move (as illustrated below):
When commodity ETFs go wrong…
Olivier Jakob of Petromatrix observes an interesting point on Thursday regarding one of our favourite whacko ETFs, the United States Natural Gas Fund, or UNG for short.
Readers might recall how the ETF was forced to load up on natural gas swaps last year,
Glencore’s Achilles’ heel
FT Alphaville has been poring over the Glencore prospectus overnight and we’ve come across a few further points of interest on the matter of funding.
As we noted earlier last month, Glencore’s marketing business is very much focused on tried and tested arbitrage strategies unconnected to the ‘flat-price’ of commodities,
Grantham comes nose to nose with a paradigm shift
The last time we caught up with GMO’s Jeremy Grantham he was bemoaning the ruinous costs of asset price manipulation by the US Federal Reserve.
In his latest quarterly letter he returns to one of those themes — runaway commodity prices — but on a much bigger canvas.
The Glencore market-timing myth
There was a really interesting column penned by Matthew Lynn on Tuesday.
In a nutshell it argued that investors should be mindful of investing in a company known for its shrewdness when it comes to market-timing.
Glencore’s trading strategies disclosed!
Courtesy of Glencore’s intention to float filing on Thursday an insight (finally!) into the previously shy commodity powerhouse’s closely held trading strategies.
From the document:
Types of arbitrage strategies Many of the physical commodity markets in which Glencore operates are fragmented or periodically volatile.
If the market ignores your research…
… bang on about it.
That’s the lesson from Monday’s ‘take profits on your commodity positions’ call from Goldman Sachs.
As Olivier Jakob at Petromatrix observes on Wednesday:
Just in case someone missed on Monday the Goldman Sachs recommendation to exit long positions in crude oil,
Goldman jolts commodities market
A nasty (and in all likelihood temporary) fall for the FTSE 100 on Tuesday morning.
And it’s mining stocks that have done most of the damage.
Apart from profit taking, there are two reasons for this sell-off,
The qualifier in Yellen’s speech
Most of Janet Yellen’s speech today about commodity prices and the economic outlook was about what you would expect, and we covered many of the same issues in our long discussion last week about inflation expectations.
[FOW Amsterdam] When life gives you lemons trade agriculture commodities
By Theo Casey, a columnist at Futures & Options World, blogging on the back of FOW’s European Equity Options conference in Amsterdam.
The 2008/09 global interest rate dunk hit structured products hard.
Deflated inflation expectations
Given the attention that inflation expectations received in Tuesday’s release of the latest FOMC minutes, we’re not the least bit surprised that it’s been the topic du jour among analysts (along with other distractions).
Carry trade = quantitative easing
Can prolonged periods of negative real interest rates ever be good for economies in a globalised world?
Anders Aslund, senior fellow of the Peterson Institute for International Economics, argues no.