Wednesday, March 19, 2014

Gold and precious metal updates -- March 19 , 2014 -- Goodbye Blythe Masters: JPM Sells Its Physical Commodities Business To Mercuria For $3.5 Billion - but note , following the sale, J.P. Morgan will continue to provide traditional banking activities in the commodities markets, including financial products and the vaulting and trading of precious metals ..... Ed Steer's daily report - March 19 , 2014

Goodbye Blythe Masters: JPM Sells Its Physical Commodities Business To Mercuria For $3.5 Billion

Tyler Durden's picture

While it has been public for a long time that i) JPM is eager to sell its physical commodities business and ii) the most likely buyer was little known Swiss-based Mercuria, there was nothing definitive released by JPM. Until moments ago, when Jamie Dimon formally announced that JPM is officially parting ways with the physical commodities business. But while contrary to previous expectations, following the sale JPM will still provide commercial gold vaulting operations around the world, it almost certainly means farewell to Blythe Masters.
From the release:
JPMorgan Chase & Co. (JPM) announced today that it has reached a definitive agreement to sell its physical commodities business to Mercuria Energy Group Limited, a global energy and commodities trading company, for $3.5 billion. The all cash transaction is expected to close in the third quarter of 2014, subject to regulatory approvals.

J.P. Morgan will work closely with Mercuria to ensure a smooth transition of commodities assets, transactions, physical trading operations and employees to Mercuria at the close of the transaction.

“Our goal from the outset was to find a buyer that was interested in preserving the value of J.P. Morgan’s physical business,” said Blythe Masters, head of J.P. Morgan’s global commodities business. “Mercuria is a global leader in the commodities markets and an excellent long-term home for these businesses.”

Following the sale, J.P. Morgan will continue to provide traditional banking activities in the commodities markets, including financial products and the vaulting and trading of precious metals – businesses that the firm has been a leader in for years. The firm will also continue to make markets, provide liquidity and risk management, and offer advice to global companies and institutions around the world.
For those curious who Mercuria is (yes, Goldman is involved) and missed our previous profile of the little known commodities behemoth, here it is again:
Meet The Mysterious Firm That Is About To Leave Blythe Masters Without A Job
It was about a month ago when it was revealed that the infamous JPMorgan physical commodities group, plagued by both perpetual accusations of precious metal manipulation and legal charges most recently with FERC for $410 million that it had manipulated electricity markets, was in exclusive talks to be sold to Geneva-based Marcuria Group. It was also revealed that Blythe Masters, JPMorgan’s commodities chief, "probably won’t join Mercuria as part of the deal." Of course, we all learned the very next day that Ms. Masters - an affirmed commodities market manipulator - and soon to be out of a job, had shockingly intended to join the CFTC trading commission as an advisor, a decisions which was promptly reversed following an epic outcry on the internet. This is all great news, but one thing remained unclear: just who is this mysterious Swiss-based company that is about to leave Blythe without a job?
Today, courtesy of Bloomberg we have the answer: Mercuria is a massive independent trading behemoth, with revenue surpassing a stunning $100 billion last year, which was started less than ten years ago by Marco Dunand and Daniel Jaeggi, who each own 15% of the firm's equity. And it probably should come as no surprise that the company where the two traders honed their trading skill is, drumroll, Goldman Sachs.
Dunand and Jaeggi first met studying economics at the University of Geneva in the late 1970s. Their friendship was galvanized a few years later working for grain trader Cargill Inc. and sharing an apartment while on a training course in Minneapolis. Mercuria’s corporate strategy and culture have reflected the professional paths of its founders, who spent the bulk of their early careers at investment banks.

They left Cargill in 1987 for Goldman Sachs’s J. Aron unit in London. They stayed until 1994, then joined Phibro for a five-year stint when it was controlled by Salomon Brothers.

That experience defined the trading strategies of Dunand and Jaeggi who moved from Phibro to start Sempra’s European and Asian trading business in 1999 before founding Mercuria in 2004.

Without a commanding position in any region or commodity, the firm has sought out bottlenecks and imbalances in niche markets and positioned itself to make money trading derivatives using insights gained from its physical trading. In its early days it profited by opening a trade route shipping Russian crude to China from Gdansk, Poland.

Mercuria also differs in tone. At its headquarters on Geneva’s poshest shopping street, traders and executives wear open-collared shirts, sweaters and jeans, a sharp contrast to the shirt-and-tie policies at more established firms.
Not surprisingly, some of the key hires in the past couple of years as the firm expanded at a breakneck pace and added some 570 people, bringing its total headcount to 1,200, were from Goldman: "The hires include Houston-based Shameek Konar, a former managing director with Goldman Sachs Group Inc. who is chief investment officer overseeing Mercuria’s corporate development, including the JPMorgan negotiations. Victoria Attwood Scott, Mercuria’s head of compliance, also joined from Goldman Sachs." We find it not at all surprising that the Goldman diaspora is once again showing JPMorgan just how it's done.
So just how big is Mercuria now? Well, it is almost one of the biggest independent commodities traders in the world:
Mercuria traded 182 million metric tons of oil or oil equivalent in 2012, according to its website. Vitol, the largest independent oil trader, handled 261 million and Trafigura traded 102.8 million tons of oil and petroleum products. Brent crude rose 3.5 percent that year in a fourth annual advance. It slipped 0.3 percent in 2013 and is down 2.6 percent this year at about $108 a barrel.

With more trading companies trying to gain an edge by owning businesses that produce, store or process commodities, Mercuria followed suit. It now has stakes in a coal mine in Indonesia, oil and gas fields in Argentina, oil storage in China and a biodiesel plant in Germany. In June, it invested $50 million in a Romanian gas producer.

The JPMorgan unit employs about 600 and represents a range of assets assembled over decades by firms including Bear Stearns Cos. and RBS Sempra, which the bank bought during an acquisition binge beginning in 2008.

They include gas and power trading on both sides of the Atlantic, physical assets spanning 40 locations in North America, an oil-trading book with a supply and offtake contract with the largest refinery on the U.S. East Coast, 6 million barrels of storage leases in the Canadian oil sands, and Henry Bath & Sons Ltd., a 220-year-old metal-warehouse operator based in Liverpool, England.
In other words, the old boys' club is about to get reassembled, only this time even further away from the supervision of the clueless, corrupt and incompetent US regulators. And with the physical commodity monopoly of the big banks finally being unwound, long overdue following its exposure here and elsewhere over two years ago, it only makes sense that former traders from JPM and Goldman reincarnate just the same monopoly in a jurisdiction as far away from the US and Fed "supervision" as possible. Which also means that anyone hoping that the great physical commodity warehousing scam is about to end, should not hold their breath.
As for the main question of what happens to everyone's favorite commodity manipulator, "It hasn’t been determined whether Blythe Masters, who has led the JPMorgan unit since 2006 and orchestrated the buying spree, would join Mercuria, a senior executive at Mercuria said." Which means the answer is a resounding no: after all who needs the excess baggage of having a manipulator on board who got caught (because in the commodity space everyone manipulates, the trick, however, is not to get caught).
Finally, with "trading" of physical commodities, which of course include gold and silver, set to be handed over from midtown Manhattan to sleep Geneva, what, if any, is the endgame?
The talks with JPMorgan forced Mercuria to put another deal on hold. Mercuria was nearing the sale of an equity stake of 10 percent to 20 percent to Chinese sovereign wealth fund State Development & Investment Co., according to two people familiar with the matter. The discussions with SDIC were halted once Mercuria neared the JPMorgan business, one of the people said.
But they will be promptly resumed once JPM's physical commodities unit has been sold, giving China a foothold into this most important of spaces. Because recall what other link there is between China and JPM?
One may almost see the connection here.


The gold price didn't do much at the open on Tuesday morning in Tokyo, but at 9 a.m. Hong Kong time, the price got taken down by around ten bucks.  From there it traded almost ruler flat until about 11:30 a.m. GMT in London---and that point it got sold down a bit more to its low of the day, which came around 8:45 a.m. in New York.  The subsequent rally took ten bucks off its losses for the day, but shortly before 1 p.m. EDT, the rally topped out---and from there it got sold down until 3:30 p.m. before trading flat into the 5:15 p.m. EDT close.
The high and low price ticks were recorded by the CME Group at $1,367.90 and $1,351.10 in the April contract.
Gold closed in New York at $1,355.50 spot, down an even 12 bucks.  Net volume was around 141,000 contracts, the same as Monday's volume.
It was more or less the same price pattern in silver, except the sell offs were more extreme on a percentage basis.  The only real difference was that the low tick in silver came at precisely 9 a.m. EST in New York.  Other than that, the chart patterns were almost identical.
The high and low ticks were recorded as $21.25 and $20.625 in the May contract, another intraday move of 3%.
Silver finished the Tuesday session at $20.815 spot, down 37.5 cents from Monday's close.  Volume, net of March and April, was pretty heavy at 50,000 contracts.
Here's the New York Spot Silver [Bid] chart on its own so you can see the precision of the low tick at 9 a.m. EDT.  Timing like this doesn't happen by accident---and as you know, dear reader, we see it all too often.
The platinum price pattern was similar to both gold and silver---and palladium's spike low came at 8 a.m. New York time.  Both metals recovered off their respective lows, but both finished down on the day.  And as I said in this space yesterday, it's hard to believe by looking at the price action, that there has been a two month strike going on in one of the largest platinum and palladium producing areas of the world.  Here are the charts.
The dollar index closed in New York late on Monday afternoon at 79.40.  After a tiny dip down to 79.34, it rallied to its high 79.54 high of the day shortly before 11 a.m. in New York.  It was all down hill from there---and the index closed at 79.38---basically unchanged.  The scale of the chart makes the action appear more impressive than it actually was.


There were no reported changes in GLD---and as of 9:48 p.m. EDT, there were no reported changes in SLV, either.
The CME Daily Delivery Report showed that only 6 gold and 2 silver contracts were posted for delivery within the Comex-approved depositories on Thursday.  JPMorgan Chase stopped "all of the above" contracts in its in-house [proprietary] trading account.
The U.S. Mint had another sales report.  They sold 1,000 troy ounces of gold eagles---500 one-ounce 24K gold buffaloes---and 222,000 silver eagles.
For the second day in a row there was no reported in/out movement in gold at the Comex-approved depositories.
That certainly wasn't the case in silver on Monday.  They reported receiving 1,009,802 troy ounces.  All of it went into Brink's, Inc or CNT.  I've wondered on many occasions who owns all the silver being stored at Brink's---and especially at the CNT Depository, as it's the new kid on the block.  The link to that 'action' ishere.


Non redundant news and views....

28-Year Old Former JPMorgan Banker Jumps to His Death, Latest in Series of Recent Suicides

Not a week seems to pass without some banker or trader committing suicide. Today we get news of the latest such tragic event with news that 28-year old Kenneth Bellando, a former JPMorgan banker, current employee of Levy Capital, and brother of a top chief investment officer of JPM, jumped to his death from his 6th floor East Side apartment on March 12.
Bellando, a former investment bank analyst at JPMorgan, is the son of John Bellando, chief operating officer and chief financial officer at Condé Nast. His brother, John, a top chief investment officer with JPMorgan, works on risk exposure valuations.
Several John Bellando e-mails were cited during testimony at the Senate Finance Committee’s inquiry into the bank’s losses during the infamous London Whale trade fiasco.
This short Zero Hedge piece was posted on their Internet site late yesterday morning EDT---and my thanks go out to Manitoba reader Ulrike Marx for her first offering in today's column.

German court confirms euro zone bailout scheme is legal

Germany's Constitutional Court upheld the legality of the euro zone's bailout fund on Tuesday, affirming a preliminary ruling during the debt crisis in 2012 that gave a green light to the European Stability Mechanism (ESM).
The court reiterated that the 700 billion euro ($975 billion) fund did not violate the rights of Germany's Bundestag, or lower house of parliament, to decide budgetary matters as long as it had sufficient oversight powers over the ESM.
Klaus Regling, head of the ESM, said in a statement that the verdict was "a good decision" both for Europe and for Germany and added that the court had "provided clarity once and for all" by confirming the overall tenor of its preliminary ruling.
This Reuters article, filed from Karlsruhe, Germany, was posted on their Internet site at noon EDT yesterday---and I thank Ulrike Marx for her third contribution in a row.

China to allow direct yuan, New Zealand dollar trades

China has allowed direct domestic trading of the yuan against the New Zealand dollar to encourage such trading as it internationalizes the Chinese currency.
The move, announced on Tuesday by the central bank during a visit by New Zealand Prime Minister John Key to Beijing, comes after China doubled the yuan's trading band over the weekend in a milestone step that gives investors more freedom to set the value of the tightly controlled currency.
China is New Zealand's largest export destination and a major buyer of dairy products produced in the South Pacific nation. The move was seen as promoting trade between the two countries, which rose 25.2 percent to NZ$18.2 billion ($15.71 billion) in 2013, and increase capital flows.
This Reuters story was posted on their website early Tuesday evening EDT---and I thank Ulrike Marx for sharing it with us.

Taiwan to allow banks to sell gold, silver coins from China

Taiwan will allow local banks to sell gold and sliver coins from China, the island's Financial Supervisory Commission said on Tuesday.
The move comes amid deepening ties in cross-strait relations, it said in a statement.
Trade and financial ties between Taiwan and China has gathered steam since Taiwanese President Ma Ying-jeou took office in 2008. A slew of trade pacts have been signed since then.
The above three paragraphs are all there is to this tiny Reutersstory which was filed from Taipei very early yesterday morning EDT---and it's another contribution from Ulrike Marx.

Reserve Bank of India's foreign exchange reserves in gold fall 15%

Portfolio managers who have been losing money in the past year — be it on gold or fixed income securities — need not feel bad. They are in the company of Reserve Bank of India. The central bank's foreign exchange reserves in gold fell 15% in value between March and September last year, and the yield on reserves fell 2 basis points amid low interest rates across the developed world.
Gold accounted for about 8% of the total foreign exchange reserves in value terms in September last year. The value of precious metals with RBI was $21.765 billion at the end of September last year, from $25.692 billion in March last year.
The RBI held 557.8 tonnes of gold, of which 265.5 tonnes are held abroad with the Bank of England and the Bank for International Settlements. Gold prices in India fell during the first half of last year on account of global softening of prices amid recession and a fall in demand for the yellow metal as a safe investment haven.
This gold-related news item, filed from Kolkata, showed up onThe Economic Times of India website early yesterday morning IST---and it's the final offering of the day from Ulrike Marx.



The low prices of the past few years have succeeded in postponing enough investment buying from developing into the next physical silver shortage. But, while widespread investment buying has been postponed, it has not and cannot be eliminated forever. In fact, while widespread investment buying has been postponed, the backdrop has actually improved. That’s because the amount of silver available for purchase is much less today than it was in the mid 1960’s, or when the Hunts or Buffett bought. - Silver analyst Ted Butler: 15 March 2014
All four precious metals got sold down a bit more during the Tuesday trading session---and it remains to be seen whether this is the beginning of an engineered price decline or not.  We'll just have to wait it out.
Yesterday, at the close of Comex trading, was the cut-off for this Friday's Commitment of Traders Report---and as I mentioned in Saturday's missive, I'm more than apprehensive about what it will show.
Here are the 6-month gold and silver charts.  As you can tell from the gold chart, the chances of a "golden cross" are starting to dim a little---and it would come as no surprise to me [nor should it to you] that JPMorgan et al will not let it happen, at least not without a fight.  You can see that the first two trading days of this week have already had an effect on the 50-day moving average---and a couple of big down days in a row would turn that moving average into a horizontal line, or worse, real quick.
As for silver, because of the fact that JPMorgan has kept a lid on silver prices vs. the gold price for such a long time, there has never been a danger of a "golden cross" in that precious metal.  As a matter of fact, silver is now back below its 200-day moving average---and came close to touching the 50-day moving average at its low yesterday.
Just eye-balling the above charts, if "da boyz" wanted to, they could peal another $100 off the gold price---along with a dollar or so in silver---any time they choose, as the technical funds are massively long.  That means that JPMorgan and the raptors can ring the cash register at their leisure.  The only question that remains is---will it be now, or later.
Of course there's always the chance that they could get over run, or let the prices go if they're positioned correctly in other markets.  But just watching the price action lately, they don't seem to have lost their iron grip, nor are they about to relinquish it.
But, having said all of the above, the dichotomy between the performance of the gold equities versus the silver equities yesterday is something I've never seen before---and it's worth keeping an eye on.
Here's a chart that Nick Laird sent around to all and sundry last night---and I thought I'd stick in today's column at this point.  It's shows the price of gold in U.S. dollars from 1970 to date---along with its 300-day moving average.  Here's what Nick had to say in his covering e-mail: "With this indicator we are about to cross back into positive territory---and we all know what happened after this happened way back in the late 1970's...."
Just to play the devil's advocate here, I pointed out to Nick that the chart pattern is also reminiscent of what happened starting in mid-1982.  Here's his succinct and learned response:  "Yes, if the fiat markets had corrected---and all problems were solved.  But, alas, as you know, that is not so.....You cynic - you heathen you...(:-))))"  Tee hee!
As I write this paragraph, it's less than 10 minutes to the London open.  Gold and silver didn't do much in Far East trading, but came under a tiny bit of selling pressure starting during the Hong Kong lunch hour.  Gold and silver are both down a bit---and platinum and palladium are flat.  Net volume in gold is pretty light---and silver's volume is about average for this time of day.  The dollar index, which hasn't done much all week, is still chopping sideways in a very tight range.
Today is the final day of the latest FOMC meeting.  There hasn't been much news about it that I've seen---and as I said on Saturday, what they say or do---for the most part---is pretty irrelevant.  But we'll find out at 2 p.m. EDT what they have to say for themselves---and it's a safe bet that gold and silver will get pounded on the news---unless they announce a new round of QE, of course.  So we wait.
And as I fire this off to Stowe, Vermont at 5:25 a.m. EDT I note that all four precious metals rallied a bit going into the London open, but it didn't take long for the not-for-profit sellers to show up.  Both gold and silver are down a bit more---and platinum and palladium are back to unchanged.  Not surprisingly, volumes in both gold and silver are up substantially---and the dollar index is now up 10 basis points.
So far, the Wednesday trading session in not starting out that well, but that should not be a surprise---and I must admit that I probably won't like what I see on my computer screen when I get out of bed later this morning.
That's more than enough for today---and I'll see you here tomorrow.

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