Tuesday, April 13, 2010

THE GAME updateI

Philipp Brothers, now Phibro was at one time the world's biggest commodities trader. The company was founded in 1914 as Philipp Brothers. It was later bought by Englehard Minerals & Chemical Company and subsequently spunoff in 1981 as Phibro Corporation.[1] That same year, the company acquired Salomon Brothers, creating Phibro-Salomon[2]. In 1986, the combined company removed the Phibro name from the parent company. Eventually, the company was acquired by Travelers Group in 1997, which subsequently merged with Citicorp in 1998. It is now the commodities trading unit of Citigroup.

Phibro came to the notice of the public when its head Andrew J. Hall reportedly was seeking a $100 million dollar bonus from Citigroup which had been bailed out by US taxpayers in 2009. Reportedly Phibro was the main source of the $2 billion in pretax revenue Citigroup received in commodities trading.[3]

On October 9, 2009, Occidental Petroleum announced it would purchase Phibro from Citigroup for approximately $250 million. from Wikipedia...

The GAME.....1997- Warren Buffet. The following is an exerpt from ZH. I recommend the entire read but I particularly liked this...

•I got my chance to not get run over in 1997, when Warren Buffet gave an order to Phibro to buy silver.
•Short version. Here is what went down.
•Buffet gives Phibro the order- fact
•Phibro begins filling it as a broker using various OTC dealers as counterparties, and letting the I.B dealers sweat getting out of the risk. - fact
•Phibro buys options for their own account (no exercise game this time tho)- fact
•Phibro buys futures for their own account. – not confirmed.
•One by one the IB dealers start to catch on that this is no ordinary order Phibro is handling. They back away and liquidity gets harder to find.- fact
•Other bigger hedge funds in the small circle of professionals, and other smart firms start getting long.- fact
•Silver starts getting delivered from the Comex vaults. Some of it actually removed. Some of it just “covered with a sheet” for removal. But ounces begin to be removed from the warehouse. Phibro was rumored to be taking delivery and beginning to telegraph fear in the markets to start spoofing the VWAP. Rumor was they had a warehouse in Red Hook where they stored it. Never confirmed.
•Point here is, the saps for the last part of this play were the producers and refiners who were complacently net short and dependent on above ground silver to satisfy delivery requests.
•Producers had been over-hedging for years in this market, as silver was cheap and they had business cash flow issues. It was their habit to sell forward production not yet available to them. And if forced to, they would lease already above ground silver and make delivery, collateralizing it with silver yet to be mined. Their positions were habitually synthetically long the contango as they rolled their deliverable production further and further out the curve in an attempt to squeeze much needed cash (cost of carry)for their businesses. The net effect was that sometimes they had to borrow silver for prompt delivery while they rolled their production hedge back further. – my interpretation of what I learned. May not be accurate to the “T”, am not a physical guy.

•Example: in 1995 a miner has silver due above ground in 1997. He hedges it in Z-1997 contract. Z 1997 comes and if he doesn’t have that silver available for some other reason; he covers the short and rolls it back. How much he needs to do this is a function of his obligations, cash flows, and his greed for carry. If leases are cheap, he will seek to capture all the contango and lease it until he gets the silver available.
•If lease rates go up, it is not unlike a miner strike. Silver is needed for delivery now, and term risk becomes the issue. Contango collapses and market goes backwardated. He will be forced to sell the contango to get that prompt silver short back if he cannot make delivery. He has to defer delivery.
•These guys were dependent on the specs NOT taking delivery for years. Specs didn’t have balance sheets to take and store physical metal. Specs usually were the weak hands at futures expiry.
•But then…..Entities that stored silver in bank vaults (like the Republic vault) begin to remove silver from the available pool for leasing. This made the “easy money” portion of production financing no longer easy. Think: smart money getting the word that a squeeze was on and playing along with it.
•Phibro (and others) start selling the contango in the futures market to prepare to take delivery of even more contracts. Or at least put pressure on the producers who had front month shorts they would have to make a decision on delivering. Phibro KNEW that the producers had to sell the spreads to get their shorts back. But they couldn’t lift their shorts altogether as part of their financing deals with their bankers. Their own positions were now breaking down in every way except flat price. The market really didn’t move much. This let them stay in denial.
•Buffet announces he is long and intends to take delivery of silver. Contango collapses. Market spikes to 7.40.
•Rumor is gov’t intercedes and asks Buffet to not do this, it would break the industry. (Kind of like how the exchange begged the gov’t to help it shut down the Hunt Bros.) He says ok, and agrees to lend then their silver back to them. Essentially charging them 40% interest to delay delivery for a year.


updateI SAN FRANCISCO (MarketWatch) -- Gold futures moved higher Wednesday, as investors showered it with attention and other metals posted multimonth price highs.

Watchdog Warns $85/Bbl Oil Puts Recovery At RiskThe International Energy Agency has joined a chorus of economists warning that persistently high crude prices threaten the global economic recovery, amid growing concerns that $3-a-gallon gasoline at the U.S. pumps this summer will hit consumer demand.
Gold for June delivery added $6.20, or 0.5%, to settle at $1,159.60 an ounce in the Comex division of the New York Mercantile Exchange.

Underscoring investors' ongoing interest in the precious metal, the volume of gold contracts rose again Tuesday to 528,856, posting a fresher record volume since mid-January and inching closer toward the all-time volume high of nearly 594,000 contracts set in January 2008.

Wednesday numbers were not immediately available.

"Gold is now an international currency, and it's a safety play in a lot of instances," said Frank Lesh, a broker and analyst with FuturesPath Trading in Chicago. "Despite the fact that equities are up and economies do look a little better, there's still a need for safety, and gold is it."

U.S. consumer prices rose 0.1% in March, a Labor Department report showed, and Commerce Department data showed retail sales rose 1.6% in March, their biggest gains in four months and above market expectations.

Still, gold's facing resistance to go above the $1,170 to $1,180 level, according to Leonard Kaplan, president of Prospector Asset Management in Evanston, Ill.

Gold was also the beneficiary of a weaker dollar as well as higher crude prices -- following a surprise drawdown in weekly U.S. inventories -- and a rising stock market, he said. See Futures Movers for more on the action in oil.

"Believe it or not, the gold market has been following stocks lately," Kaplan added. "It's about risk, and people want more risk" in an environment of lower interest rates.

But a highly followed report on gold sees its run nearing an end. Precious-metals consultancy GFMS Ltd. on Wednesday released its 2010 survey, saying that gold is near its decade-long bull run even though short-term prospects are still rosy.


  1. Wow, good article! That guy will hyperventilate if he blows any harder on that whistle.

  2. did anyone buy CBST awhile back when I brought it up??

  3. Joe you dirty baastid ABK .40 gap up.......you pig...BTW gang he is smokin that gap right now.

  4. Took my sol position off....nice

  5. Guys and gals joe wants you to look at CAEI and give your analysis......

  6. I read the post from " the bronze"(SKF message board) yesterday regarding his thoughts on CAEI. Does Joe feel the same way in that it could possibly drop to .89 first, before moving upwards?

    I have followed the stock for more than a year and it has not done much of anything for awhile--however, that has no bearing on its next move as we all know with the way small stocks have been running.
    I am no expert, or even half an expert, :)-so would appreciate Joe's analysis. Thank you very much. Sylvart

  7. CAEI,

    hmmm, short squeeze candidate, heavy debt to equity ratio (bonds pretty onerous especially with recent acquisition ConnGame), illiquid (Joe can buy every share traded for 2 weeks and probably not make it worthwhile), business not that exciting.

    Even if it can break outside the tightening BB, not sure if tieing up funds warranted on this. Better off playing ABK, FRE, FMN intraday or waiting until next daily bottoming.

  8. Sylvart,

    I did not know BRONZE brought it up as well since I no longer pay attention or read SKF board. The creason i brought it up and have not had the time to do DD is I have a list of stocks in different sectors and last night I was looking at china sector and noticed CAEI has not appreciated as other ones and my antenna went up. When I get a chance I will do some dd, meanwhile others need to do some dd and see what they think.


  9. Thanks very much immred---always appreciate your analysis/comments and expertise. Always look forward to your input in this (expletive) market. thanks-------------------sylvart

  10. http://finance.yahoo.com/news/Forget-Gold-China-Wants-indie-1350814892.html?x=0&.v=2

  11. What a ride on SWC may have gotten out to soon . Woodcarver

  12. Joe still in AUY,CNAM and VPHM. Woodcarver

  13. Market is over bought need some air out tomorrow.....we will see. May be they just really supercharge it here with a turbo burst.

  14. Joe,
    Appreciate all your work here on this board.

    I only read a few posters on the SKF board once in awhile and just happened to notice Bronze since that was a stock I held and made no profit on awhile back;however, this is a different market so anything is possible--imho.
    Will look for dd from people far more capable than myself--


  15. The markets are being driven up because of fears of some kind of attack..a very high state of security along I-5 @ SONGS then south. Border Patrol running dogs thru SUV'S with white female drivers. Some shit is going to go down...or at least the fear is there. I could mention more anecdotal evidence but i will not.

  16. Yo anon, have you considered the Border Patrol could have white feMULE spread eagle and strip search fetish? Were any of them like 300+ pounds, then you might be on to something.

  17. immred6, good post: