Streetwise Professor

February 20, 2012

Did You Follow My Advice? I Should Have!

Filed under: Commodities,Derivatives,Economics,Exchanges,Regulation — The Professor @ 12:41 pm

Last March I noted that in my two previous trips to teach in Geneva, there had been squeezes in the coffee market, and I said I was going to buy coffee spreads before my next trip.  Well, that trip is coming up in about 3 weeks, but somebody in the market (perhaps the Noble Group, according to the FT) beat me to the punch: there is a good squeeze underway in the robusta market, with spreads going from contango to a $182/ton backwardation.  That ain’t a hill of beans.

Note to self: put on the trade earlier next year.

When I was in Geneva last year the Li(e)bor story came to life after having faded from view for several years.  That story has now exploded into prominence, with numerous disclosures over the past several weeks.

Indeed, the story has taken a major turn.  Whereas suspicions as to motive originally focused on the idea that banks were attempting to make themselves look sounder than they were by exaggerating their ability to borrow unsecured, the new stories claim that there is evidence that some traders were manipulating rates specifically to influence the value of derivatives positions tied to Libor.  This is a major development because specific intent to manipulate the price of a derivative is a necessary element of a manipulation case under the Commodity Exchange Act.  If confirmed, these allegations regarding motive dramatically increase the legal stakes for the banks.

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  1. I surely remember you mentioning this in your Energy Derivatives class last spring. Unfortunately, I , too, did not take your advice and forgot to place my bets on coffee spreads. That’s quite unbelievable that this would happen, just as you said it would! Oh well, there’s always next year… maybe!

    Comment by jaVrick — February 20, 2012 @ 2:50 pm

  2. I came here looking for your view on the WTI-Brent spread, or should that be disconnect. Are you going to put out another study soon or are you waiting for a payoff from the CME?

    Comment by PK — February 21, 2012 @ 9:36 am

  3. 1. I’ve written on that several times. Search Seaway. 2. I will be speaking about that at the Platts North American Crude Oil Conference next Wednesday. So: 3. I’ve been quite open on that. For free. So: 4. What’s your problem?

    The ProfessorComment by The Professor — February 21, 2012 @ 5:52 pm

  4. Re Liebor (good one!) pricing is shifting to the Eurodollar founding curve because a lot of people no longer believe. LIBOR will still be the most popular, not be cause it is honest, but because both sides of the BS’s of many firms are still denominated. this is a complete cluster****.

    Comment by sotos — February 27, 2012 @ 12:03 pm

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