A roundup of what The Globe and Mail's market strategist Scott Barlow is reading this morning on the World Wide Web.
The Case of the Missing Chinese Commodity Collateral has expanded into precious metals markets, and the risk to global resource markets – no less than deep commodity price slides and sharply lower Chinese demand – continues to be ignored by global investors.
Reuters reports that more than $15-billion (U.S.) in loans were granted based on falsified documents showing ownership of warehoused gold. These allegations of commodity financing-related fraud are an extension of issues first uncovered at the port of Qingdao where a mining firm is charged with using the same store of alumina as collateral for numerous loans.
The FT's Izabella Kaminska has been the leading source on the issue of commodities as collateral and this morning, Ms. Kaminska offered a disturbing observation. "We're only finding out the collateral is not there because the loans are failing. Should be a scramble for funding."
Citigroup Inc., HSBC Holdings Plc and Chinese financial conglomerate CITIC Group are just a few of the major global institutions trying to figure out how widespread the problem is. In the meantime, the People's Bank of China may already be responding to funding needs. Bloomberg reports that the PBoC has stopped repurchase agreements designed to reduce market liquidity.
"China finds $15-billion of loans tied to falsified gold deals" – Reuters via Chicago Tribune
"When commodity collateral shenanigans go wrong" – FT Alphaville (registration, but no subscription required)
"China's commodity-lending fraud just got $15-billion bigger" – Quartz
The U.S. government recently loosened the restrictions on energy exports and refining stocks went into a nose-dive as a result.
Previously, the increased U.S. oil production from shale reserves was a great boon to refiners. Because it was landlocked, increased supply kept the North American crude price – the input costs for refiners, in other words – lower than European Brent prices. Now, as the Wall Street Journal notes, "If U.S. refiners [have] to bid against foreign buyers, U.S. oil could be sold at a higher price."
"Ruling on oil exports roils industry, Washington" – WSJ
The U.S. Federal Reserve is increasingly showing signs of concern with bond and exchange traded funds. Charts titled "Entrance with No Exit" from Citi's Matt King probably aren't helping. Officials recently discussed an industry-wide sales fee on bond fund and ETF holders when they sell, in an effort to slow a bond market sell-off. In effect, "When big bond funds eventually look to sell, the concern is that there will be no one else to take the other side of a crowded trade."
"Bonfire of the Bond Funds" – FT Alphaville
"The End of the Internet" is an overly alarmist phrase but investors should keep an eye on the increasingly nationalistic noises emanating from Europe. According to The Atlantic, "Brazil and the European Union recently announced plans to lay a $185-million undersea fiber-optic communications cable between them to thwart U.S. surveillance."
The risk for investors is that the global proliferation of online retailers (like Netflix, which is attempting to expand into Europe) will be halted by Internet-based tariffs or other access restrictions.
"The End of the Internet" – The Atlantic
Tweet of the day: @ReformedBroker "The allegations against Barclays are incredible. Luring customers to a gingerbread house they loaded with thieves, splitting the profits."
Diversion: "The Neanderthal Diet: A New Perspective" – Plos One
Follow Scott Barlow on Twitter at @SBarlow_ROB.
Scott Barlow