The commodity market was once a forgotten area of the market. Once ETF’s were introduced and became popular, they helped expand the access to the sector, to a whole new class of investors. The pantheon of commodities like Gold, Silver, Oil & Natural Gas already have an ETF symbol that any trader or investor from a Full service brokerage to an online modern version of a “bucket shop” can now provide exposure to commodities in their account.
This has allowed small investors or traders to play the direct exposure, instead of having to buy stocks in companies that produce the product itself. It’s always annoying when you have to use a second derivative to track an investment thesis. If you feel like gold is going to go up, why did you have to buy stock in a company that mines gold, to have exposure to it.
All of the ETFs mentioned above are investment pools that have oversight by the CFTC (Commodity Futures Trading Commission). That is because all of the commodities are based on a futures contract at the core of the ETF. This is all about to change, as a new form of ETF is in the offering.
JPMorgan has announced that it is in the process of forming, and launching a new ETF. Its a completely new ETF, in that it does not have exposure to futures contract. This new radical ETF will not be subject to any oversight directly. Since it does not have futures contracts held inside of it, the CFTC will not be involved.
The new ETF will be based on physical copper holdings, held in warehouses in international ports. The new ETF will be the single biggest cornering of a market in human history. This new ETF will allow JPMorgan to control the price of copper on the worlds markets. They will, on behalf of their investors, have the capacity to buy up a nation’s supply of copper, and export it to another nation for holding, for example.
The implications, and ramifications of these events on the physical copper market, will have long term radical effects around the world. JPMorgan is going to be changing the way commodities are sold, bought, traded and shipped from port to port. They will be the price setter for Copper, and what is so elegant here, is that they will do it with other people’s money.
JP Morgan is going to be able to control the price of copper leveraging the investors of the ETF. It does not take a genius to see how this is going to play out.
While this ETF is due to start trading in the spring of 2011, there is already signs of its impact in today’s market. London pits have been talking about a mystery buyer in the pits.
A mystery copper investor has purchased over 50% and possibly as much as 80% of the copper held in the London Metals pits, stockpiling the physical metal in bonded warehouses. The mystery trader has a position that is so large already, that it is required by law, to loan out its copper (at a small markup to current pit prices) to whoever needs it to meet their obligations.
The mystery buyer has turned out to be JPMorgan the bank, as it prepares for the launch of the new ETF. They are reported to control up to 80% of all of the physical copper in the London warehouses. A significant sum of metal and wealth is being invested in this project. It means that they have the ability to decide who has copper, and at what price they can buy that copper.
The ETF is being setup in the Blythe Masters ran commodity desk at JPMorgan. Blythe is currently managing the JP Morgan silver short position. Blythe is the intellectual genius that helped design CDS contracts in the early 1990’s.
We are about to witness the complete cornering of a commodity market, needed for economic growth for the whole world. The irony is rich when it’s done in the name of small investors.
The fact that it’s managed by one of the largest banks in the world, with access to the New York Federal Reserve’s balance sheet, should be all of the transparency you need to know about Copper and its economic report card going forward.