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LME Violates Number One Cardinal Rule: Never Cancel Trades

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53 comments on LME Violates Number One Cardinal Rule: Never Cancel Trades

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LME Cancels Nickel Trades, Image from Tweet on Nickel

Nickel Trades Still Suspended 

On March 8, I noted Nickel Market Breaks, Price Doubles to $100,000 In 1 Day, Deliveries Fail

After “Big Shot” did not meet margin calls, the LME cancelled trades.

Nickel Market Freeze Extended to Sort Out Big Trading Loss Amid Ukraine War

The Wall Street Journal reports Nickel Market Freeze Extended to Sort Out Big Trading Loss Amid Ukraine War

London’s nickel market will stay closed at least until next week, giving the London Metal Exchange more time to resolve a crisis caused by a huge loss-making trade originating in China.

The LME paused trading in nickel Tuesday, the first time it had suspended a market since 1985, and canceled trades executed before the suspension. The exchange late Thursday extended the freeze through the end of the week.

One question for the market before it reopens: What will be the price of nickel when it does? Most traders think the supply and demand of nickel don’t justify Tuesday’s record high of over $100,000 a metric ton. But some say the market moved in such a wide range before the suspension that it is hard to know where it will open.

“In an environment where we’re just exiting the pandemic, there’s a shortage of material and the Russians just invaded Ukraine, there were literally no offers in the market,” said Guy Wolf, head of market analytics at Marex, a member of the LME’s storied open-outcry ring. “Forced buyers, no sellers: Prices can go anywhere.”

“The number-one rule is never, ever cancel trades,” said Don Wilson, chief executive of Chicago-based trading firm DRW, which trades on the LME and had a position in nickel canceled. “Every other exchange in the universe gets that.”

Big Shot Wants to Keep Shorting 

More Bianco Comments

Regarding Point 4 and 5 on Government Confiscation:

Bianco: “But understand we have crossed a Rubicon in the last few months that financial institutions and Govts can take money because they do not like that person or their activities.”

Unprecedented Fed Action May Have Just Started a Global Currency Crisis

Jim Bianco is talking about what I discussed in Unprecedented Fed Action May Have Just Started a Global Currency Crisis

Unprecedented Action

The Fed, likely acting on orders from the Biden administration, froze the US dollar reserve assets of Russia.

Some may cheer this others not, but perhaps by the time I finish this post, those cheering now may have second thoughts. 

Please read the rest of my article to fully understand what’s going on. 

This post originated on MishTalk.Com.

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Mike Shedlock

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53 Comments
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Oldest Most Voted
Call_Me
Call_Me
4 years ago
The narrative is that this gentleman couldn’t afford to close his position so the exchange did it for him.  The gentleman reportedly wants to continue shorting (because obviously the price will crater at some point in the near future) and will stand to clear a substantial amount when a short position ends up in the black. 
This appears to be the ‘heads i win, tails you lose’ method – one of the smartest investing strategies there is.
Call_Me_Al
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Lisa_Hooker
Lisa_Hooker
4 years ago
Reply to  Call_Me
Essentially the strategy Ms Clinton’s broker used for trading the Clinton’s commodity account before Bill ran for president.
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Thalamus
Thalamus
4 years ago
We should never bail out our Chinese enemy, especially when they helped slow kill 60% of americans (including most of our military). 
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KidHorn
KidHorn
4 years ago
Coming to a government near you. The only safe assets are gold in your hand and cash. Everything else, including crypto and real estate can be easily taken. Real estate can be legally taken with eminent domain and if that fails, they’ll just jack up your property taxes so you have no choice but to give it up.
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Thalamus
Thalamus
4 years ago
Reply to  KidHorn
Crypto on an exchange can be taken, but not if you keep the private key.  
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Casual_Observer2020
Casual_Observer2020
4 years ago
Death By Price Tag: The Commodities Bubble Explained
Rupert Russell De-Mystifies the Dark Magic of Our Financial System
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RonJ
RonJ
4 years ago
“Or your net worth is zero. My net worth is zero. All of our net worth is the property of the financial institution that holds it.”
klaus Schwab: you will own nothing and be happy.
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Casual_Observer2020
Casual_Observer2020
4 years ago
So while the supply of imported oil went down by 3% in the US, the price of gasoline rose by 22% on average. If the speculators in commodities weren’t allowed to buy without taking delivery then the prices of all things may not be so high. I’d say right now about 50% of the price of all commodities isn’t based on supply and demand but derivatives pushing prices up.
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Casual_Observer2020
Casual_Observer2020
4 years ago
Bianco: “But understand we have crossed a Rubicon in the last few months that financial institutions and Govts can take money because they do not like that person or their activities.”
—
If the activities are illegal then it isn’t because they don’t like you. Bianco sounds like Trump with the above quote. 
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Pontius
Pontius
4 years ago
Reply to  Casual_Observer2020
So, as author suggests, if I make a legal contribution – legal at the time – to truckers and govt can retroactively declare the contribution illegal and seize assets without due process?  A world you want to live in?  You may adhere to opinions on the “correct side” of political narrative now, what about the future.  
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Lisa_Hooker
Lisa_Hooker
4 years ago
Reply to  Pontius
Read up on civil forfeiture in the United States. Your assets can be legally seized and held on suspicion and without a warrant. Often they are not easy to reclaim when the suspicion proves unfounded.
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Mr. Purple
Mr. Purple
4 years ago
Sovereigns defending their sovereignty from the last ditch.  Shocking!
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Casual_Observer2020
Casual_Observer2020
4 years ago
Why are these instruments even allowed ?  The problem isn’t the traders but it’s the deregulation of derivatives themselves. 
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KidHorn
KidHorn
4 years ago
Reply to  Casual_Observer2020
Almost all commodity producers short their commodity because it protects them against wild price swings. I can understand why this is allowed, but I agree one should only be allowed to short if they have a proven means to cover the short.
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Casual_Observer2020
Casual_Observer2020
4 years ago
Reply to  KidHorn
I’m saying commodities shouldn’t be allowed to be traded on exchanges. There should be no ability to short. There is no shortage of any commodity. They are as available as air or water. Oil use to be under $20 a barrel or less before derivatives on commodities started. 
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Lisa_Hooker
Lisa_Hooker
4 years ago
Reply to  Casual_Observer2020
The ability to sell futures short has kept many farmers out of bankruptcy. Also kept farmers’ banks out of bankruptcy. It is called hedging. However, I do agree with you that options/futures and large heaps of “spare/surplus” money in the hands of the affluent has jacked up asset prices beyond the rational.
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Christoball
Christoball
4 years ago
I find it interesting that 9000 trades and perhaps 3000-5000 traders could so disrupt a single market. It makes me think about how few trades and traders are pushing oil up????
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KidHorn
KidHorn
4 years ago
Reply to  Christoball
The FED buys or sells S&P futures when the market is closed with little money. Little money to them. And it has an outsized effect on the market. It’s the worst time for an investor to buy or sell, but the best time if you don’t care about profit and only care about manipulating the market. It’s all done under the cover by having the FEDs hedge fund buddies, like citadel, make the trades for them. Everyone in the industry knows what’s going on.
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Robbyrob
Robbyrob
4 years ago
Do you feel it? Are  your doing the same? Are you ” circling  your wagons” in anticipation /preparing for ‘something’? Maybe just maybe Americans are finally realizing how we’ve been shafted for decades by both parties by that I mean it’s becoming more clear to people that the  problems are worldwide, they’re complex  and the FED has been propping up this paper economy now for far  too long. It does not matter if it’s Trump or Biden or boo boo or Yogi or anyone else is in ‘power’ because it is becoming evident the worlds power/economic structure is fraying big time if not collapsing.  We have lost control as  we lurch for war. Label me the one hollering “the sky is falling” but do that at your own risk.  I know your frustration and fatigue I feel it too  its as if we are all at a loss  but with little to no power to change our own situation let alone our own nation.
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Casual_Observer2020
Casual_Observer2020
4 years ago
Reply to  Robbyrob
The only solution to your problems is to make more money. The only way to make more money is to be mobile and nimble. Yes this means you have to move and can’t cling to one place for your whole life .
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Lisa_Hooker
Lisa_Hooker
4 years ago
Reply to  Casual_Observer2020
Duh! The only way to make money is to be well connected. This begins with selecting appropriate parents.
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Dean_70
Dean_70
4 years ago
Reply to  Robbyrob
No, people are happy to comply and live in ignorance. Most people can’t see past the front of their nose.
The sheep will continue to follow and do as they are told. This is a single party system. Look at the actions rather than listening to the words. The results are always the same because the single party keeps getting elected.
People are told to inject an experimental drug into their veins and they complied. Now people are waving Ukraine flags without knowing any of the background and they comply. 
The government owns us and we continue to allow them to tighten their grip due to the lack of critical thinking. 
I will not allow my government to think for me.
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RonJ
RonJ
4 years ago
Reply to  Dean_70
“People are told to inject an experimental drug into their veins and they
complied. Now people are waving Ukraine flags without knowing any of
the background and they comply.
Mass Formation Psychosis.
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honestcreditguy
honestcreditguy
4 years ago
our VP is in position because she rode willie browns johnson while he was married…..she is as dumb as bricks…college is overrated if it turns out chumps like her, first DA in California to not give cop killer death penalty..
San Francisco Liberal mafia….if u live here you will see where evil festers….

https://twitter.com/kimKBaltimore/status/1502727972087898112

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KingLion66
KingLion66
4 years ago
The only true currency for the last 5,000 years.  
Gold & Silver.  
Crypto is a new form of that asset in a digital way and scarcity is what provides its measurement of value in fiat currency.  
Moral hazard?
There are not morals when it comes to the kleptocracy. 
Question is, what will you do about it.  
Complain? That’ll help.  
Subvert? Better idea.  
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prumbly
prumbly
4 years ago
Markets reversing trades is rare but not unprecedented. The NYSE has done it several times.
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Felix_Mish
Felix_Mish
4 years ago
Reply to  prumbly
Interesting. When and why?
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prumbly
prumbly
4 years ago
There’s no moral hazard if you have no morals. Morality is such 20th century thinking. Welcome to the post-truth, post-morality world!
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Six000mileyear
Six000mileyear
4 years ago
Jim Bianco made THE MOST IMPORTANT statement about money and investments: “All of our net worth is the property of the financial institution that holds it”
When I make a deposit at the bank, I no longer have than money. I have made a loan to the bank, so my bank statement is a CLAIM against the bank for that money. The push to digital currencies is a legislative maneuver to eliminate a physical store of wealth in dollar bills. Removing a system redundancy DESTABILIZES a system.
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prumbly
prumbly
4 years ago
Reply to  Six000mileyear
And yet in any money system, digital or otherwise, every creditor (you with your big, fat wad) relies on the cooperation of other people (debtors) to return you some value for your credit.
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Webej
Webej
4 years ago
What BS. There is no such thing as forced buyers.
Are there forced tomato buyers at a farmers market if nobody has tomatoes to sell?
No. Forced buyers means somebody sold stuff they don’t have, otherwise known as fraud.
Just wait until the Russians confiscate or nationalize foreign properties!
The whole lot who just proved they don’t believe in property rights will scream about Putin the communist who doesn’t respect (our) rules based order and property rights.
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prumbly
prumbly
4 years ago
Reply to  Webej
Two things you need to know about our “rules based order”:
1) America writes all the rules
2) There are two sets of rules. One for America and one for everyone else.
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Mish
Mish
4 years ago
Reply to  Webej
There are forced buyers in the futures market – the market makers 
They have to take the other side of trades if the specs and producers are net short
That said, they are hedged but as far as futures go, there can be forced buyers or forced sellers – in aggregate – but not at the same time 
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vanderlyn
vanderlyn
4 years ago
Reply to  Mish
as someone wrote above,  it is a private club.   like a yacht club.   special rules for certain members.  and the junior members get the bill.    this is ugly truth to how the world does indeed run.   
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Webej
Webej
4 years ago
Reply to  Mish
I stand corrected.
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StukiMoi
StukiMoi
4 years ago
“But understand we have crossed a Rubicon in the last few months that financial institutions and Govts can take money because they do not like that person or their activities.”
DO take. Not CAN. The CAN part, they have been able to do, almost entirely cost free, completely, since at least the dawn of central banking.
In fact, just the US government, have taken 99% of what was owned by dollar owners already. BY way of debasement, over the past century.
The speed of takings, have certainly accelerated over time. In the past few months, to the point of emitting the infamous giant sucking sound even to the deafest of apologists for arbitrary rule. That is unprecedented. At least as far as the US is concerned.
But, this would always be the case: As long as someone CAN take something, eventually they WILL do so. Exact timing may up for the debate, but greater than zero probability, guarantees it will eventually happen. People handing ultimate dominion of their property to a bunch of arbitrary “rulers” will always result in the rulers taking it all. Just as people handing over their arms to those same rulers, will eventually result in people being completely enslaved. It’s a given. Dumb, gullible and easily suckered people’s inability to comprehend even the simplest of inevitables, notwithstanding.
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Doug78
Doug78
4 years ago
The LME is a private company and if you read the fine print they can break trades if they see fit. It is not a court of law. It is a market that is run for the benefit of the large producers and the large users of the metal they trade. Their collective interest is that the market continues to exist and the trade that blew up definitely had the potential to blow up the whole market so they broke the trades. Sure it sucks for the little guy who probably by the way is worth many millions but that is just the way it is. The one who lost the money is a nickel producer and it isn’t in the interest of anybody to see it go under.  The world nickel market is too important at this time for it to be swung around like it was GameStop so special measures were used and will be used to tamp down excessive swings. Breaking trades happen occasionally in every market under exceptional conditions so that it happened now and in that market should not be a surprise. Markets are made up of people and when their market risks imploding they rapidly come to agreement. 
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StukiMoi
StukiMoi
4 years ago
Reply to  Doug78
“The world nickel market is too important at this time for it to be swung around like it was GameStop”
The world’s nickel market is also too important to be swung around by a bunch of halfwits 1)100% conditioned to being handed billions in stolen loot by central banks, 2)just as 100% conditioned to know that said central banks will bail out incompetent little them, regardless of how stupid and reckless the behave.
IOW, kill central banks, and you have no little to no “margin.” Hence none of these “problems.” As well as less of an outsized rake collected by these connected middlebrows skimming off producers and consumers of nickel. None of these setups are “markets” in any real sense. Just institutions serving as obfuscations for handing stolen wealth to connected halfwits too dumb to hold down a real job.
If you want nickel, call a Russian. No privileged middle man required. Or, if speed dialing a bunch of Russians every time you need some is too much of a hassle, call a middleman who carries actual stock, hence providing a real valuable service. Not a bunch of useless nothings hiding behind “laws,” which productive people working in nickel mines will then have to pay for courts and cops to enforce.
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Doug78
Doug78
4 years ago
Reply to  StukiMoi
My, aren’t you the raging bear today.
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vanderlyn
vanderlyn
4 years ago
Reply to  Doug78
bingo.  horrible,  but it is a private club.  like a yacht club.  rules are made to be broken.   for special members.   
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Doug78
Doug78
4 years ago
Reply to  vanderlyn
You can go out and buy a kilo of nickel, tin or whatever metal you want. Nobody is keeping you from doing it. However if you want to play the futures you better have deep pockets because futures are leverage. Why are you complaining about a special market which you can’t play but which you can easily buy the underlying? You are not mking sense.
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Casual_Observer2020
Casual_Observer2020
4 years ago

This is why anyone who cannot pay for and take delivery of commodities shouldn’t be allowed to purchase them on any exchange. Again we can blame the individual trader or organization but the truth is derivatives on commodities are at the root of the issue. Speculators have driven commodity prices since deregulation of derivative markets in 1999 and removal of barriers between commercial and savings banks in 2001. All of our inflation isn’t from actual consumption. It is from too many dollars chasing commodity derivatives.

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Mish
Mish
4 years ago
Reply to  Casual_Observer2020
This was a short who could not deliver the metal.
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Casual_Observer2020
Casual_Observer2020
4 years ago
Reply to  Mish
Still. If derivatives on commodities were banned this would not have happened. The skyrocketing prices we see has everything to do with financialization via derivatives and speculators pushing commodity prices upwards. The real economy will go off the rails eventually as more speculative money causes more inflation. The world will soon wake up and wonder how we got here. It started in 1999 with deregulation of derivatives. 
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Lisa_Hooker
Lisa_Hooker
4 years ago
Reply to  Casual_Observer2020
Nah. It started in 1848 with the Chicago Board of Trade.  😉
(Actually 1864 with the first futures contract.)
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Pbd456
Pbd456
4 years ago
The settlement price does not concern Tsingshan short position because it has already announced it can do physical delivery because it has swapped its own nickle stockpile with other chinese miners and chinese national reserve.  
it is those short squeeze who purchased on March 8 would lose a lot of money because they would be taking nickel that can resell at an inflated price.
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Maximus_Minimus
Maximus_Minimus
4 years ago
The Chinese tycoon is a nickel producer, the price spike of which triggered the margin call.
Aside from temporary cash flow problems, something doesn’t add up.
They guy is more solvent than 99% of governments.
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Eddie_T
Eddie_T
4 years ago
I think it’s a little more complicated. 
The market blew up because price spikes were blowing up any big nickel producers that were heavily hedged. “Big Shot” runs a major nickel producing group. If it hadn’t been him, it would have been some other hedged nickel miner. It’s very normal for a producer of any metal to carry a short to protect against market weakness. Bigger production, bigger short.
Supposedly,  JP Morgan has extended credit to the Chinese tycoon, which suggests to me he is going to have to pay up, and maybe be fined. I think all the trades will be paid, most likely, once the dust has settled.
These commodity exchanges have long been known to change the rules anytime they want in order to protect “the house” Look what happened to the Hunt brothers.
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PreCambrian
PreCambrian
4 years ago
Reply to  Eddie_T
If “Big Shot” hedged his production then he should have physical nickel to deliver to cover the short. He either sold too much short or he didn’t want to lose out on his failed trade and was able to get the LME to cancel the trades.
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Ziad
Ziad
4 years ago
Just curious, what happens to those on the other side of the trade who were long nickel and are owed that 8 billion? Just chalk it it up to counter party risk, and they’re just out of luck? Does the bank/trading house guarantee the trade, pay them the 8 billion, and then try to collect from the tycoon? Is he still a tycoon after this loss?
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TexasTim65
TexasTim65
4 years ago
Reply to  Ziad
There is no loss because there is no trade. That’s the point of what happened.
All those who were long in the trade had their money stolen because the LME is canceling the trades. So they don’t get paid and the tycoon doesn’t get wiped out. What should have happened is that the tycoon should have been wiped out and the money paid to those who were long (since he couldn’t pay all he owed, they would have gotten partial payment).
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Mish
Mish
4 years ago
Reply to  Ziad
Longs got screwed.
LME negated the trades
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