About Those ‘Free and Fair’ Markets…

by Karl Denninger

Why has nobody paid any attention to LME’s suspension of nickel trading?

The WSJ notes that there was a massive short-squeeze. To which I say: So what?

You see, physical commodity markets exist for the purpose of providing sellers and buyers with a means of certainty in price. This is particularly true in the case of producers and is why these markets exist.

That is, let’s assume you grow corn — or mine nickel. It takes time to do either, and you have no idea what the price will be when you’re done. This is true for any commodity, but it is particularly true for agricultural ones which are subject to all manner of things you can’t control (like the weather, for instance.) If you are a farmer and grow corn you can short the corn futures out several months (your growing season) and then when the contract matures deliver the physical corn to satisfy the contract at expiration.

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