Hump Day Craziness

I read this yesterday and it lead me to some interesting questions.  Well, they were interesting to me anyway.  I’ve been fascinated with the different factions of the Republican Party and the increased number of Libertarians who primarily seem to vote Republican when there is no Libertarian around to vote for.  This piece mentions the possible break between Evangelical Christian Republicans and conservative Catholics over the new Pope’s recent comments regarding gays and poverty.  It appears to me that Libertarians have also broken with the Christian wing of the Republican Party over many social issues.   I’ve learned from our discussions here that Libertarians seem to be for both open borders and abortion, in some cases “on demand”, even I don’t believe in either of those suggestions, so is that to the left of me?

I guess I’m wondering where all this will eventually lead.  How hard will it be for Libertarians to vote for a Republican of the evangelical sort?  Is it just a case of voting for the lesser of two evils in a Presidential election, or even a local election?  When do your votes and principles collide?  I swallowed my objections and voted for Obama because of health care, and a couple of other accomplishments I supported,  rather than third party, which is what I normally do.  A big fat wasted vote either way really.

My thoughts rambled from the original piece but I wanted you guys to see how it got me thinking.  I’m finding it somewhat interesting that I tend to vote social issues and for the preservation of things such as Social Security, Medicare and other safety net protections.  There doesn’t seem to be that much difference to me in the reality of economic policy between the parties or for that matter even foreign policy now that many conservatives seem to be more isolationist than they were in the past, but I’m guessing the Libertarians/Conservatives here don’t agree and vote their pocket book, or is it all big vs small government and the demolition of the safety net that motivates y’all.  I’m curious.  It seems to me that the differences between us are more along the lines of priorities.  I think we all value similar things but just place more weight on some than others.  Or maybe I’m delusional.

I think it is a safe bet that if Pope Francis I lives more than a few years that Catholics will soon be kicked out of the Republican Party and resume their previous status as the semi-black race. The reason is simple. Pope Francis I is on the opposite side of the political divide from Pope John Paul II. The Polish pope was a Cold Warrior who basically took the Reagan-Thatcher line on left-leaning political movements in the Third World, including in Latin America. The Argentinian Jesuit pope isn’t a communist, but he advocates for the poor without any apology.

For now, conservative American Catholics are trying to parse the distinction, but it isn’t going to work. They are not going to be able to embrace The Slum Pope who wants to “make a mess” of the established order within the Church by encouraging young people to shake up the dioceses and force them to embrace the convicts, drug addicts, and the truly impoverished.

Our country is uniquely unable to appreciate this change specifically because our right wing succeeded in categorizing the left in the Third World (and, to an extent, even in Europe) as communist in sympathy. The right assumes that the Vatican is an ally in all things, but that is no longer even close to being the case. On so-called family values, the papacy is still reliably conservative, even if it can’t be counted on anymore to demonize homosexuality. But on economic issues, the papacy is now a dedicated enemy of the Republican Party.

Before long, the right will have no choice but to break from the pope, and then their opposition will grow to a point that the alliance between Catholics and evangelicals will not hold.

There sure has been a lot of talk lately about women.  I’ve been troubled by some of it as it seems we’re going backwards in some respects.  There are too many stories to link but between all the states enacting TRAP laws, all the strange definitions of rape, the mayor of San Diego’s bizarre harassment and who has and has not shielded him from investigation, the treatment of rape victims in the military,  USC redefining rape as not rape if there is no ejaculation (my personal favorite), who is and isn’t hot enough to either run for office or other more nefarious activities, etc. etc. that I’ve been trying to figure out what’s going on.  Maybe nothing ever really changed.  I’m concerned that so much of it has become political football.  I thought this piece on the subtleties of how a woman can succeed in the financial industry was pretty troubling.

Our youngest is working in another male dominated industry and is constantly trying to determine how to proceed on her merits while most of the men are attracted to her looks.  She has a few male mentors who seem to take her seriously so she’s focusing on that and trying to stay away from the guys who want to date her and stay focused on her work.  She’s discovering it’s an interesting dynamic that has many challenges.  She faced numerous challenges as a grad student but that was nothing compared to what she’s dealing with now.

It doesn’t help when other women give this kind of advice.

New details have emerged from a bias lawsuit filed by three former employees of Merrill Lynch against the company, which alleges that during training they were instructed to read a book called “Seducing the Boys Club: Uncensored Tactics From a Woman at the Top” and emulate its advice.

The tips in the book, published by New York Magazine’s The Cut, are truly shocking. “I play on [men’s] masculine pride and natural instincts to protect the weaker sex,” says a section of the book advising women on how to get men to do their work. “Unless he is morbidly obese, there is no man on earth who won’t puff up at this sentence: Wow, you look great. Been working out?” suggests a portion on diffusing tense situations.

On a lighter note the Anthony Weiner story is in another realm altogether in my opinion.  I guess I’d like to know why his wife is standing by him but it’s none of my business really.  Otherwise it seems to be a case of “consenting adults” which doesn’t bode well for his marriage or his candidacy but otherwise is just more creepily entertaining than anything else.

I wish I could share all the “Carlos Danger” jokes my husband has come up with, they’re hysterical, and just pop out of his mouth at the most inconvenient times.  He’s a true comic and I’ve thanked my lucky stars more than once that he makes me laugh.  Anyway we’ve had a lot of fun at Anthony Weiner’s expense around here.  I saw this and couldn’t resist.

Anthony Weiner Forever

Weiner forever

Morning Report – 2Q GDP better than expected, but Q1 revised down 7/31/13

Vital Statistics:

  Last Change Percent
S&P Futures  1683.3 -1.4 -0.08%
Eurostoxx Index 2755.1 -4.1 -0.15%
Oil (WTI) 103.6 0.5 0.46%
LIBOR 0.266 0.001 0.23%
US Dollar Index (DXY) 82.12 0.290 0.35%
10 Year Govt Bond Yield 2.68% 0.07%  
Current Coupon Ginnie Mae TBA 103.8 -0.4  
Current Coupon Fannie Mae TBA 103.3 -0.4  
RPX Composite Real Estate Index 200.7 -0.2  
BankRate 30 Year Fixed Rate Mortgage 4.36    

 

Markets are slightly better after some good economic data. At 2:00 pm we will get the FOMC decision. Mortgage Applications fell. Bonds and MBS are getting beaten up on the good data.
 
The ADP jobs report showed the private sector added 200k jobs in July, and June was revised upward to 198k. The ADP report is supposed to mimic the final jobs number, not the advance estimate we will get on Friday. 
 
The advance estimate of second quarter GDP growth came in at + 1.7% This was higher than the 1% estimate. First quarter GDP was revised down by a lot… from + 1.8% to + 1.1%. That said, it looks like the growth came from inventory build as consumer spending cooled. If spending doesn’t rebound, that will depress growth in the future. 
 
Count Richmond California as the next locality threatening to use eminent domain to seize mortgages. Unsurprisingly, SIFMA (the Securities Industry Financial Markets Association) which runs the TBA market condemned the idea. SIFMA told San Bernardino that if they proceeded down the eminent domain path, that mortgages originated in that jurisdiction would become ineligible for TBA trading. This would effectively cut off the locality from Ginnie Mae and Fannie / Freddie loans. Which is 90% of the mortgage market. FHFA nominee Mel Watt has taken a pass on the whole eminent domain issue, which is yet another reason why he faces an uphill battle for confirmation. 

Morning Report – REIT TBA selling could be over 7/30/13

Vital Statistics:

  Last Change Percent
S&P Futures  1686.8 4.3 0.26%
Eurostoxx Index 2760.1 18.3 0.67%
Oil (WTI) 103.9 -0.6 -0.60%
LIBOR 0.265 -0.001 -0.38%
US Dollar Index (DXY) 81.66 0.000 0.00%
10 Year Govt Bond Yield 2.58% -0.02%  
Current Coupon Ginnie Mae TBA 104.3 -0.1  
Current Coupon Fannie Mae TBA 103.9 0.1  
RPX Composite Real Estate Index 200.7 -0.2  
BankRate 30 Year Fixed Rate Mortgage 4.36    

 

Markets are higher this morning on no real news. Bonds and MBS are up
 
The S&P / Case-Shiller home price index rose 1.05% month over month and 12.2% year over year in May. The usual suspects (Phoenix, Lost Wages, and San Francisco) showed 20%+ gains while the Midwest and East Coast showed low / mid single digit increases. New York brought up the rear with a 3.3% increase. This has been borne out by the homebuilders, where the ones with a heavy West Coast focus have outperformed the ones that are East Coast / diversified. 
 
Mortgage REIT American Capital Agency (AGNC) reported second quarter earnings last night. Book value got hit by 12%, but the interesting data point is the state of their TBA portfolio. The To-Be-Announced (or TBA) market is what sets mortgage rates. Over the second quarter, their TBA portfolio fell from 27.5 billion to 14.5 billion. That is a lot of paper they just dumped. They consider themselves to be positioned where they want to be at this point from a duration hedging standpoint. The key takeaway – we’ll have to see what Annaly (NLY) has to say, but so far, it appears that a substantial chunk of the selling in the TBA market is done. That is good news for mortgage rates, and I wouldn’t fall out of my chair with shock to see lower mortgage rates in the context of a stable 10-year.
 
Completed foreclosures were 55,000 in June, down 20% year over year and up 2.5% from May, according to CoreLogic. Approximately 1 million homes in the U.S. were in some stage of the foreclosure process, compared to 1.4 million a year ago. This represents 2.5% of all homes with a mortgage. The states with the most work left to do are Florida (8.6%), New Jersey (6%), New York (4.8%), Connecticut (4.2%) and Maine (4.1%). 

Morning Report – Busy week ahead 7/29/13

Vital Statistics:

  Last Change Percent
S&P Futures  1683.4 -3.2 -0.19%
Eurostoxx Index 2748.6 6.6 0.24%
Oil (WTI) 105.1 0.4 0.37%
LIBOR 0.266 0.001 0.38%
US Dollar Index (DXY) 81.71 0.050 0.06%
10 Year Govt Bond Yield 2.58% 0.02%  
Current Coupon Ginnie Mae TBA 104.4 0.1  
Current Coupon Fannie Mae TBA 103.8 -0.1  
RPX Composite Real Estate Index 200.7 -0.2  
BankRate 30 Year Fixed Rate Mortgage 4.35    

 

Markets are down this morning as we head into a data-intensive week. Merger Mondays are back with a few big transactions. Bonds and MBS are down small.
 
We have 3 big events in bonds this week – first we have the FOMC meeting on Tues and Wed. The FOMC statement will undoubtedly be parsed very closely. We will also get the advance estimate of 2Q GDP on Wed. Finally, on Friday we get the jobs report. So lots of potential market-moving stuff towards the back end of the week. 
 
There is a lot of discussion over who will be the next Fed Chairman after Bernanke’s term is finished in January. Bernanke has said he doesn’t want the job anymore. The two names mentioned are Janet Yellen and Larry Summers. Given that Summers hasn’t even done a stint as a Fed governor, he would be a surprising pick. This looks like so much theater. The next Fed Head will be Yellen. Yellen is an even bigger dove than Bernanke, so keep that in the back of your mind when you think about taper timing.
 
This week we will have a lot of earnings reports from the mortgage REITs. While we expect to see declining book values, the more interesting data will involve how much the REITs have de-leveraged. Some have done nothing (Capstead). Others have sold paper and still have increased leverage ratios because the value of their portfolio has dropped. What we hear from the REITs will tell us a lot about how much selling remains to be done in the MBS market, and that will tell us which way we want to lean with rates.

Morning Report – What homebuilders are saying about the market 7/26/13

Vital Statistics:

  Last Change Percent
S&P Futures  1675.5 -8.5 -0.50%
Eurostoxx Index 2744.8 4.5 0.16%
Oil (WTI) 104.4 -1.1 -1.03%
LIBOR 0.265 0.001 0.45%
US Dollar Index (DXY) 81.77 -0.203 -0.25%
10 Year Govt Bond Yield 2.55% -0.02%  
Current Coupon Ginnie Mae TBA 104.5 0.2  
Current Coupon Fannie Mae TBA 104 0.1  
RPX Composite Real Estate Index 200.7 -0.2  
BankRate 30 Year Fixed Rate Mortgage 4.38    

 

Markets are lower on no real news. Bonds and MBS are up small. 
 
There isn’t much in the way of economic data this morning. I would expect activity to dwindle as most of the Street will be on the L.I.E. by noon.
 
Yesterday was a big day for real estate-related earnings – we heard from three homebuilders – Meritage, D.R. Horton, and Pulte. As far as the question “Has higher mortgage rates affected traffic and purchase activity?” goes, the answer is yes, at least in some areas. Meritage (who is primarily in the West / Southwest) noted an increase in orders, as did Pulte. Pulte noted that buyers still have a “sense of urgency.” On the other hand, D.R. Horton, which is more geographically diversified reported a decrease in orders. That was huge. D.R. Horton said that buyers are “alarmed” at the rapid rise in rates and it has affected sales. I guess it makes sense when you think about it – on the West Coast, inventory is depleted and prices are rising at double digit rates. So it would make sense that buyers would feel a sense of  urgency – the fear is not being able to find a house. Elsewhere in the country, with prices flat / up small, that doesn’t exist. Horton is at the lower price points as well, so maybe you are starting to get into DTI issues with first time homebuyers. Anyway, the increase in rates is starting to bite as far as purchase activity goes.
 

Morning Report – HARP 3.0 may face a steep climb 7/25/13

Vital Statistics:

 

Last

Change

Percent

S&P Futures 

1678.3

-5.5

-0.33%

Eurostoxx Index

2728.3

-24.0

-0.87%

Oil (WTI)

104.6

-0.8

-0.77%

LIBOR

0.264

-0.001

-0.19%

US Dollar Index (DXY)

82.06

-0.230

-0.28%

10 Year Govt Bond Yield

2.59%

0.01%

 

Current Coupon Ginnie Mae TBA

104.2

-0.2

 

Current Coupon Fannie Mae TBA

103.7

0.0

 

RPX Composite Real Estate Index

200.7

-0.2

 

BankRate 30 Year Fixed Rate Mortgage

4.39

   

 

Markets are lower in spite of some strong earnings reports and a decent durable goods report. Initial Jobless claims were 343k. Bonds and MBS are down small / flat.

 

Mortgage REIT Hatteras Financial released earnings yesterday, and reported a 20% drop in book value. Hatteras invests in agency ARM product, so it is on the slightly more esoteric side, but they made one interesting observation: The MBS market (and the 7/1 ARM market in particular) suffered a powerful sell-off in the last two weeks of June, and has yet to bounce back. So it wasn’t simply end-of-quarter liquidation. What does this mean for us? That non-QE supported MBS spreads are finding new levels. What does that mean in English? That once QE ends, we may find the TBA market experiencing the same thing – a permanent increase in spreads, which means higher rates, even if the 10 year bond doesn’t move. Make hay now….

 

More than half the mortgage modified in 2009 under the Home Affordability Modification Program (HAMP) have defaulted, according to a report from the Special Inspector General for the Troubled Asset Relief Program (SIGTARP). This report will certainly make a push for HARP 3.0 even more difficult. Interesting fact: of the $38.5 billion allocated to housing support programs in 2009, only 22% (or about $8.6 billion) has even been spent. 

 

The Detroit bankruptcy is going to be interesting for municipal bonds, especially GOs (general obligations). There are two types of muni bonds – revenue bonds, where the principal and interest is paid for by some project (like a bridge) and general obligation bonds, where interest is paid for out of general revenues. Liquidity in munis is terrible to begin with – banks won’t hold them as inventory because they aren’t allowed to take the tax deduction on the interest payments, so nobody will make a market in them. Retail holders of these bonds may find themselves unable to sell. If banks won’t buy them, then who will buy these things? Hedge funds, who are buying them with an eye towards going to the mat in bankruptcy court. And they aren’t paying par. They probably care in the 40s.

Morning Report – Washington has a “eureka” moment 7/24/13

Vital Statistics:

  Last Change Percent
S&P Futures  1693.5 5.2 0.31%
Eurostoxx Index 2756.0 33.1 1.22%
Oil (WTI) 106.8 -0.4 -0.36%
LIBOR 0.264 -0.002 -0.60%
US Dollar Index (DXY) 81.99 0.043 0.05%
10 Year Govt Bond Yield 2.57% 0.07%  
Current Coupon Ginnie Mae TBA 104.4 0.0  
Current Coupon Fannie Mae TBA 103.8 -0.3  
RPX Composite Real Estate Index 200.7 -0.2  
BankRate 30 Year Fixed Rate Mortgage 4.3    

Markets are higher this morning after a good earnings report out of Apple. Bonds are again victims of the risk-on trade.

 
Michael Dell and Silver Lake boosted their buyout offer for Dell by ten cents to $13.75. It is their best and final offer. Dude, you’re getting a dime.
 
Mortgage Applications fell 1.2% last week. Purchase apps were down 2.1%, while refis were more or less flat. Refi volume has dropped to 63% of total applications. The conventional index rose about 60 bps, while the govvie index dropped 7%.
 
The U.S. taxpayer bears the credit risk of roughly half the U.S. mortgage market and 90% of all new origination. In a true “eureka” moment, the braintrust in Washington may have finally figured out that the problem is not that they haven’t slugged the banks hard enough. There is a proposal to relax the “skin in the game” rules for private label securitizations in the hopes that something other than 60% LTV / 740 FICO jumbos can be securitized in the future. The original rule was that banks would have to maintain 5% of all MBS they securitize, unless the LTV was lower than 80%. Now, they propose to require a 5% holding only for IO and stated income products. Never mind that IO and stated income are outside of the QM rules and very few market participants are willing to take non-QM risk.
 
The ARM is coming back

Morning Report – FHFA House Price Index rises 7.3% YOY 7/23/13

Vital Statistics:

  Last Change Percent
S&P Futures  1692.7 2.4 0.14%
Eurostoxx Index 2739.6 14.2 0.52%
Oil (WTI) 105.8 -1.1 -1.06%
LIBOR 0.266 0.001 0.45%
US Dollar Index (DXY) 82.28 0.058 0.07%
10 Year Govt Bond Yield 2.52% 0.04%  
Current Coupon Ginnie Mae TBA 104.6 -0.2  
Current Coupon Fannie Mae TBA 104.1 -0.2  
RPX Composite Real Estate Index 200.7 -0.2  
BankRate 30 Year Fixed Rate Mortgage 4.3    

 

Markets are slightly higher on a mixed bag of earnings and emerging Asia strength. Bonds and MBS are victims of the risk on trade.
 
The FHFA House Price Index rose .7% in May, and about 7.3% year-over-year. The FHFA House Price index is based on houses that have a conforming mortgage attached to it, so it eliminates the highly distressed sales and the high end of the market. This makes it more of a “central tendency” index than Case-Schiller. We are still seeing a wide geographical dispersion of increases, with the East Coast lagging while the West Coast is hitting big numbers.
 

 
Fannie Mae is predicting that mortgage rate will average 4.7% in Q4, about 40 basis points higher than their June forecast. They are predicting 2013 GDP will come in around 2% and will hit 2.6% in 2015. Home Sales are forecast to increase 8% in 2013. While they have yet to adjust sales forecasts to the new interest rate regime, they are watching it closely.
 
Professional (read cash) investors are stepping away from the real estate market as prices continue to rise. Investor traffic fell in June for the fourth straight month. Perhaps rising prices are to blame, but perhaps private equity and hedge funds are realizing that achieving high single-digit rental yields is harder than it looks and takes more than a couple smart guys out of New York to make it happen.

 

Morning Report – NVR earnings 7/22/13

Vital Statistics:

  Last Change Percent
S&P Futures  1690.5 1.0 0.06%
Eurostoxx Index 2718.7 2.5 0.09%
Oil (WTI) 108.5 0.4 0.37%
LIBOR 0.265 0.000 0.00%
US Dollar Index (DXY) 82.35 -0.254 -0.31%
10 Year Govt Bond Yield 2.47% -0.01%  
Current Coupon Ginnie Mae TBA 104.6 0.0  
Current Coupon Fannie Mae TBA 104.2 -0.3  
RPX Composite Real Estate Index 200.7 -0.2  
BankRate 30 Year Fixed Rate Mortgage 4.35    

 

Markets are flat on no real news. Earnings season swings into full gear this week with an assortment of heavyweights. Bonds and MBS are flat.
 
Homebuilder NVR has released earnings. Looks like they were light on the bottom line, but there was a special charge. New orders increased 25%. Revenues increased 31%. NVR is east-coast focused, so it is lagging some of the West-Coast builders. Later this week, we will hear from Pulte, Standard Pacific, and D.R. Horton. It will be interesting to hear how traffic has been affected by the increase in rates.
 
Bill Gross thinks the Fed won’t raise the Fed funds rate until 2016 at the earliest.. Of course he is talking his book, but still… Interest rate cycles are very long.. This chart comes courtesy of Barry Ritholz, with long term interest rates going back to 1790. Note that from 1930 through 1960 we also had a period of exceptionally low interest rates. 
 

 
While it is probably a very nichey product, you can buy a house for your elderly parents or college student and not have it treated as a garden-variety investment property. Fannie Mae has a program for people who want to purchase a home for a family member and don’t have the money for a downpayment. Just another arrow in your quiver, LOs.

This is Insane.

New York Times
July 20, 2013
A Shuffle of Aluminum, but to Banks, Pure Gold
By DAVID KOCIENIEWSKI

MOUNT CLEMENS, Mich. — Hundreds of millions of times a day, thirsty Americans open a can of soda, beer or juice. And every time they do it, they pay a fraction of a penny more because of a shrewd maneuver by Goldman Sachs and other financial players that ultimately costs consumers billions of dollars.

The story of how this works begins in 27 industrial warehouses in the Detroit area where a Goldman subsidiary stores customers’ aluminum. Each day, a fleet of trucks shuffles 1,500-pound bars of the metal among the warehouses. Two or three times a day, sometimes more, the drivers make the same circuits. They load in one warehouse. They unload in another. And then they do it again.

This industrial dance has been choreographed by Goldman to exploit pricing regulations set up by an overseas commodities exchange, an investigation by The New York Times has found. The back-and-forth lengthens the storage time. And that adds many millions a year to the coffers of Goldman, which owns the warehouses and charges rent to store the metal. It also increases prices paid by manufacturers and consumers across the country.

Tyler Clay, a forklift driver who worked at the Goldman warehouses until early this year, called the process “a merry-go-round of metal.”

Only a tenth of a cent or so of an aluminum can’s purchase price can be traced back to the strategy. But multiply that amount by the 90 billion aluminum cans consumed in the United States each year — and add the tons of aluminum used in things like cars, electronics and house siding — and the efforts by Goldman and other financial players has cost American consumers more than $5 billion over the last three years, say former industry executives, analysts and consultants.

The inflated aluminum pricing is just one way that Wall Street is flexing its financial muscle and capitalizing on loosened federal regulations to sway a variety of commodities markets, according to financial records, regulatory documents and interviews with people involved in the activities.

The maneuvering in markets for oil, wheat, cotton, coffee and more have brought billions in profits to investment banks like Goldman, JPMorgan Chase and Morgan Stanley, while forcing consumers to pay more every time they fill up a gas tank, flick on a light switch, open a beer or buy a cellphone. In the last year, federal authorities have accused three banks, including JPMorgan, of rigging electricity prices, and last week JPMorgan was trying to reach a settlement that could cost it $500 million.

Using special exemptions granted by the Federal Reserve Bank and relaxed regulations approved by Congress, the banks have bought huge swaths of infrastructure used to store commodities and deliver them to consumers — from pipelines and refineries in Oklahoma, Louisiana and Texas; to fleets of more than 100 double-hulled oil tankers at sea around the globe; to companies that control operations at major ports like Oakland, Calif., and Seattle.

In the case of aluminum, Goldman bought Metro International Trade Services, one of the country’s biggest storers of the metal. More than a quarter of the supply of aluminum available on the market is kept in the company’s Detroit-area warehouses.

Before Goldman bought Metro International three years ago, warehouse customers used to wait an average of six weeks for their purchases to be located, retrieved by forklift and delivered to factories. But now that Goldman owns the company, the wait has grown more than 20-fold — to more than 16 months, according to industry records.

Longer waits might be written off as an aggravation, but they also make aluminum more expensive nearly everywhere in the country because of the arcane formula used to determine the cost of the metal on the spot market. The delays are so acute that Coca-Cola and many other manufacturers avoid buying aluminum stored here. Nonetheless, they still pay the higher price.

Goldman Sachs says it complies with all industry standards, which are set by the London Metal Exchange, and there is no suggestion that these activities violate any laws or regulations. Metro International, which declined to comment for this article, in the past has attributed the delays to logistical problems, including a shortage of trucks and forklift drivers, and the administrative complications of tracking so much metal. But interviews with several current and former Metro employees, as well as someone with direct knowledge of the company’s business plan, suggest the longer waiting times are part of the company’s strategy and help Goldman increase its profits from the warehouses.

Metro International holds nearly 1.5 million tons of aluminum in its Detroit facilities, but industry rules require that all that metal cannot simply sit in a warehouse forever. At least 3,000 tons of that metal must be moved out each day. But nearly all of the metal that Metro moves is not delivered to customers, according to the interviews. Instead, it is shuttled from one warehouse to another.

Because Metro International charges rent each day for the stored metal, the long queues caused by shifting aluminum among its facilities means larger profits for Goldman. And because storage cost is a major component of the “premium” added to the price of all aluminum sold on the spot market, the delays mean higher prices for nearly everyone, even though most of the metal never passes through one of Goldman’s warehouses.

Aluminum industry analysts say that the lengthy delays at Metro International since Goldman took over are a major reason the premium on all aluminum sold in the spot market has doubled since 2010. The result is an additional cost of about $2 for the 35 pounds of aluminum used to manufacture 1,000 beverage cans, investment analysts say, and about $12 for the 200 pounds of aluminum in the average American-made car.

“It’s a totally artificial cost,” said one of them, Jorge Vazquez, managing director at Harbor Aluminum Intelligence, a commodities consulting firm. “It’s a drag on the economy. Everyone pays for it.”

Metro officials have said they are simply reacting to market forces, and on the company Web site describe their role as “bringing together metal producers, traders and end users,” and helping the exchange “create and maintain stability.”

But the London Metal Exchange, which oversees 719 warehouses around the globe, has not always been an impartial arbiter — it receives 1 percent of the rent collected by its warehouses worldwide. Until last year, it was owned by members, including Goldman, Barclays and Citigroup. Many of its regulations were drawn up by the exchange’s warehouse committee, which is made up of executives of various banks, trading companies and storage companies — including the president of Goldman’s Metro International — as well as representatives of powerful trading firms in Europe. The exchange was sold last year to a group of Hong Kong investors and this month it proposed regulations that would take effect in April 2014 intended to reduce the bottlenecks at Metro.

All of this could come to an end if the Federal Reserve Board declines to extend the exemptions that allowed Goldman and Morgan Stanley to make major investments in nonfinancial businesses — although there are indications in Washington that the Fed will let the arrangement stand. Wall Street banks, meanwhile, have focused their attention on another commodity. After a sustained lobbying effort, the Securities and Exchange Commission late last year approved a plan that will allow JPMorgan Chase, Goldman and BlackRock to buy up to 80 percent of the copper available on the market.

In filings with the S.E.C., Goldman has said it plans by early next year to store copper in the same Detroit-area warehouses where it now stockpiles aluminum. On Saturday, however, Michael DuVally, a Goldman spokesman, said the company had decided not to participate in the copper venture, though it had not disclosed that publicly. He declined to elaborate.

Banks as Traders

For much of the last century, Congress tried to keep a wall between banking and commerce. Banks were forbidden from owning nonfinancial businesses (and vice versa) to minimize the risks they take and, ultimately, to protect depositors. Congress strengthened those regulations in the 1950s, but by the 1980s, a wave of deregulation began to build and banks have in some cases been transformed into merchants, according to Saule T. Omarova, a law professor at the University of North Carolina and expert in regulation of financial institutions. Goldman and other firms won regulatory approval to buy companies that traded in oil and other commodities. Other restrictions were weakened or eliminated during the 1990s, when some banks were allowed to expand into storing and transporting commodities.

Over the past decade, a handful of bank holding companies have sought and received approval from the Federal Reserve to buy physical commodity trading assets.

According to public documents in an application filed by JPMorgan Chase, the Fed said such arrangements would be approved only if they posed no risk to the banking system and could “reasonably be expected to produce benefits to the public, such as greater convenience, increased competition, or gains in efficiency, that outweigh possible adverse effects, such as undue concentration of resources, decreased or unfair competition, conflicts of interests, or unsound banking practices.”

By controlling warehouses, pipelines and ports, banks gain valuable market intelligence, investment analysts say. That, in turn, can give them an edge when trading commodities. In the stock market, such an arrangement might be seen as a conflict of interest — or even insider trading. But in the commodities market, it is perfectly legal.

“Information is worth money in the trading world and in commodities, the only way you get it is by being in the physical market,” said Jason Schenker, president and chief economist at Prestige Economics in Austin, Tex. “So financial institutions that engage in commodities trading have a huge advantage because their ownership of physical assets gives them insight in physical flows of commodities.”

Some investors and analysts say that the banks have helped consumers by spurring investment and making markets more efficient. But even banks have, at times, acknowledged that Wall Street’s activities in the commodities market during the last decade have contributed to some price increases.

In 2011, for instance, an internal Goldman memo suggested that speculation by investors accounted for about a third of the price of a barrel of oil. A commissioner at the Commodity Futures Trading Commission, the federal regulator, subsequently used that estimate to calculate that speculation added about $10 per fill-up for the average American driver. Other experts have put the total, combined cost at $200 billion a year.

High Premiums

The entrance to one of Metro International’s main aluminum warehouses here in suburban Detroit is unmarked except for one toppling sign that displays two words: Mount Clemens, the town’s name.

Most days, there are just a handful of cars in the parking lot during the day shift, and by 5 p.m., both the parking lot and guard station often appear empty, neighbors say. Yet inside the two cavernous blue warehouses are rows and rows of huge metal bars, weighing more than half a ton each, stacked 15 feet high.

After Goldman bought the company in 2010, Metro International began to attract a stockpile. It actually began paying a hefty incentive to traders who stored their aluminum in the warehouses. As the hoard of aluminum grew — from 50,000 tons in 2008 to 850,000 in 2010 to nearly 1.5 million currently — so did the wait times to retrieve metal and the premium added to the base price. By the summer of 2011, the price spikes prompted Coca-Cola to complain to the industry overseer, the London Metal Exchange, that Metro’s delays were to blame.

Martin Abbott, the head of the exchange, said at the time that he did not believe that the warehouse delays were causing the problem. But the group tried to quiet the furor by imposing new regulations that doubled the amount of metal that the warehouses are required to ship each day — from 1,500 tons to 3,000 tons. But few metal traders or manufacturers believed that the move would settle the issue.

“The move is too little and too late to have a material effect in the near-term on an already very tight physical market, particularly in the U.S.,” Morgan Stanley analysts said in a note to investors that summer.

Still, the wait times at Metro have grown, causing the premium to rise further. Current and former employees at Metro say those delays are by design.

Industry analysts and company insiders say that the vast majority of the aluminum being moved around Metro’s warehouses is owned not by manufacturers or wholesalers, but by banks, hedge funds and traders. They buy caches of aluminum in financing deals. Once those deals end and their metal makes it through the queue, the owners can choose to renew them, a process known as rewarranting.

To encourage aluminum speculators to renew their leases, Metro offers some clients incentives of up to $230 a ton, and usually moves their metal from one warehouse to another, according to industry analysts and current and former company employees.

To metal owners, the incentives mean cash upfront and the chance to make more profit if the premiums increase. To Metro, it keeps the delays long, allowing the company to continue charging a daily rent of 48 cents a ton. Goldman bought the company for $550 million in 2010 and at current rates could collect about a quarter-billion dollars a year in rent.

Metro officials declined to discuss specifics about its lease renewals or incentive policies.

But metal analysts, like Mr. Vazquez at Harbor Aluminum Intelligence, estimate that 90 percent or more of the metal moved at Metro each day goes to another warehouse to play the same game. That figure was confirmed by current and former employees familiar with Metro’s books, who spoke on condition of anonymity because of company policy.

Goldman Sachs declined to discuss details of its operations. Mr. DuVally, the Goldman spokesman, pointed out that the London Metal Exchange prohibits warehouse companies from owning metal, so all of the aluminum being loaded and unloaded by Metro was being stored and shipped for other owners.

“In fact,” he said, “L.M.E. warehouses are actually prohibited from trading all L.M.E. products.”

As the delays have grown, many manufacturers have turned elsewhere to buy their aluminum, often buying it directly from mining or refining companies and bypassing the warehouses completely. Even then, though, the warehouse delays add to manufacturers’ costs, because they increase the premium that is added to the price of all aluminum sold on the open market.

The Warehouse Dance

On the warehouse floor, the arrangement makes for a peculiar workday, employees say.

Despite the persistent backlogs, many Metro warehouses operate only one shift and usually sit idle 12 or more hours a day. In a town like Detroit, where factories routinely operate round the clock when necessary, warehouse workers say that low-key pace is uncommon.

When they do work, forklift drivers say, there is much more urgency moving aluminum into, and among, the warehouses than shipping it out. Mr. Clay, the forklift driver, who worked at the Mount Clemens warehouse until February, said that while aluminum was delivered in huge loads by rail car, it left in a relative trickle by truck.

“They’d keep loading up the warehouses and every now and then, when one was totally full they’d shut it down and send the drivers over here to try and fill another one up,” said Mr. Clay, 23.

Because much of the aluminum is simply moved from one Metro facility to another, warehouse workers said they routinely saw the same truck drivers making three or more round trips each day. Anthony Stuart, a forklift team leader at the Mount Clemens warehouse until 2012, said he and his nephew — who worked at a Metro warehouse about six miles away in Chesterfield Township — occasionally asked drivers to pass messages back and forth between them.

“Sometimes I’d talk to my nephew on the weekend, and we’d joke about it,” Mr. Stuart said. “I’d ask him ‘Did you get all that metal we sent you?’ And he’d tell; me ‘Yep. Did you get all that stuff we sent you?’ ”

Mr. Stuart said he also scoffed at Metro’s contention that a major cause for the monthslong delays is the difficulty in locating each customer’s store of metal and moving the other huge bars of aluminum to get at it. When he arrived at work each day, Mr. Stuart’s job was to locate and retrieve specific batches of aluminum from the vast stores in the warehouse and set them out to be loaded onto trucks.

“It’s all in rows,” he said. “You can find and get anything in a day if you want. And if you’re in a hurry, a couple of hours at the very most.”

When the London Metal Exchange was sold to a Hong Kong company for $2.2 billion last year, its chief executive promised to take “a bazooka” to the problem of long wait times.

But the new owner of the exchange has balked at adopting a remedy raised by a consultant hired to study the problem in 2010: limit the rent warehouses can collect during the backlogs. The exchange receives 1 percent of the rent collected by the warehouses, so such a step would cost it millions in revenue.

Other aluminum users have pressed the exchange to prohibit warehouses from providing incentives to those that are simply stockpiling the metal, but the exchange has not done so.

Last month, however, after complaints by a consortium of beer brewers, the exchange proposed new rules that would require warehouses to ship more metal than they take in. But some financial firms have raised objections to those new regulations, which they contend may hurt traders and aluminum producers. The exchange board will vote on the proposal in October and, if approved, it would not take effect until April 2014.

Nick Madden, chief procurement officer for one of the nation’s largest aluminum purchasers, Novelis, said the situation illustrated the perils of allowing industries to regulate themselves. Mr. Madden said that the exchange had for years tolerated delays and high premiums, so its new proposals, while encouraging, were still a long way from solving the problem. “We’re relieved that the L.M.E. is finally taking an action that ultimately will help the market and normalize,” he said. “However, we’re going to take another year of inflated premiums and supply chain risk.”

In the meantime, the Federal Reserve, which regulates Goldman Sachs, Morgan Stanley and other banks, is reviewing the exemptions that have let banks make major investments in commodities. Some of those exemptions are set to expire, but the Fed appears to have no plans to require the banks to sell their storage facilities and other commodity infrastructure assets, according to people briefed on the issue.

A Fed spokeswoman, Barbara Hagenbaugh, provided the following statement: “The Federal Reserve regularly monitors the commodity activities of supervised firms and is reviewing the 2003 determination that certain commodity activities are complementary to financial activities and thus permissible for bank holding companies.”

Senator Sherrod Brown, who is sponsoring Congressional hearings on Tuesday on Wall Street’s ownership of warehouses, pipelines and other commodity-related assets, says he hopes the Fed reins in the banks.

“Banks should be banks, not oil companies,” said Mr. Brown, Democrat of Ohio. “They should make loans, not manipulate the markets to drive up prices for manufacturers and expose our entire financial system to undue risk.”

Next Up: Copper

As Goldman has benefited from its wildly lucrative foray into the aluminum market, JPMorgan has been moving ahead with plans to establish its own profit center involving an even more crucial metal: copper, an industrial commodity that is so widely used in homes, electronics, cars and other products that many economists track it as a barometer for the global economy.

In 2010, JPMorgan quietly embarked on a huge buying spree in the copper market. Within weeks — by the time it had been identified as the mystery buyer — the bank had amassed $1.5 billion in copper, more than half of the available amount held in all of the warehouses on the exchange. Copper prices spiked in response.

At the same time, JPMorgan, which also controls metal warehouses, began seeking approval of a plan that would ultimately allow it, Goldman Sachs and BlackRock, a large money management firm, to buy 80 percent of the copper available on the market on behalf of investors and hold it in warehouses. The firms have told regulators that these stockpiles, which would be used to back new copper exchange-traded funds, would not affect copper prices. But manufacturers and copper wholesalers warned that the arrangement would squeeze the market and send prices soaring. They asked the S.E.C. to reject the proposal.

After an intensive lobbying campaign by the banks, Mary L. Schapiro, the S.E.C.’s chairwoman, approved the new copper funds last December, during her final days in office. S.E.C. officials said they believed the funds would track the price of copper, not propel it, and concurred with the firms’ contention — disputed by some economists — that reducing the amount of copper on the market would not drive up prices.

Others now fear that Wall Street banks will repeat or revise the tactics that have run up prices in the aluminum market. Such an outcome, they caution, would ripple through the economy. Consumers would end up paying more for goods as varied as home plumbing equipment, autos, cellphones and flat-screen televisions.

Robert Bernstein, a lawyer at Eaton & Van Winkle, who represents companies that use copper, said that his clients were fearful of “an investor-financed squeeze” of the copper market. “We think the S.E.C. missed the evidence,” he said.

Gretchen Morgenson contributed reporting from New York. Alain Delaquérière contributed research from New York.

This article has been revised to reflect the following correction:

Correction: July 20, 2013

A previous version of this article misstated one of the financial institutions that received approval to buy up to 80 percent of the copper available on the market. It is BlackRock, not the Blackstone Group.

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