Thread by @METhompson72

#Golf and the #LME
I was once told a story about Ernie Els’s caddy. Ernie is one of the best golfers ever and had a superb caddy. Ernie was injured for a tournament so a rookie professional on the tour asked if his caddy could work for him that week.

So on the first tee the caddy hands the young man a 3 iron and tells him to hit it 250 yds down the right-hand side.

The foolhardy young pro ignores the caddy and takes out his driver and hits it 330 yds down the left into deep rough, completely obscuring a second shot into the green.

When they get to the ball it is a horrible lie and no obvious shot. The pro asks the caddy “What shot would Ernie play here?” to which the caddy replies “How would I know?”.
“What do you mean?” he asks “You are Ernie’s caddy of many years and experience so surely you must know!"

“I really don’t” replies the caddy.
“Why not?” asks the pro.
“Because Ernie would never, ever be here.” is the reply.
This is how I feel about the #LME at the moment and its self-inflicted harm. They should never have been where they were and now have no shot.

The current turmoil in the #Nickel market is self-inflicted because the owners, #HKEX, in my view do not fundamentally understand the metals markets and the role that the member banks and brokers play as credit and liquidity providers.

They overpaid to buy the LME and ever since they have run it to generate a return on capital by tripling trading and clearing fees, introducing pointless contract after pointless contract in an unseemly ambulance chase of any whiff of additional revenue.

Worse, they have squandered the members' fees on a massive marketing department that tried create demand for these new, useless products that there was no underlying physical market demand for.

The current #Nickel debacle should never have happened. Allowing a market counterparty to build a 190,000 short position in the most volatile and one of the least liquid metals without anticipating the risk to market orderliness was a dereliction of responsibility.

Initial margins should have been doubled and doubled again to discourage this size of short position taking. This would have provided a sensible margin barrier against outsize price moves and encouraged liquidation of the position.

Then there is the failure to suspend the market in a timely fashion. To my certain knowledge advice was given to the #LME executive to suspend the #Nickel market a day before they did so. This advice was ignored.

With Russia producing 17% of the World’s #nickel and not to understand the potential market consequences of this fact was inept in the extreme. With a 190,000 t short in the market it was insane not to close the market immediately.

Finally, for the #LME to cancel #Nickel trades between willing buyers and sellers is unforgiveable. UNFORGIVEABLE.

The Exchange has put their side of this decision out – basically that if they had not done this then there were multiple brokers who would not have been able to meet margin calls and the LME Clear clearing house may have collapsed.

I actually believe this to be true and the #LME may have collapsed – but my view is “so what?” Processes are in place to deal with a default so why not follow them? Like the young golf pro, they shouldn't have been here though. Their failure to heed advice caused the problem.

The #LME is now very likely going to die a slow self-inflicted death through the loss of confidence in it and its products that its actions will inevitably induce.

A swift death for the #LME would have been much preferable in my view rather than watching the slide to irrelevance that is coming. Integrity matters. Principles matter. Following the rules matters.
A contract is a contract is a contract.