Jim Letourneau's Blog

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Goldman Purchases LME Warehousing Firm

The announcement of Goldman Sachs' purchase of London Metal Exchange (LME) warehousing company Metro International Trade Services went largely unnoticed by the markets last week.

Vampyroteuthis infernalis (aka the vampire squid or Goldman Sachs) may not be as clever as their press clippings but they're still a market force to pay attention to. If the Greek debt-swap deal was "consistent with the regulations of the time" does that mean that Goldman was doing "God's work". In hindsight, it appears they have doubts. That is the challenge all of us mortals face. We are rarely certain.

Given the complexity of many of Goldman Sachs deals, it is interesting to note that they are now entering the LME Warehousing business. What burning bush motivated an entry into the rudimentary world of storing non-ferrous metals (Aluminum, Aluminum Alloy, Copper, Lead, Nickel, Plastic, Steel, Tin, Zinc, Plastic Resin & Steel Billet)?

The transaction was reported Reuters but there was very little follow up. It was brought to my attention by Ian R. Campbell, one of Canada’s leading business valuation experts and now proprietor of stockresearchportal.com. Ian's "retirement project" has turned into one of the best places on the web to view hard data on Canadian resource companies.

He believes Goldman is entering the transaction for two reasons:

(1) it believes it will make an acceptable return on its investment, both in the contexts of both an annual return and subsequent capital appreciation

(2) it believes in the future of world resources is economically important going forward.

On the surface, this business seems too unsophisticated for the bright minds at Goldman. Metal producers, traders and end-users all use the LME. Apparently, having control over the cost of carry in the metals trade is part of God's, err I mean, Goldman's plan.