Joe Kernen: We’re just seconds away from import price data for July, and Kevin Ferry is standing by at the CME in Chicago.
(To Kevin Ferry) Don’t screw this up because you don’t normally do it. Usually it’s Santelli. So whatever you do, don’t screw this up, Kevin.
Kevin Ferry: No pressure. Import prices down 0.6. that’s actually weak. We were looking for it to come back on to the high side after a big oil moved down last time. Small revision the Dow 2.4 from 2.7. Year over year you’re still looking at prices falling out of bed, Joe, down 3.2%, year over year. Wow.
JK: Also, when we were corresponding earlier, Kevin, you wanted me to ask you something that I didn’t really understand, that was compelling. What was that?
KF: Oh, well I was just noticing that there are Libor subpoenas raining down on the New York branches of these foreign banks today. So I think you really have to watch it. The BBA is now saying they are going to go into ‘overhaul’ mode. So as if we don’t have enough things going on, you’re going to start opening up a Pandora’s Box here in the Libor sector of the market.
JK: I see. So what would the implications be for Libor, do you think?
KF: Well, I think what they’re going to do, Joe, is basically put the old system in a coma, and work to devise something that’s a little bit better, and it’s going to be tricky. So ah, hey, I’m a Merck guy. I cut my teeth in the euro/dollar pit, but watch the new general collateral futures at the New York stock exchange. I think that’s where the interest is going to go.
Co-host Doug Dachille joins in:
DD: So what are they going to do with the euro/dollar futures and all the outstanding notion of principal of contracts linked to Libor? I mean is everybody going to convert their Libor interest rate swaps to cost of fund funds or Fed fund basis swaps or some other index?
KF: Are you asking me? I’ve asked that question as high as I could ask it and I get blank stares. So I don’t think you can violate the open interest in the contracts of over two decades.
DD: What I find fascinating is, we had somebody talking about oil earlier today. And everybody uniformly agrees that there’s market manipulation by a fairly strong cartel of people that have – in that case, that cartel has the exact same directional exposure to know that when prices go up, they all make money and when prices go down, they all lose money. But in the Libor space it’s not clear that every bank has exactly the same Libor exposure. so it’s not clear that that cartel in setting Libor and manipulating it, actually is as powerful as the cartel that manages oil prices. Yet I don’t hear any outrage of people routinely trading commodity derivatives and commodity futures, as much as I hear the outrage over euro/dollar futures and Libor-based interest rate swaps. Maybe it’s a perception thing, Everybody assumes that’s what goes on when you trade commodity futures, but nobody ever really thought that was going on when you were trading euro/dollar futures.
KF: Right, well let’s go out for a drink sometime. Laughs.
JK: I knew you guys would be, you’re like soul mates. I just got you started. Thank you, Kevin, Doug.
KF: Thank you, have a good weekend.
JK: OK, you, too.