In his Forbes column, Tim Worstall spins a tale that is worthy of Dr. Evil or other movie bad guy multi-billionaires:
We’ve now had the announcement of the business plans of Planetary Resources. Enough to excite everyone who read Heinlein or Jerry Pournelle as a teenager. But the big problem is how might they actually turn a proft? To which the answer is manipulation of the futures markets.
[. . .]
So, imagine that they have reached one of the nickel iron asteroids, it is high in the platinum group metals, they can mine it and they can deliver those pgms to Earth. The moment everyone knows that there is some hundreds of tonnes of these metals on the way down the price will collapse. The answer? Sell the metals in advance, through the futures markets. Get today’s price for delivery in the future.
In fact, sell many more futures than the amount of metal which is to be delivered: go short. As an example, say platinum is $2,000 an ounce (not far off the real price, $62 million a tonne). Planetary Resources is going to deliver 100 tonnes. But instead of selling $6 billion’s worth of platinum for delivery in three months, sell 10 times as much: $60 billion’s worth*. When that 100 tonnes splashes down, in fact when the market knows that the 100 tonnes is likely to splash down, then the market price will fall. Substantially but for illustration we’ll say to $200 an ounce.
The company then delivers that 100 tonnes for which it is paid the $6 billion agreed on those futures deliveries. It still owes the market another 900 tonnes but it can now cover its short at $200 an ounce having sold the futures at $2,000 an ounce. Use the $6 billion that’s going to be incoming to do so and what do we have at the end?
The company has $60 billion incoming from having sold futures. It has delivered 100 tonnes at $6 billion and covered the short for that $6 billion. Net profit $54 billion minus the cost of the space program. Which is pretty good really.
But it gets better … and more Bond-villainous.
