Speaker 1: Hello, and welcome to another episode of the All Thoughts Podcast.
Speaker 1: I'm Tracy Alloway and I'm Joe. Wisn't Joe? Big news
Speaker 1: today from Europe, which is that Russia is cutting off
Speaker 1: supplies of gas to countries Poland and Bulgaria specifically that
Speaker 1: refused to pay in rubles. And you know, this is
Speaker 1: something that has sort of been expected in some sense,
Speaker 1: but lots of people are viewing this as the beginning
Speaker 1: of the weaponization of commodities. Yeah, and it fits with
Speaker 1: you know, a theme obviously we've talked about several times,
Speaker 1: which is this sort of I guess there's two things.
Speaker 1: I mean, on some level, it's like this fracturing of
Speaker 1: the commodity supply chain, trade route changing, but then also
Speaker 1: the changing nature of like the financing side of commodities
Speaker 1: and of the idea that okay, you can have you
Speaker 1: can buy the same commodities, but you have to do
Speaker 1: it differently. Currency. This is, you know, this fundamentally is
Speaker 1: beginning to shift just the way commodities are paid for
Speaker 1: in finance. Right. So this is a point that I
Speaker 1: think a number of our guests at this point have made.
Speaker 1: So Salton Poesar, Pierre and Duran Jeff Curry. If countries
Speaker 1: aren't importing Russian gas anymore or oil, they need to
Speaker 1: find that from somewhere else. And simultaneously, it means Russian
Speaker 1: gas and oil might be going elsewhere, like to China
Speaker 1: to the east, and all of that re routing is
Speaker 1: going to take additional money. And we've seen lots of
Speaker 1: players in the commodities talk about this. They've talked not
Speaker 1: only about the upfront costs of transportation of commodities, but
Speaker 1: they've also talked about what all of this means for
Speaker 1: the market itself. And we've seen intense amounts of volatility,
Speaker 1: which to some extent mean that the commodities traders are
Speaker 1: making loads of money. But on the other hand, they
Speaker 1: are having to deal with this volatility and it can
Speaker 1: disrupt their business, right And of course, and you know
Speaker 1: this is obviously and you mentioned it's something that Resulton
Speaker 1: has been talking a lot about. All these trades are financed.
Speaker 1: There's leverage involved, there's borrowing, and when you have a
Speaker 1: really big jump in volatility, then of course financing gets
Speaker 1: more expensive. You have to put up more collateral and
Speaker 1: you get margin calls and things like that. Also adding
Speaker 1: the complications of you know, some banks have been sanctioned
Speaker 1: and you can't deal with some institutions, so the financing
Speaker 1: side of all these trades just gets much more costly
Speaker 1: and complex. Yeah, and it's not exactly as if it
Speaker 1: was transparent to begin with, and now it's just become
Speaker 1: even murkier in some respects. So today I am very
Speaker 1: pleased to say we are going to be digging into
Speaker 1: the financing side of commodities trading, and we really do
Speaker 1: have the perfect person to talk about it with. We're
Speaker 1: going to be speaking with Happy a Blast. He has
Speaker 1: of course a Bloomberg opinion columnists, but he is also
Speaker 1: the author of the World for Sale, which is a
Speaker 1: book on the commodities trading houses. An excellent book on
Speaker 1: the commodities trading houses. So again, the perfect guest. Have you.
Speaker 1: Thank you so much for coming on all thoughts, thank
Speaker 1: you for me I kind of I'm sort of amazed
Speaker 1: we haven't done this sooner. You're one of the most
Speaker 1: requested Yes, we're always like what are you getting via
Speaker 1: We're gonna get We're gonna get her onto it. And
Speaker 1: then we ran into Javier in the in the news rooms,
Speaker 1: like let's just do it right now. I think that's
Speaker 1: that's that's that's my parents probably on Twitter reaching out goods. Um,
Speaker 1: why don't we start, I guess with the basics, I
Speaker 1: mean sort of potted history of your book. But how
Speaker 1: did we wind up with a situation where we have
Speaker 1: all these independent commodities traders who are dealing with you know,
Speaker 1: important goods, things like oil and gas that we depend
Speaker 1: on for transport and heating, food supply, vital strategic goods,
Speaker 1: with seemingly not that much oversight. Well, yeah, you're you're
Speaker 1: absolutely right. Um, we need the commuity traders because commuities
Speaker 1: are not produced generally where they are consumed. So you
Speaker 1: need someone to take the race of moving the staff
Speaker 1: from A to B. And and that's the role that
Speaker 1: the physical commuity traders play. I mean, these are not
Speaker 1: guys who are betting on the futures market or the
Speaker 1: options market behind a screen. These are guys who go
Speaker 1: into up country, as we call it a mind in
Speaker 1: the DRC, deep into Africa, Peru, oil fields in Iran,
Speaker 1: and they get the oil, they put in a tanker
Speaker 1: and they transport to um the consuming markets, and they
Speaker 1: finance all that process. They deal with all the logistics
Speaker 1: which are mind blowingly complicated. In some cases, you know,
Speaker 1: the main reason is because commorities are not produced where
Speaker 1: they are consumed, and they need someone to intermediate that risk.
Speaker 1: And that's quite a lot of races. Financial is logistics,
Speaker 1: is credited? Is operational is whether it is risky in
Speaker 1: terms that you know, some of these commoti traders are
Speaker 1: often operating on words and you still need them to
Speaker 1: to get the commorities out, and they get paid very
Speaker 1: well for for that service. Yeah. So when I think
Speaker 1: about like traders, typically in my mind, you know, I
Speaker 1: imagine someone looking at a screen and there's like, you know,
Speaker 1: one basis point difference between a tenure treasury and a
Speaker 1: tenuere treasury futures, and this finds some way to like
Speaker 1: make a penny off of that. But when we're talking
Speaker 1: about commodities, we might be talking about equivalent barrel of
Speaker 1: oil moving out of Russia that's sixty dollars cheaper than something,
Speaker 1: you know, another the same barrel of oil and continental Europe,
Speaker 1: and then someone their job is to find a way
Speaker 1: to get that cheaper barrel of oil to someone who
Speaker 1: wants it. And if you can do that, that that seems lucrative. Yeah,
Speaker 1: that's exactly what they do. At times that is very
Speaker 1: complicated because well, you know, you are dealing with all
Speaker 1: those logistics, you are dealing with all that risk, and
Speaker 1: because you you actually have to put a lot of
Speaker 1: money at work. Uh, the size of the business. I mean,
Speaker 1: some of these companies they have turnover of three hundred billion,
Speaker 1: four hundred billion dollars a year, which is a mind
Speaker 1: blowing number. And obviously they don't have, uh the profits
Speaker 1: equivalent to what appoll or Coca Cola or Amazon will
Speaker 1: make if they were having those sales. But the size
Speaker 1: of the turnover is just amazing because of the of
Speaker 1: the volumes that they move. I mean, Beetle, which is
Speaker 1: the world's largest oil trader, moves enough oil to supply
Speaker 1: five or six of the largest European economies. So it's
Speaker 1: not an easy business at the best of times. You
Speaker 1: just described it as really complex. What's it like in
Speaker 1: a moment like we've just experienced over the past month
Speaker 1: where we've seen intense volatility, We've had drama with a
Speaker 1: particular commodities exchange over this volatility and canceling trades and
Speaker 1: things like that. What actually happens in a period of
Speaker 1: intense volatility for the commodities traders. Well, the first thing
Speaker 1: to understand, which is very importan done, is that physical
Speaker 1: commuity trading is a highly leaberage business. These companies operate
Speaker 1: with theen equity and they borrow money from banks. And
Speaker 1: these are not typically borrowing from Wall Street banks. They're
Speaker 1: borrowing money from commoity trade finance which are the typical
Speaker 1: European bank where you may have a mortgage. Actually, my
Speaker 1: my mortgage bank for my flat in London probably is
Speaker 1: a big finance here of the commuity trading houses. So
Speaker 1: these are not the big that they are not borrowing
Speaker 1: money from the likes of government SAT. They are used
Speaker 1: borrowing money from europe and commercial banks and sorry just
Speaker 1: to be specific, like a BNP parableut that sort of thing. Yeah,
Speaker 1: I mean BMP was the largest lender to the industry.
Speaker 1: It just decided a few years ago to shut down
Speaker 1: the business after they got involved in some bad case
Speaker 1: with with the U S Department of Justice. But we're
Speaker 1: talking about the likes associating it all of I n
Speaker 1: G suits um so unique credit of Italy that that
Speaker 1: kind of European banks and well when commoti prices go
Speaker 1: through the roof has happened in recent days and weeks.
Speaker 1: Two things happen for the commoty trading houses. First of all,
Speaker 1: they need to borrow a lot more money because a
Speaker 1: barrel of oil is more expensive. So if a barrel
Speaker 1: of oil a year ago was close to actually almost negative,
Speaker 1: but you know, say that it was dollars and you
Speaker 1: were moving a million barrels of oil and a super tanker,
Speaker 1: you need million dollars to borrow. Today at more than
Speaker 1: a hundred it means that you need a hundred million dollars.
Speaker 1: So the borrowing needs have increased significantly. Also, because of
Speaker 1: all the volatility in the futures market, if you are
Speaker 1: heading that operation on the futures market, you mean that
Speaker 1: you are long physical you are short on on the
Speaker 1: paper side. The price continues to go, so you are
Speaker 1: getting hit by marketing calls, and those marketing calls could
Speaker 1: get very high. We have seen some commoti trading houses
Speaker 1: getting a billion dollars a day of additional variation margin calls,
Speaker 1: and that combination has really put a lot of pressure
Speaker 1: on the finance of some of these companies. That, as
Speaker 1: I said, for the starting point, they don't have a
Speaker 1: lot of equity and they rely on banks, and banks
Speaker 1: are really reaching the limits of how much money they
Speaker 1: can lend to them. What do you walk is through
Speaker 1: a trade? I mean things you know, you sort of
Speaker 1: you walk through some of the prices of oil and
Speaker 1: the tanker. But there's the idea that Okay, there's some
Speaker 1: buyer who wants oil, there's some seller halfway around the world,
Speaker 1: and then the trading house makes it happen. But to
Speaker 1: make it happen, they borrow. They don't want to put
Speaker 1: up their own money to transport that oil. They borrow
Speaker 1: for the duration like how long are they borrowing for?
Speaker 1: They revolving lines of credit like walkers there a little
Speaker 1: bit more like how the trade work. They have all
Speaker 1: kinds of different borrowing facilities, from from revolving to bilateral
Speaker 1: deals to to just at for for the transaction. But
Speaker 1: a typical transaction right now will be buying Russian oil,
Speaker 1: which is still legal if you are moving it into
Speaker 1: say the Netherlands rather than is the center of the
Speaker 1: European oil industry. So say that you are a trading
Speaker 1: house Joe Commodities Incorporated Obviously on attacks Heaven because all
Speaker 1: these companies are are incorporated on on on some places
Speaker 1: like the British Virgian Islands and similar. And you are
Speaker 1: buying a million barrels of oil from Rosnev, the Russian
Speaker 1: state control company. You will have put that's gonna cost
Speaker 1: you around eighty million dollars because Rossnef is selling a
Speaker 1: big discount to the market. You probably are gonna put
Speaker 1: perhaps as little as five million dollars of your own money,
Speaker 1: and you're gonna go to a bank and you're gonna
Speaker 1: borrow all the rest of the money, and then you
Speaker 1: will at that moment you own a million barrels of
Speaker 1: Russian oil. So you are long physical. You want to
Speaker 1: protect yourself because you don't you don't want to see
Speaker 1: a price drop hurting use. So you will take a
Speaker 1: short position on the futures market to make sure that
Speaker 1: you you are head long physical, short paper. Everything s
Speaker 1: will be fine. And then you get a vessel, which
Speaker 1: is complicated because there are not many companies who want
Speaker 1: to go to a Russian port to pick up the crude.
Speaker 1: You will have to deal with all the operational Sometimes
Speaker 1: there is bad weather and you cannot send the rip,
Speaker 1: so it gets complicated. On that say that you get
Speaker 1: everything right, You get the oil into the tanker and
Speaker 1: then you move it to Rotterdam. You try to discharge
Speaker 1: into a refinery. But in that period, just in mind
Speaker 1: that the price of oil goes to a hunt from
Speaker 1: a hundred to a hundred and fifty. You are going
Speaker 1: to be making You are fine because you are headed,
Speaker 1: but obviously the marketin's the change is gonna start demanding
Speaker 1: significant variation margins on that short position, and then you
Speaker 1: have this cast flow mismatch. You have not yet delivered
Speaker 1: the oil, so you have not really cash in your loan.
Speaker 1: Physical position at the same time you're shot on the
Speaker 1: paper is massively underwater. You're getting the marketing calls, so
Speaker 1: you're going to have to go to another bank and say, please,
Speaker 1: can you give me some money and I borrow you
Speaker 1: money because I need to pay to this change. When
Speaker 1: all of these is not just one tanker, but hundreds
Speaker 1: of tankers a day floating around and billions of dollars
Speaker 1: on borrowing, is when it gets very difficult, and when
Speaker 1: some of the companies reached the limit on how much
Speaker 1: they are borrowing from the banks, as when the banks
Speaker 1: say we cannot continue lending to you. And that's where
Speaker 1: we saw the lobby group of the European energy traders
Speaker 1: go to several central banks and saying we are running
Speaker 1: out of liquidity, we have a big problem. Marketing calls
Speaker 1: had effectively killing us. I want to get into this
Speaker 1: idea of whether or not central banks or governments should
Speaker 1: support commodities trading and finance. But before we do one thing,
Speaker 1: I've been wondering, given the volatility and given the types
Speaker 1: of margin calls that we've seen, do people hedge more
Speaker 1: or less in this environment? Because you can kind of
Speaker 1: argue it either way. Right, you know, you don't have
Speaker 1: as much credit, so everything you have is sort of
Speaker 1: just stop in the trade plus can be used for
Speaker 1: the hedge. But on the other other hand, there's so
Speaker 1: much volatility at the moment that you would want to
Speaker 1: make sure that you're hedged. I mean, this is the
Speaker 1: time that everyone should be hedged as well as they can,
Speaker 1: because the market is moving in huge price increases. I mean,
Speaker 1: we have seen Brent crude, a market that for many
Speaker 1: years have never traded more than thirty dollars or forty dollars.
Speaker 1: We have seen price movements of dollars in the space
Speaker 1: of a week. You are not hedged, the market could
Speaker 1: kill you. But you are absolutely right. My suspicion is
Speaker 1: that a lot of the trading houses have reduced significantly
Speaker 1: the hedging you simply because they cannot afford it, which
Speaker 1: is extremely risky, and that's what could bring a company down.
Speaker 1: You know, I want to go back to something just
Speaker 1: in like the why of these companies and I, you know,
Speaker 1: just your explanation. It's like, look, the commodities made somewhere,
Speaker 1: it's probably gonna be consumed somewhere else. You need someone
Speaker 1: to take on the risks and the process of doing that.
Speaker 1: Why did they these companies emerge separately from the major banks?
Speaker 1: Like why in theory is this not just something that's
Speaker 1: done inside the government sex or inside the JP. Morgan
Speaker 1: very good point. And indeed at some point government stars
Speaker 1: and Morgan Stanley were big physical traders. They were moving
Speaker 1: millions of barrels a day of crude and undefined products.
Speaker 1: Coleman starts pre I p O on an oil refiner
Speaker 1: in Rotterdam. Morgan Stanley was a big trader of all
Speaker 1: kinds of commorities including metals, agricultural, etcetera. Etcetera. But over
Speaker 1: time the business gravitated to privately owned independence because, um,
Speaker 1: you have to go to difficult places on earth, places
Speaker 1: that usually regulators will not like banks to be there.
Speaker 1: And and because over the years the good money on
Speaker 1: community trading has been made in operating on those kind
Speaker 1: of Um, what is the nice work gray areas of
Speaker 1: the global economy. It feels like you have to have
Speaker 1: a somewhat mercenary attitude where it's like, this is the
Speaker 1: job the world that Jack and I use on the
Speaker 1: world for sale, and our book was you have to
Speaker 1: be a bit of trust, walk clean. I think that
Speaker 1: that probably is a nice way to say buccaneer or mercenary.
Speaker 1: But look, the commority traders made a lot of money
Speaker 1: over the last thirty or forty years helping sadan Hu's
Speaker 1: saying to bypass un Sancion's, helping upper heads of Africa
Speaker 1: government to get oil, helping um Fidel Castro Cuba barter
Speaker 1: sugar for oil, and keeping the communist revolution alive. And
Speaker 1: they never have a problem whether it was a communist
Speaker 1: regime of our right wing regime. The same commoty traders
Speaker 1: that were helping Castro were dealing with pinot chet in
Speaker 1: Chili to sell the copper, but you need to have
Speaker 1: the appetite to go to where no one goes. I
Speaker 1: mean these when I said earlier that these commoty traders
Speaker 1: are often in or songs, they are. They have executives
Speaker 1: that have been in Libya during the civil war. And
Speaker 1: the hotel lobby where it was, it was an interesting combination.
Speaker 1: You were in Benghasi, the front line was not far away,
Speaker 1: um or checkpoints in the city everywhere, and it was
Speaker 1: a hotel where it was kind of the hotel to
Speaker 1: be in town during the Libyan war. And the people
Speaker 1: who were living in that hotel were a combination of
Speaker 1: a few diplomas, um cultural attaches of those diplomas meaning
Speaker 1: their spies, a few war reporters, and then the commodity
Speaker 1: traders find Libyan oil to put it into the global market.
Speaker 1: So setting aside, I guess the issue of morality as
Speaker 1: as many traders have done historically. Um. You mentioned that
Speaker 1: the fact that commodities traders just make tons of money
Speaker 1: over time, and I'm curious what the money making opportunity
Speaker 1: is like right now, because again it kind of feels
Speaker 1: like a best of times, worst of time scenario. So
Speaker 1: the opportunity to make profit is there if you can
Speaker 1: secure the funding and navigate the volatility. But it seems
Speaker 1: like the industry is also starting to um split a
Speaker 1: little bit, like the big guys are taking even more
Speaker 1: market share. Some of the smaller players seem to be
Speaker 1: really squeezed by the financing pressures. What's going on there?
Speaker 1: You're right, the banking financing is gravitating towards the big
Speaker 1: players because the banks feel that they have enough equity
Speaker 1: to withstand the volatility, and the smaller medium sized traders
Speaker 1: are really struggling to get support from the banks. The
Speaker 1: opportunity right now you can't make it through. You can
Speaker 1: whether the volatility. You could make a ton of money
Speaker 1: in this market. I mean, think about Russian oil um
Speaker 1: the flagship of Russian Crewe is something that we call
Speaker 1: urals that is selling around thirty five dollars discount to brand,
Speaker 1: which is the main benchmark. So if you are a
Speaker 1: commuity trader, you could buy from rosnev oil at a
Speaker 1: thirty five dollar discount, put it on a boat and
Speaker 1: ship it to India where you could sell it at
Speaker 1: five dollar discount. You could make thirty percent margin on
Speaker 1: a barrel of oil right now, which is a lot
Speaker 1: of money. I mean, this is this is an industry
Speaker 1: where making fifty cents on a barrel of oil is
Speaker 1: a big profit, and all of a sudden you have
Speaker 1: thirty dollar profitability options. Uh, and that's what they're doing.
Speaker 1: I mean, you see the same traders who are buying
Speaker 1: Russian oil at a discount of certified dollars, they're selling
Speaker 1: it to India at a five dollars discount. There's a
Speaker 1: for anyone who is interested or if you have a
Speaker 1: terminal there we have a urals Brent spread ticker fu
Speaker 1: d b M one and you can see like you know,
Speaker 1: up until basically at the beginning of February, this was
Speaker 1: a you know, it looked like Russian oil typically traded
Speaker 1: for about a dollar fifty cheaper than brand and currently
Speaker 1: it's thirty one dollars cheaper. So here's the basically, here's
Speaker 1: this huge opportunity. All you need to do is find
Speaker 1: the boat. It's such a crazy like that's the basic idea.
Speaker 1: If you can find a boat that can get it
Speaker 1: can ship into India for less than thirty dollars a barrel,
Speaker 1: you need the boat, and you need also bank was
Speaker 1: willing to finance that, or you need to have the
Speaker 1: equity to to to finance this operation on your own
Speaker 1: balance sheet. And then I mean, but he asked the question,
Speaker 1: will will Joe Commodities incorporated on the British Building Islands
Speaker 1: want to get involved in this? Would you want to
Speaker 1: be trade in Russkan oil? And many many people will
Speaker 1: say no, I don't want to do anything with Russia,
Speaker 1: but a lot of the Commoity trader said, well, we
Speaker 1: are not involved in politics. We have both politics, and
Speaker 1: we are here about out making money and it's legal
Speaker 1: to move the oil, so we're going to move it
Speaker 1: and they're obviously making a lot of money. Tracy. It
Speaker 1: actually reminds me a little bit of the same bankman
Speaker 1: freed bitcoin trade from, like the huge gap in bitcoin
Speaker 1: pricing in the U s and Japan finding a way
Speaker 1: to like but there's a reason why that that gap exists.
Speaker 1: So okay, speaking of gaps and crazy charts, there is
Speaker 1: something that you tweeted this morning, have a about the
Speaker 1: ultra low sulfur diesel futures closing like a crazy amount,
Speaker 1: And there's been a couple of charts that just look
Speaker 1: like something weird is going on in the market. We're
Speaker 1: getting these odd technical squeezes higher. What's going on there
Speaker 1: and how is that related to the financing situation? Well,
Speaker 1: the diesel market. I mean, I have been warning that
Speaker 1: we are talking at about the problem in the oil market,
Speaker 1: the crude market, but we're real Thinness is what we
Speaker 1: call the middle of the barrel when he's refined. That's
Speaker 1: diesel and jet fuel, and we have barely all of
Speaker 1: it because consumption is booming because Russia produced a lot
Speaker 1: of diesel. What's happening there is that on community markets,
Speaker 1: when you are on the futures market at the end
Speaker 1: of the day, some of those contrasts are still physically deliverable.
Speaker 1: You take a long or short position, and you may
Speaker 1: take or have to deliver the community to this change.
Speaker 1: Inventories of diesel in the East Coast of the United
Speaker 1: States are at the moment at the lowest seasonal level
Speaker 1: since we have data that's thirty two years um. The
Speaker 1: pricing point for the futures market for diesel in the
Speaker 1: United States is here in New York Harbor. That is,
Speaker 1: New York Harbor is where you price diesel for basically
Speaker 1: the whole of the Americas, and what happened here really matters.
Speaker 1: It's so important that it was a big energy trade
Speaker 1: there in the nineties at morganized Stanley, who he was
Speaker 1: known as the King of New York Harbor because he
Speaker 1: controlled all the leases of all the oil tanks and
Speaker 1: he could in some ways I think that the world
Speaker 1: manipula will be wrong, but he could sway the market
Speaker 1: on his favor very very often. Because we have so
Speaker 1: little inventory, everyone who is short in this market is
Speaker 1: trying to close the positions because came Friday they need
Speaker 1: to deliver the diesels. There is no diesel around. The
Speaker 1: lawns are very happy holding their positions. And what we
Speaker 1: have was a hell of a squeeze over the last
Speaker 1: forty eight hours where um the premium for May to
Speaker 1: June contract balloon to an incredibly high level. I mean
Speaker 1: it's something that again, you know, this is a chart
Speaker 1: that we shall see. I spread of no more than
Speaker 1: five ten cents will be something unprecedented. And yesterday we
Speaker 1: went beyond seven defense, which was the chart one mesical
Speaker 1: and it was it was a clear sign that it
Speaker 1: was a short position in deep trouble, uh knowing that
Speaker 1: in three days he has borrows, it doesn't have any borrows,
Speaker 1: and it needs to get out and he would pay
Speaker 1: whatever is needed to get out of the So like,
Speaker 1: it's a pretty big societal disaster. If certain commodities simply
Speaker 1: cannot be delivered. If you if if if, if planes
Speaker 1: can't get jet fuel, that's a really big economic problem.
Speaker 1: In fact, it briefly happened at the airport in Austin,
Speaker 1: Texas that they ran out of fuel at that location.
Speaker 1: But other things, obviously food, obviously huge implications. You know,
Speaker 1: this stuff really matters, and so it's interesting, Um, you know,
Speaker 1: talk to us a little bit about the role of
Speaker 1: regulators in the central banks, because you know, there was
Speaker 1: talked last month with the whole Nickel blow up about
Speaker 1: what should the central banks be backstopping or bailing out
Speaker 1: some of the players in this space because it's so crucial.
Speaker 1: I mean, what is uh do does there need to
Speaker 1: be more of a reg gulatory infrastructure such that if
Speaker 1: there is need for bailout or emergency financing, the central
Speaker 1: banks or in the position to provide it. Well, using
Speaker 1: the example that I gave you, if you know, Joe
Speaker 1: commodity is incorporated. Uh, well, you have no regulation. No
Speaker 1: one is looking at you. It's pretty like that you
Speaker 1: could do whatever you please. And and and you know this,
Speaker 1: this this happened. Just in mind that that trade that
Speaker 1: we in mind, you know, buying a barrel of of
Speaker 1: Russian oil and deliberate into rotther than you will encounter
Speaker 1: not a single regulator other than on the financial side.
Speaker 1: And the financial side, when you're putting your head, you
Speaker 1: will have the CFTC looking at you what you are doing.
Speaker 1: But on the physical side, there is absolutely nothing. You
Speaker 1: do put on a ship, put it on the shape,
Speaker 1: and there is no regulation. And sometimes there is nothing
Speaker 1: even a single country, because you may not even buy
Speaker 1: the oil from the terminal. You may buy the oil
Speaker 1: on the high seas from you know, some science. Two
Speaker 1: oil tankers get together, we call it ship to ship transfer.
Speaker 1: They get together on the high seas. They can move
Speaker 1: the oil from one tank to the and you're on
Speaker 1: the high seas. It's literally you are almost the only
Speaker 1: rules there is the United Nations Convention of the Sea.
Speaker 1: It's kind of propriacy level. So you you you don't
Speaker 1: have any regulation. And and it's quite interesting the things
Speaker 1: that you could get away, or you could almost get
Speaker 1: away until very recently. For example, you were incorporated in
Speaker 1: Switzerland and you decide to bribe someone to get business
Speaker 1: a businessman overseas. Not only that was considered legal until
Speaker 1: very recently, but it was tax deductible. So the Swiss
Speaker 1: were rather a commodative to what the commoti traders needed
Speaker 1: to do. And on the book we tell the story
Speaker 1: of some commoti traders telling us that they were traveling
Speaker 1: to London with half a million pounds on the briefcase
Speaker 1: to to make payments to two people. I mean, they
Speaker 1: call it commissions, but those are brown envelopes. There's also
Speaker 1: there's a great story in your book about the Soviet
Speaker 1: Union basically owning the US and the commodities traders in
Speaker 1: the nineteen seventies by going from commodities house to commodities
Speaker 1: house buying up grain, and no one realized they were
Speaker 1: doing this with everyone. Because they don't talk to each other,
Speaker 1: they keep everything secret, and because there is no one
Speaker 1: that they need to report all of these transactions. There
Speaker 1: is not that registry. If you are trading on the
Speaker 1: financial market, that you are buying oil futures or options
Speaker 1: all of those trades are registries. On one there is
Speaker 1: a trade repository. The CFTC could look into it, the
Speaker 1: FED can look into it. You know, if any any
Speaker 1: indication of wrongdoing, someone can go and see exactly who
Speaker 1: bought what at what price with whom. On the physical
Speaker 1: market you could buy oil, metals, agricultural commodities and you
Speaker 1: do not have to disclose anything. There has been at terms.
Speaker 1: I mean in nineteen seventy nine they D seven agreed
Speaker 1: to create EATE, an international repository of oil physical deals.
Speaker 1: And of course what is now forty three years later
Speaker 1: we are here and that has not happened because opposition
Speaker 1: from from the industry. I can't even imagine getting to
Speaker 1: the point where people would agree to it now much
Speaker 1: less enacted. Like it just seems like when I recently
Speaker 1: wasn't speaking to people on the regulatory wall and and
Speaker 1: say well you could do you could create a registry,
Speaker 1: and they will absolutely bemused that. I indicate a look
Speaker 1: look at the G seven V nine communicated was the
Speaker 1: samit in Tokyo is there he says, we agree, the
Speaker 1: G seven agrees to create an international database of trades.
Speaker 1: And they were like, well, that would not happen. Now,
Speaker 1: it's no way that all the country WI will agree.
Speaker 1: So just going back to the central bank point though,
Speaker 1: so it seems like so far most of the major
Speaker 1: central banks have swatted away this idea of providing support.
Speaker 1: So the e c B kind of did it more definitively,
Speaker 1: the FED has made noises that suggest that it's not
Speaker 1: interested in backstopping commodities traders. Is the a why not? Um?
Speaker 1: I guess moral hazard is the sort of big one there,
Speaker 1: But b it is part of the idea that they
Speaker 1: get support through banks that are back stopped by the
Speaker 1: third Yeah. I mean I think that the central bands
Speaker 1: have looked into commoted trading recently and they found two
Speaker 1: things that I think that they didn't like. One and
Speaker 1: you know, the Bank of England was rather candid about it.
Speaker 1: They put opposition paper just indicating that they could not
Speaker 1: really even understand what was going on because of the
Speaker 1: opacity of the market. Uh and you know that that
Speaker 1: to to to see a central band recognizing publicly we
Speaker 1: look at these we found it to be very opaque,
Speaker 1: so we don't really know what's going on. I was
Speaker 1: it's rather concerning both the EA CY b and the
Speaker 1: FED say, well, the threshold for intervention of an unregulated market,
Speaker 1: as they call it, is very high. And the FED,
Speaker 1: using FED to speak effectively told the industry will be
Speaker 1: a good idea if you raise equity and you show
Speaker 1: up your your own finance. I mean, let's not forget
Speaker 1: a lot of these companies are privately owned that there
Speaker 1: are very few that they are listed on the market.
Speaker 1: But they are also owned by extremely wealthy individuals. I
Speaker 1: mean they're making billions of dollars every year, and the
Speaker 1: partners could put money back into into the business. Um.
Speaker 1: The problem for the central banks is what if a
Speaker 1: big multi trade company was to fail and it goes
Speaker 1: under with billions of dollars on credit lines to a
Speaker 1: bunch of European banks, and all of a sudden you
Speaker 1: realize that the likes of we were commenting earlier, you know,
Speaker 1: uh banks who have branches on the highest treet in
Speaker 1: Europe have two, three, five six billion dollars of exposure,
Speaker 1: and you don't know what if anyone else gonna calm down,
Speaker 1: the industry gets under massive stress. I think that we
Speaker 1: can get into a position in which central bands hands
Speaker 1: maybe use forced into act and supporting the industry. But
Speaker 1: it gets complicated because a difference of the a lot
Speaker 1: of the banks, a lot of these com multi trading
Speaker 1: houses are not even incorporated in Europe. You are going
Speaker 1: to be bailing out companies that are in the British
Speaker 1: bulding Islands, in um in Dubai, in Singapore, and and
Speaker 1: companies also that you could discuss whether what Liman Brothers
Speaker 1: or band stands we're doing, we're good for society and
Speaker 1: so on. But these companies, a lot of the trouble
Speaker 1: that they're getting now is because they are trading Russian oil,
Speaker 1: which goes so just in mindor situation in which a
Speaker 1: central bank effectively has to bail out a commulti trading house,
Speaker 1: and the central bank is either the FED or the EASYB,
Speaker 1: and you are bailing out a community trading house which
Speaker 1: is involved in shifting Russian oil, which is more or
Speaker 1: less against what the company trading and trading house and
Speaker 1: the tax haven making it easier for latter we're to
Speaker 1: get revenue. And now coming potentially thinking the easy B
Speaker 1: or the Bank of England to the FED us in
Speaker 1: mind what the hearing in Capitol Hill when they ask
Speaker 1: cherman power and Secretary jal And why you bail out
Speaker 1: these guys? I mean, you know, you understand why the
Speaker 1: FED and the easy we were terrified at that situation.
Speaker 1: But on the other hand, while both the EASY b
Speaker 1: and the AND and the FED have said no, I
Speaker 1: think that they're very aware that they could be a
Speaker 1: situation in which they may have to because the financial
Speaker 1: health of a number of European banks is at risk,
Speaker 1: But the political consequence of having to bail out these
Speaker 1: guys were are terrifying. Yeah, I hadn't thought I hadn't
Speaker 1: thought about that at all. Something that you talk about
Speaker 1: is and and you know, again, I guess I'm going
Speaker 1: back to like the why these companies is that in
Speaker 1: the past, and maybe it's with oil, but I think
Speaker 1: other commodities as well, the supply chains were much more
Speaker 1: vertically integrated, and so whether from the drilling to the
Speaker 1: literal gas station where someone would get their fuel, it
Speaker 1: might have been like all one company. And then it's
Speaker 1: sort of like as that fragmented. You talk a little
Speaker 1: bit about how the trading houses emerged out of essentially
Speaker 1: restructuring of the industry itself. It happened mostly around the
Speaker 1: seventies sixties and seventies, and and you know, oil was
Speaker 1: particularly the one that broke down. I mean it was
Speaker 1: a time where everything was particularly integrated in the oil
Speaker 1: industry exce on oil exce and oil fields will produce oil,
Speaker 1: they will put on excellent own pipelines into excellent tankers
Speaker 1: to exon refineries and to exon gas stations. And that
Speaker 1: broke down for a number of reasons, very importantly nationalization
Speaker 1: of the oil resources in the Middle East and North
Speaker 1: Africa through the seventies, um the commoti trade. That when
Speaker 1: the Middle East countries nationalized that they're oil, all of
Speaker 1: the sudden, those countries who have never solved it on
Speaker 1: oil have plenty to sell and they needed someone to help.
Speaker 1: And that came the oil traders who became the big intermediaries.
Speaker 1: And the industry has really broke down. There is not
Speaker 1: that vertical integration anymore, and the traders have have benefited
Speaker 1: from that. Would you expect some form of vertical integration
Speaker 1: to return, like the obvious one given the shipping shortage
Speaker 1: shipping issues would be for commodities traders to just start
Speaker 1: buying or building a bunch of huge, very large crude
Speaker 1: carriers or stuff like that would that kind of thing
Speaker 1: come back. I think that where you may have some
Speaker 1: vertical integration is companies have come to realize now that
Speaker 1: if they need a particular supply that is in critical
Speaker 1: for their business and no one is investing, they may
Speaker 1: have to do it themselves. I mean test Lies is
Speaker 1: kind of a good example of these, I mean Elements
Speaker 1: is talking about the shortages of lithun. So you could
Speaker 1: see at some point Tesla having to go into mining
Speaker 1: lithun or coinvesting with some traders into that because you know,
Speaker 1: in effect you have a market failure, so you may
Speaker 1: want to integrate. The one thing that I see, which
Speaker 1: is not vertical integration, but is uh the commoity traders
Speaker 1: have benefited a lot from their movement by everyone to
Speaker 1: use in time. They were the ones who were holding
Speaker 1: inventories for everyone else, and they made money from that.
Speaker 1: I mean a lot of companies they didn't have to
Speaker 1: carry inventories. The inventories were in the hands of the traders.
Speaker 1: The traders were financing those inventories. So a lot of
Speaker 1: chief financial officers of companies that need resources were very
Speaker 1: happy not to carry those financing course, all the sudden
Speaker 1: you realize that just in time may not be a
Speaker 1: great idea. And you are a company that needs a
Speaker 1: lot of aluminium or a lot of copper, you may
Speaker 1: want to move from relying a bit less on the
Speaker 1: commority traders and controlling a lot more of those inventories.
Speaker 1: Which is really bad right now because we have low
Speaker 1: inventories everywhere, supplies trolling with demand and we are having
Speaker 1: is a number of companies building their own inventories right
Speaker 1: now at the worst possible time, which is exacerbating the
Speaker 1: short Yeah, this is a real diversion. But while you're here,
Speaker 1: I'm just gonna ask you, did anyone actually get paid
Speaker 1: to take oil in spring when it went negative? Like
Speaker 1: were there's some people in a position where they like
Speaker 1: took oil and got paid the warehouse it made a fortune. Yeah,
Speaker 1: there were. There were some commoty traders certainly buying oil
Speaker 1: in cushion. Uh. And you know by buying, I mean
Speaker 1: getting paid to take the oil. There was not a
Speaker 1: lot of it. Uh. And you know the reason that
Speaker 1: we went negative was a lot of technicality around the
Speaker 1: contract and probably some people pushing the market at closing
Speaker 1: in the in the right direction for for their for
Speaker 1: their positions. But yes, there were commuity traders who that day,
Speaker 1: and not only that day, I mean on the physical
Speaker 1: market in the US for a few weeks before the
Speaker 1: doublet when negative we have domestic grades on kind of
Speaker 1: areas were very difficult to move the oil out where
Speaker 1: prices were negative, and some of the commuity traders were
Speaker 1: we're taking the oil I mean Mercuria, big oil trader
Speaker 1: who takes oil in some areas of the U S
Speaker 1: which had lacked lockdown, with very very difficult access over
Speaker 1: two pipelines and so on, was buying negative and negative
Speaker 1: prices for about two weeks. There's one part of the
Speaker 1: commodities ecosystem that we haven't really discussed yet, and it
Speaker 1: was the drama that I was referring to in the intro,
Speaker 1: and that's the exchanges. And the big drama was the
Speaker 1: London Medals exchange canceling a bunch of Nichols trades after
Speaker 1: the price just went absolutely nuts. And this was really
Speaker 1: controversial at the time. But you know, obviously a lot
Speaker 1: of what the commodities traders are doing are through futures
Speaker 1: contracts that go through an exchange. What sort of response
Speaker 1: have we seen from the exchanges in terms of adapting
Speaker 1: to this new environment, well, the response from these changes
Speaker 1: have been to increase margins massively to everyone and particularly
Speaker 1: not use variation margins. By initiation margins very expensive right
Speaker 1: now to put a trade on energy commodities oil, power, gas,
Speaker 1: it just have got very very expensive. I think that
Speaker 1: you know that the reaction from these changes have been,
Speaker 1: Oh my gosh, we got very very close to disaster
Speaker 1: with the Leemy. I mean the Leemy have not shut
Speaker 1: down the nickel market and then canceled the trade, which
Speaker 1: is extremely controversial the session and many people on the
Speaker 1: market will say illegal decision and this is going to
Speaker 1: be uh, there's gonna go into lawsuits, etcetera, etcetera. But
Speaker 1: these changes have been quite open. Four or five brokers
Speaker 1: will have default that morning. The market was shut down
Speaker 1: at a fifteen in the morning and the trades were
Speaker 1: canceled at a fifteen in the morning. Market calls were
Speaker 1: due and nine. So we can say that four or
Speaker 1: five big brokers at the enemy were forty five minutes
Speaker 1: from going berry. Um if they if the brokers go, uh,
Speaker 1: what happened to because then the brokers default to the
Speaker 1: exchange and the clearing house. What would have happened to
Speaker 1: the clearing house. The change said that the clearing house
Speaker 1: will have survived, but we don't know the reality and
Speaker 1: what will have happened to some of the banks which
Speaker 1: are behind the brokers. I mean the financial consequences could
Speaker 1: have been significant billions of dollars of losses. And you know,
Speaker 1: a lot of the race today we have moved the
Speaker 1: race out of OTC markets into clearing houses. Uh, and
Speaker 1: you know, we don't know. And this was a test,
Speaker 1: I mean, having to cancel the trades. It's a massive decision.
Speaker 1: I mean that you know, my my, my, my ward
Speaker 1: is my bond. I have a trade, I have a
Speaker 1: contract and that's dawn and those contracts were evaporated in minutes. UM,
Speaker 1: So there's changes. Reaction so far is to increase margins
Speaker 1: and trying to make sure that the buffer on the
Speaker 1: clearinghouse is there for a potential default. But obviously that's
Speaker 1: draining a lot of liquidity from from this change. We
Speaker 1: have seen liquid in the oil market at a six
Speaker 1: seven year low that's not coming back. Um At times,
Speaker 1: the oil market, I think that I said that the
Speaker 1: bid as a spread on double T I which usually
Speaker 1: is no more than one cent. There were times that
Speaker 1: was seven eighth fens wide, which I said, well, that's
Speaker 1: wide enough to put an oil tanker through. I mean,
Speaker 1: like you could make a fense of a dollar just basically,
Speaker 1: are we try and beat as beat as spread on
Speaker 1: dou w t I, which is as insane as it's
Speaker 1: kind of almost free money crazy, you know, you're we're
Speaker 1: talking about like, oh, these commodity traders and make a
Speaker 1: ton of money, but they weren't always. I mean, and
Speaker 1: then let you know, prior to COVID, commodities was not
Speaker 1: booming business. And one of the themes that comes up
Speaker 1: a lot on odd lots is um you know, this
Speaker 1: idea of like under investment, under investment in physical resources, etcetera.
Speaker 1: But I'm curious also about like the sort of I
Speaker 1: guess the E S G aspect because my impression is,
Speaker 1: and I think some people want to dismiss that. Other
Speaker 1: people say it's everything, But my impression is a lot
Speaker 1: of people just either different kinds of financial companies just
Speaker 1: sort of like cut all of their units related to
Speaker 1: restractive industries, related to mining and so forth, like we're
Speaker 1: just gonna get out of this business. It does feel
Speaker 1: like the sort of negative attitude towards dirty industries really
Speaker 1: caused a lot of these sort of financing and to disappear.
Speaker 1: The Russian based in the Ukraine has been really the
Speaker 1: finalist draw on on on the market. That has tightened
Speaker 1: things a lot, But the market was already tightened, tightening
Speaker 1: a lot on the on the run up. And and
Speaker 1: one reason is that we have on that investment in
Speaker 1: fossil fuels, in mining, it just generally has been seen
Speaker 1: as a deity industry. E. S G has kicking. We're
Speaker 1: not having probably enough investment. I mean here we are
Speaker 1: at unprecedented prices for coal. I mean a good price.
Speaker 1: If you have told a coal miner a couple of
Speaker 1: years ago that two hundred and fifty dollars a tone,
Speaker 1: whether they will take it, I mean they will have
Speaker 1: signed a contract right now, thank you very much. That's
Speaker 1: a great price. And the market is now at four
Speaker 1: hundred and no one is building a mine, no one
Speaker 1: is opening that. Everybody got out of coal finance. Everyone
Speaker 1: everyone is out of coal finance. You could not get
Speaker 1: a bank to finance a coal mine. And you know
Speaker 1: some of the call companies I speak to the CEOs
Speaker 1: and said, why you are not now announcing a big
Speaker 1: expansion and so on, because he said, if I announced
Speaker 1: that we're expanding products and capacity, my share price goes
Speaker 1: down ten percent. Because that's the last thing that you know,
Speaker 1: we have targets that we have to reduce. And you know,
Speaker 1: the sad thing right now of the energy transition is
Speaker 1: that we have been told about cutting emissions, reducing CO
Speaker 1: two and so on and two we're going to see
Speaker 1: record demand for oil, record demand for natural gas, and
Speaker 1: record demand for thermal coll and that's despite the fact
Speaker 1: that we have been trying to reduce reliance on thermal
Speaker 1: call for the last I mean, some people will say
Speaker 1: hundreds and fifty years, but seriously for the last twenty years.
Speaker 1: I have a related but slightly weird question. Um. But
Speaker 1: speaking of under investment, you know central banks around the
Speaker 1: world gearing up for rate hikes if they haven't done
Speaker 1: so already, and the whole intent there is to try
Speaker 1: to bring down inflation, which presumably with lower commodities prices.
Speaker 1: But I'm curious how do commodities traders feel about rate
Speaker 1: hikes at the moment, because the other argument you could
Speaker 1: make is that you're increasing the cost of capital, the
Speaker 1: cost of funding at precisely the wrong time for that
Speaker 1: particular industry. I mean commodity traders. They feel that demand
Speaker 1: is outstrapped in supply and that the only thing that
Speaker 1: could bring down the market is just a good old
Speaker 1: fashioned procession. Uh So, can you reduce commotive prices via
Speaker 1: interest rates hikes? Yes, but at the court of killing
Speaker 1: the economy. But if you're going to achieve the south landing,
Speaker 1: I don't I don't think that you are. I mean,
Speaker 1: the demand is going to be still there. I don't
Speaker 1: see how that's just gonna reduce inflation. I mean, nothing
Speaker 1: that the FAT can do other than killing the economy
Speaker 1: can bring more oil, or more coal or more wheat.
Speaker 1: I mean, you know that just we have a problem
Speaker 1: with with supplies right now because we have lost the
Speaker 1: number one and number three supplier to the Wall and
Speaker 1: the e c B, the Bank of England or the
Speaker 1: FAT cannot do anything about that. I mean, you know,
Speaker 1: higher interest rates are not gonna produce more wheat, and
Speaker 1: they're not gonna produce more oil. But you know, interestingly,
Speaker 1: I'm interesting it is the designed statement of the obvious.
Speaker 1: Why now the global economy faces much higher energy, cause
Speaker 1: much higher food costs, and higher cost of money. So
Speaker 1: you know, I I have a hard time wrapping my
Speaker 1: head around how big of a deal it is to say, Okay,
Speaker 1: some European countries are gonna buy Russian gas in rubles,
Speaker 1: or maybe China is going to enter into some contract
Speaker 1: of Saudi Arabia to use you end. Some people when
Speaker 1: these headlines hit there's a huge deal at the end
Speaker 1: of the dollar, And I'm always like not sure how
Speaker 1: to think about it. Just what's your take, and like
Speaker 1: how significant is pricing commodity sales and non dollar currencies.
Speaker 1: Is it a big deal or is it sort of
Speaker 1: just accounting? Depends on what we are talking about. We
Speaker 1: are talking about pricing the commoity in a non dollar currency,
Speaker 1: then I think it's a big deal. But a lot
Speaker 1: of what we are talking about is about embosing the
Speaker 1: commodities pricing dollar, but you are you are pricing dollars.
Speaker 1: But when you you transfer the money, you you wire
Speaker 1: the money in a different currency, which is a very
Speaker 1: different thing from you know, no, non pricing indollars. Look,
Speaker 1: I do think that it does have an impact. Obviously,
Speaker 1: there are a number of countries that they try to
Speaker 1: reduce their reliance on the dollar. But it was quite interesting.
Speaker 1: I was recently speaking to a senior executive of a
Speaker 1: Middle East company about what would you would you want
Speaker 1: to to get pay in juan? And and you know,
Speaker 1: he's not a friend of the United States, this this
Speaker 1: particular gentleman. But he he said, and then what do
Speaker 1: we do with the duan? We get paid with the juan.
Speaker 1: It's not converted, it's not properly convertible. We can pay
Speaker 1: for for Chinese goods, but we have enough demand for
Speaker 1: Chinese and staff. And say, like, they may not like
Speaker 1: the dollar, they may not like policies with the United States,
Speaker 1: but they know that the moment that they have the dollar,
Speaker 1: they can compare that to anything that they want. They
Speaker 1: can move it around, etcetera, etcetera. So you've been covering
Speaker 1: commodities for a very long time, and obviously your book
Speaker 1: deals with the long term history of commodities trading. What
Speaker 1: about the past month or so has surprised you? What's
Speaker 1: been the most striking to you? A couple of things.
Speaker 1: I have been a struck by how little regulators in
Speaker 1: this day know about the industry. The fact that a
Speaker 1: lot of them seem to be completely in the dark
Speaker 1: of what's going on and who are the big players
Speaker 1: and how things work. Considering that we have had several
Speaker 1: white cup calls, I would have thought that the regulators
Speaker 1: will have really getting up to a speed onto that.
Speaker 1: And I that is really concerning because I am not
Speaker 1: a big believer that you need super extra heavy regulation
Speaker 1: on commodities. But really concerns me when when regulators and
Speaker 1: policymakers basically have no idea what's going on, that that
Speaker 1: remains a surprise. The other one, on the other hand,
Speaker 1: has been sell sunsoning how you know, public pressure has
Speaker 1: led to so many players to say, even if this
Speaker 1: is legal, we're not going to touch it. I don't know.
Speaker 1: This is an era of social media where public pressure
Speaker 1: goes quicker to companies. But in the past I would
Speaker 1: have expected a lot more companies to continue dealing on
Speaker 1: scan oil with no problem, and we have seen a
Speaker 1: number of companies just you know, taking a step back,
Speaker 1: and the companies that tried to use the old tricks
Speaker 1: like the blending and things like that getting name and
Speaker 1: shame and very very quickly saying, oh yeah, I would mistake,
Speaker 1: We're not gonna do that. Yeah, you've had some great
Speaker 1: columns about blending. They called Latvian oil and that's that.
Speaker 1: Then it's like coffee. It's like coffee or cocktails. You
Speaker 1: you kind of you know, you mix. So it's when
Speaker 1: when Russian oil is not really Russian oil. I mean
Speaker 1: for some companies, they will say that as long and
Speaker 1: fifty one percent of the oil is from somewhere else,
Speaker 1: the other could be Russian, and then they bend all
Speaker 1: these names which are kind of you know, cocktail names.
Speaker 1: Latvian blend to many study blend to to avoid calling
Speaker 1: it Russian. I just have one more question, and I
Speaker 1: guess it's like a culture thing again. But you know,
Speaker 1: in this world of commodities, commodities being so important, you know,
Speaker 1: and I think of traditional traders maybe they're like physicists
Speaker 1: these days, or electrical engineer or mathematicians or something who
Speaker 1: becomes commodity traders ha um. I mean, like language skills
Speaker 1: might be useful if we're talking about all these like
Speaker 1: international I think that language skills you have to have
Speaker 1: a sense of adventure and you know, be willing to
Speaker 1: live in the middle of nowhere. Trouble two hundred and
Speaker 1: fifty days a year, take quite a lot of personal risk. Um.
Speaker 1: There is as a commoity trading house called or Land
Speaker 1: which is based in Singapore and the CEO is a
Speaker 1: gentleman called Sandy Burge. Mr Burgess started in Nigeria, so
Speaker 1: he he still sends all the down traders upcountry in
Speaker 1: the middle of nowhere for a couple of years. So
Speaker 1: they learned the business that the kind of the hard way.
Speaker 1: I mean, you need to be prepared to go to
Speaker 1: leave in somewhere quite distant. This is not if all
Speaker 1: what you want to do is be sitting in Mayfair
Speaker 1: in London or or you know, Walla Street here in
Speaker 1: New York. That's not the business for you. You have
Speaker 1: to be you have to be willing to go too.
Speaker 1: King Shasha in the Democratic Republic of Congo and know
Speaker 1: everyone there, know the president, know your ways to get
Speaker 1: the copper and cobal out of the country. I think
Speaker 1: a lot of people like that, Like just you're describing that,
Speaker 1: it's like I've bet a bunch of people here that
Speaker 1: It's like I want that. Even in journalism, when I
Speaker 1: started out in financial journalism, I wanted to report on
Speaker 1: commodities and it didn't happen for me, so I had
Speaker 1: to make it happen through our thoughts at various times. Well,
Speaker 1: I mean, you know, you you are a commotive reporter.
Speaker 1: You en visiting a lot of countries that they are
Speaker 1: not the traditional you know, holiday destination, and it's kind
Speaker 1: of my dad used to say, So you look at
Speaker 1: the least of countries and the Foreign Office recommend not
Speaker 1: to travel and you basically your favorite place that you've
Speaker 1: visited that no one else has that hardly anyone else
Speaker 1: has been. Look, I have. I have had a great
Speaker 1: time every time I have been in Iraq. It's it's
Speaker 1: one of those my favorite places back back. It's a
Speaker 1: great place. I have favorite restaurants in back back and
Speaker 1: things like that. I mean, you get to travel to
Speaker 1: a lot to the to the Middle least and and
Speaker 1: Iraq and Iran are a kind of favorite places. But
Speaker 1: also you get you need to get used to from
Speaker 1: time to time to get deported for a few countries. Well, obvious,
Speaker 1: that was fantastic. I think I said at the beginning,
Speaker 1: you're one of the most requested guests, and I can
Speaker 1: I can see why. So I appreciate you so much
Speaker 1: for coming in Lama, thank you for having me man.
Speaker 1: That was great. Thanks so much. Having God, we could
Speaker 1: make it happen. So Joe, obviously, that was a really
Speaker 1: enjoyable conversation. One of the things that struck me is
Speaker 1: just how untransparent this market seems to be. And you know,
Speaker 1: happiest point about how we still don't have a trade
Speaker 1: repository for physical commodities is just like in in this
Speaker 1: day and age, On the one hand, everything in the
Speaker 1: world seems to be tracked except actual physical vital goods,
Speaker 1: which is insane. But on the other hand, I cannot
Speaker 1: see anyone in the current environment actually agreeing to do it. Yeah,
Speaker 1: when you actually that's what I thought too, And when
Speaker 1: you actually think about what it would take, it's like,
Speaker 1: how would you even do that? Like how would you
Speaker 1: regulate and create a central repository for something in which
Speaker 1: you can literally swap the oil from one boat to
Speaker 1: another boat and you could mix the oil so that
Speaker 1: you know, he was talking about the lot ving blend
Speaker 1: of Okay, you have a barrel of oil that's forty
Speaker 1: nine Russian and fifty point zero one something else. Like
Speaker 1: the just the complexity of that, like, how would you
Speaker 1: even like start to conceptualize tracking every trade when there
Speaker 1: are so many ways to just do a unilateral one
Speaker 1: to one hand off of a good you could see
Speaker 1: why it's so tough. Absolutely. And then the other thing
Speaker 1: that was striking to me, I don't know a lot
Speaker 1: of it felt like confirmation of this idea that going forward,
Speaker 1: getting commodities is just going to cost more money, Like
Speaker 1: you're it's going to be more difficult to get financing.
Speaker 1: There's going to be extra volatility, it seems like, which
Speaker 1: means you have to pay additional variation margin. The exchanges
Speaker 1: have already upped the initial margin. So the whole thing.
Speaker 1: And I haven't even mentioned shipping, shipping cross through the roof,
Speaker 1: it just an insurance. It just feels like everything is
Speaker 1: coming together to make it more expensive, expensive and complicated,
Speaker 1: and and and I and I you know, and so
Speaker 1: this idea of like localized shortages where even if you
Speaker 1: ostensibly have the money to pay for the price of
Speaker 1: a commodity that appears on the screen, can you actually
Speaker 1: get it delivered to in a predictable man. It feels
Speaker 1: like that's going to get tougher, or get to stay tough, right.
Speaker 1: It's the sort of disconnect between the financial and the physical,
Speaker 1: which we've been talking about. And that's also why what
Speaker 1: was happening with the New York diesel contract that was
Speaker 1: describing is so interesting as well, because that's the kind
Speaker 1: of localized stress that could happen or you know the other.
Speaker 1: And he made this point, which is that everybody remembers
Speaker 1: when w T I oil went down into negative forty,
Speaker 1: but there were other regional benchmarks like we don't we
Speaker 1: don't talk about them, but if you look on the terminal,
Speaker 1: there's like dozens of North American oil prices depending on
Speaker 1: what pipelines they have access to, in the cost to
Speaker 1: get them out, and some of those were already negative.
Speaker 1: And it's like, well, who's who's who has some empty
Speaker 1: space just at the right moment to charge someone for
Speaker 1: getting their oil off a boat or out of a pipeline.
Speaker 1: Incredibly incredibly complicated during volus. Yeah, like an industry that
Speaker 1: was already insanely granular, it's just getting even more granular
Speaker 1: and specific. It feels like I thought that was interesting too.
Speaker 1: It's like the oil traders, like, what am I going
Speaker 1: to do with that? Chinese? Un Like, Okay, even if
Speaker 1: you don't Even if you don't really love the idea
Speaker 1: of heaving your entire business being denominated in dollars, other
Speaker 1: currencies may not be that appealing. It's nice to have
Speaker 1: a fungible global reserve currency. There are some benefits. Al Right,
Speaker 1: shall we leave it there, Let's leave it there. Okay.
Speaker 1: This has been another episode of the All Thoughts podcast.
Speaker 1: I'm Tracy Alloway. You can follow me on Twitter at
Speaker 1: Tracy Alloway and I'm Joe Wisn't All. You can follow
Speaker 1: me on Twitter at the Stalwart. Follow our guest Javier
Speaker 1: Bloss He's at Javier Blast, and also check out the
Speaker 1: book he co authored with Jack Bargie, The World For Sale.
Speaker 1: Follow our producer Carmen Rodriguez at Carmen Arman. Follow the
Speaker 1: Bloomberg head of podcast, Francesco Leaving at Francesco Today, and
Speaker 1: check out all of our podcasts at Bloomberg under the
Speaker 1: handle at podcasts. Thanks for listening, Tea Ye