WEBVTT - Javier Blas Explains How Commodity Trading Shops Really Work 0:00:10.720 --> 0:00:13.840 Hello, and welcome to another episode of the All Thoughts Podcast. 0:00:13.880 --> 0:00:17.639 I'm Tracy Alloway and I'm Joe. Wisn't Joe? Big news 0:00:17.760 --> 0:00:21.800 today from Europe, which is that Russia is cutting off 0:00:21.840 --> 0:00:26.479 supplies of gas to countries Poland and Bulgaria specifically that 0:00:26.560 --> 0:00:29.800 refused to pay in rubles. And you know, this is 0:00:29.840 --> 0:00:33.560 something that has sort of been expected in some sense, 0:00:33.640 --> 0:00:36.760 but lots of people are viewing this as the beginning 0:00:36.960 --> 0:00:42.400 of the weaponization of commodities. Yeah, and it fits with 0:00:42.520 --> 0:00:45.640 you know, a theme obviously we've talked about several times, 0:00:46.040 --> 0:00:48.320 which is this sort of I guess there's two things. 0:00:48.360 --> 0:00:50.640 I mean, on some level, it's like this fracturing of 0:00:50.680 --> 0:00:55.200 the commodity supply chain, trade route changing, but then also 0:00:55.440 --> 0:00:59.400 the changing nature of like the financing side of commodities 0:00:59.480 --> 0:01:01.800 and of the idea that okay, you can have you 0:01:01.800 --> 0:01:03.440 can buy the same commodities, but you have to do 0:01:03.480 --> 0:01:08.039 it differently. Currency. This is, you know, this fundamentally is 0:01:08.160 --> 0:01:11.440 beginning to shift just the way commodities are paid for 0:01:11.520 --> 0:01:13.840 in finance. Right. So this is a point that I 0:01:13.840 --> 0:01:16.600 think a number of our guests at this point have made. 0:01:16.680 --> 0:01:21.640 So Salton Poesar, Pierre and Duran Jeff Curry. If countries 0:01:21.680 --> 0:01:24.959 aren't importing Russian gas anymore or oil, they need to 0:01:24.959 --> 0:01:27.920 find that from somewhere else. And simultaneously, it means Russian 0:01:27.959 --> 0:01:31.559 gas and oil might be going elsewhere, like to China 0:01:31.640 --> 0:01:34.840 to the east, and all of that re routing is 0:01:34.880 --> 0:01:38.200 going to take additional money. And we've seen lots of 0:01:38.240 --> 0:01:41.120 players in the commodities talk about this. They've talked not 0:01:41.200 --> 0:01:45.080 only about the upfront costs of transportation of commodities, but 0:01:45.120 --> 0:01:47.560 they've also talked about what all of this means for 0:01:47.600 --> 0:01:51.720 the market itself. And we've seen intense amounts of volatility, 0:01:51.800 --> 0:01:55.240 which to some extent mean that the commodities traders are 0:01:55.280 --> 0:01:58.080 making loads of money. But on the other hand, they 0:01:58.120 --> 0:02:00.760 are having to deal with this volatility and it can 0:02:00.920 --> 0:02:04.280 disrupt their business, right And of course, and you know 0:02:04.600 --> 0:02:07.560 this is obviously and you mentioned it's something that Resulton 0:02:07.720 --> 0:02:11.800 has been talking a lot about. All these trades are financed. 0:02:12.000 --> 0:02:16.240 There's leverage involved, there's borrowing, and when you have a 0:02:16.320 --> 0:02:20.120 really big jump in volatility, then of course financing gets 0:02:20.240 --> 0:02:22.520 more expensive. You have to put up more collateral and 0:02:22.520 --> 0:02:26.040 you get margin calls and things like that. Also adding 0:02:26.120 --> 0:02:29.520 the complications of you know, some banks have been sanctioned 0:02:29.560 --> 0:02:33.000 and you can't deal with some institutions, so the financing 0:02:33.280 --> 0:02:36.200 side of all these trades just gets much more costly 0:02:36.320 --> 0:02:38.840 and complex. Yeah, and it's not exactly as if it 0:02:38.880 --> 0:02:41.560 was transparent to begin with, and now it's just become 0:02:41.600 --> 0:02:44.919 even murkier in some respects. So today I am very 0:02:44.960 --> 0:02:47.160 pleased to say we are going to be digging into 0:02:47.400 --> 0:02:51.640 the financing side of commodities trading, and we really do 0:02:51.800 --> 0:02:54.359 have the perfect person to talk about it with. We're 0:02:54.400 --> 0:02:56.400 going to be speaking with Happy a Blast. He has 0:02:56.440 --> 0:02:59.320 of course a Bloomberg opinion columnists, but he is also 0:02:59.520 --> 0:03:02.360 the author of the World for Sale, which is a 0:03:02.400 --> 0:03:05.840 book on the commodities trading houses. An excellent book on 0:03:05.880 --> 0:03:09.840 the commodities trading houses. So again, the perfect guest. Have you. 0:03:10.160 --> 0:03:12.239 Thank you so much for coming on all thoughts, thank 0:03:12.240 --> 0:03:15.120 you for me I kind of I'm sort of amazed 0:03:15.160 --> 0:03:17.000 we haven't done this sooner. You're one of the most 0:03:17.040 --> 0:03:19.720 requested Yes, we're always like what are you getting via 0:03:20.280 --> 0:03:22.280 We're gonna get We're gonna get her onto it. And 0:03:22.280 --> 0:03:24.919 then we ran into Javier in the in the news rooms, 0:03:24.919 --> 0:03:26.639 like let's just do it right now. I think that's 0:03:26.680 --> 0:03:32.200 that's that's that's my parents probably on Twitter reaching out goods. Um, 0:03:32.240 --> 0:03:35.560 why don't we start, I guess with the basics, I 0:03:35.560 --> 0:03:38.040 mean sort of potted history of your book. But how 0:03:38.080 --> 0:03:41.280 did we wind up with a situation where we have 0:03:41.440 --> 0:03:44.720 all these independent commodities traders who are dealing with you know, 0:03:44.840 --> 0:03:47.560 important goods, things like oil and gas that we depend 0:03:47.600 --> 0:03:52.400 on for transport and heating, food supply, vital strategic goods, 0:03:53.080 --> 0:03:57.920 with seemingly not that much oversight. Well, yeah, you're you're 0:03:57.920 --> 0:04:02.800 absolutely right. Um, we need the commuity traders because commuities 0:04:02.840 --> 0:04:05.680 are not produced generally where they are consumed. So you 0:04:05.760 --> 0:04:09.680 need someone to take the race of moving the staff 0:04:09.720 --> 0:04:12.480 from A to B. And and that's the role that 0:04:12.560 --> 0:04:15.040 the physical commuity traders play. I mean, these are not 0:04:15.200 --> 0:04:17.479 guys who are betting on the futures market or the 0:04:17.520 --> 0:04:20.920 options market behind a screen. These are guys who go 0:04:21.120 --> 0:04:24.120 into up country, as we call it a mind in 0:04:24.320 --> 0:04:29.520 the DRC, deep into Africa, Peru, oil fields in Iran, 0:04:29.600 --> 0:04:31.720 and they get the oil, they put in a tanker 0:04:31.839 --> 0:04:35.440 and they transport to um the consuming markets, and they 0:04:35.480 --> 0:04:38.000 finance all that process. They deal with all the logistics 0:04:38.040 --> 0:04:41.880 which are mind blowingly complicated. In some cases, you know, 0:04:41.920 --> 0:04:44.520 the main reason is because commorities are not produced where 0:04:44.520 --> 0:04:47.760 they are consumed, and they need someone to intermediate that risk. 0:04:47.839 --> 0:04:51.680 And that's quite a lot of races. Financial is logistics, 0:04:51.839 --> 0:04:56.160 is credited? Is operational is whether it is risky in 0:04:56.279 --> 0:04:58.640 terms that you know, some of these commoti traders are 0:04:58.680 --> 0:05:01.680 often operating on words and you still need them to 0:05:01.680 --> 0:05:04.400 to get the commorities out, and they get paid very 0:05:04.400 --> 0:05:06.880 well for for that service. Yeah. So when I think 0:05:06.880 --> 0:05:09.719 about like traders, typically in my mind, you know, I 0:05:09.720 --> 0:05:12.880 imagine someone looking at a screen and there's like, you know, 0:05:13.279 --> 0:05:16.719 one basis point difference between a tenure treasury and a 0:05:16.760 --> 0:05:19.840 tenuere treasury futures, and this finds some way to like 0:05:20.040 --> 0:05:22.520 make a penny off of that. But when we're talking 0:05:22.560 --> 0:05:26.560 about commodities, we might be talking about equivalent barrel of 0:05:26.600 --> 0:05:31.120 oil moving out of Russia that's sixty dollars cheaper than something, 0:05:31.320 --> 0:05:34.400 you know, another the same barrel of oil and continental Europe, 0:05:34.720 --> 0:05:37.520 and then someone their job is to find a way 0:05:37.560 --> 0:05:40.040 to get that cheaper barrel of oil to someone who 0:05:40.120 --> 0:05:43.200 wants it. And if you can do that, that that seems lucrative. Yeah, 0:05:43.240 --> 0:05:46.599 that's exactly what they do. At times that is very 0:05:46.600 --> 0:05:49.440 complicated because well, you know, you are dealing with all 0:05:49.480 --> 0:05:51.960 those logistics, you are dealing with all that risk, and 0:05:52.040 --> 0:05:54.960 because you you actually have to put a lot of 0:05:55.000 --> 0:05:58.520 money at work. Uh, the size of the business. I mean, 0:05:58.640 --> 0:06:03.200 some of these companies they have turnover of three hundred billion, 0:06:03.400 --> 0:06:06.840 four hundred billion dollars a year, which is a mind 0:06:06.880 --> 0:06:10.400 blowing number. And obviously they don't have, uh the profits 0:06:10.440 --> 0:06:13.560 equivalent to what appoll or Coca Cola or Amazon will 0:06:13.600 --> 0:06:16.159 make if they were having those sales. But the size 0:06:16.200 --> 0:06:19.640 of the turnover is just amazing because of the of 0:06:19.960 --> 0:06:22.159 the volumes that they move. I mean, Beetle, which is 0:06:22.160 --> 0:06:26.000 the world's largest oil trader, moves enough oil to supply 0:06:26.560 --> 0:06:32.240 five or six of the largest European economies. So it's 0:06:32.279 --> 0:06:35.080 not an easy business at the best of times. You 0:06:35.160 --> 0:06:39.000 just described it as really complex. What's it like in 0:06:39.040 --> 0:06:42.040 a moment like we've just experienced over the past month 0:06:42.040 --> 0:06:46.800 where we've seen intense volatility, We've had drama with a 0:06:46.920 --> 0:06:52.400 particular commodities exchange over this volatility and canceling trades and 0:06:52.440 --> 0:06:54.880 things like that. What actually happens in a period of 0:06:54.880 --> 0:06:58.240 intense volatility for the commodities traders. Well, the first thing 0:06:58.279 --> 0:07:01.719 to understand, which is very importan done, is that physical 0:07:01.720 --> 0:07:06.000 commuity trading is a highly leaberage business. These companies operate 0:07:06.080 --> 0:07:09.880 with theen equity and they borrow money from banks. And 0:07:09.920 --> 0:07:14.840 these are not typically borrowing from Wall Street banks. They're 0:07:14.880 --> 0:07:18.640 borrowing money from commoity trade finance which are the typical 0:07:18.720 --> 0:07:22.760 European bank where you may have a mortgage. Actually, my 0:07:22.760 --> 0:07:25.800 my mortgage bank for my flat in London probably is 0:07:25.840 --> 0:07:28.480 a big finance here of the commuity trading houses. So 0:07:28.600 --> 0:07:31.600 these are not the big that they are not borrowing 0:07:31.640 --> 0:07:34.200 money from the likes of government SAT. They are used 0:07:34.800 --> 0:07:38.640 borrowing money from europe and commercial banks and sorry just 0:07:38.640 --> 0:07:41.280 to be specific, like a BNP parableut that sort of thing. Yeah, 0:07:41.320 --> 0:07:44.680 I mean BMP was the largest lender to the industry. 0:07:45.080 --> 0:07:48.200 It just decided a few years ago to shut down 0:07:48.200 --> 0:07:52.120 the business after they got involved in some bad case 0:07:52.200 --> 0:07:54.720 with with the U S Department of Justice. But we're 0:07:54.760 --> 0:07:57.400 talking about the likes associating it all of I n 0:07:57.440 --> 0:08:01.320 G suits um so unique credit of Italy that that 0:08:01.440 --> 0:08:05.640 kind of European banks and well when commoti prices go 0:08:05.720 --> 0:08:09.000 through the roof has happened in recent days and weeks. 0:08:09.040 --> 0:08:11.880 Two things happen for the commoty trading houses. First of all, 0:08:11.920 --> 0:08:14.560 they need to borrow a lot more money because a 0:08:14.920 --> 0:08:17.520 barrel of oil is more expensive. So if a barrel 0:08:17.560 --> 0:08:22.800 of oil a year ago was close to actually almost negative, 0:08:22.840 --> 0:08:25.480 but you know, say that it was dollars and you 0:08:25.520 --> 0:08:28.320 were moving a million barrels of oil and a super tanker, 0:08:28.400 --> 0:08:31.440 you need million dollars to borrow. Today at more than 0:08:31.480 --> 0:08:33.960 a hundred it means that you need a hundred million dollars. 0:08:33.960 --> 0:08:37.880 So the borrowing needs have increased significantly. Also, because of 0:08:37.880 --> 0:08:40.720 all the volatility in the futures market, if you are 0:08:40.920 --> 0:08:44.640 heading that operation on the futures market, you mean that 0:08:44.720 --> 0:08:47.480 you are long physical you are short on on the 0:08:47.520 --> 0:08:50.240 paper side. The price continues to go, so you are 0:08:50.280 --> 0:08:53.280 getting hit by marketing calls, and those marketing calls could 0:08:53.440 --> 0:08:57.640 get very high. We have seen some commoti trading houses 0:08:57.720 --> 0:09:02.319 getting a billion dollars a day of additional variation margin calls, 0:09:02.360 --> 0:09:05.160 and that combination has really put a lot of pressure 0:09:05.200 --> 0:09:07.600 on the finance of some of these companies. That, as 0:09:07.679 --> 0:09:10.160 I said, for the starting point, they don't have a 0:09:10.160 --> 0:09:13.400 lot of equity and they rely on banks, and banks 0:09:13.400 --> 0:09:15.560 are really reaching the limits of how much money they 0:09:15.559 --> 0:09:17.400 can lend to them. What do you walk is through 0:09:17.440 --> 0:09:19.480 a trade? I mean things you know, you sort of 0:09:19.520 --> 0:09:21.480 you walk through some of the prices of oil and 0:09:21.520 --> 0:09:25.120 the tanker. But there's the idea that Okay, there's some 0:09:25.160 --> 0:09:28.760 buyer who wants oil, there's some seller halfway around the world, 0:09:29.440 --> 0:09:32.960 and then the trading house makes it happen. But to 0:09:33.000 --> 0:09:34.920 make it happen, they borrow. They don't want to put 0:09:34.960 --> 0:09:38.040 up their own money to transport that oil. They borrow 0:09:38.120 --> 0:09:40.240 for the duration like how long are they borrowing for? 0:09:40.800 --> 0:09:43.280 They revolving lines of credit like walkers there a little 0:09:43.280 --> 0:09:45.199 bit more like how the trade work. They have all 0:09:45.320 --> 0:09:49.720 kinds of different borrowing facilities, from from revolving to bilateral 0:09:49.800 --> 0:09:52.880 deals to to just at for for the transaction. But 0:09:53.120 --> 0:09:56.880 a typical transaction right now will be buying Russian oil, 0:09:56.920 --> 0:09:59.120 which is still legal if you are moving it into 0:09:59.320 --> 0:10:02.320 say the Netherlands rather than is the center of the 0:10:02.640 --> 0:10:05.400 European oil industry. So say that you are a trading 0:10:05.480 --> 0:10:10.440 house Joe Commodities Incorporated Obviously on attacks Heaven because all 0:10:10.559 --> 0:10:13.800 these companies are are incorporated on on on some places 0:10:13.800 --> 0:10:16.360 like the British Virgian Islands and similar. And you are 0:10:16.400 --> 0:10:20.199 buying a million barrels of oil from Rosnev, the Russian 0:10:20.280 --> 0:10:24.040 state control company. You will have put that's gonna cost 0:10:24.080 --> 0:10:28.800 you around eighty million dollars because Rossnef is selling a 0:10:28.840 --> 0:10:31.880 big discount to the market. You probably are gonna put 0:10:32.400 --> 0:10:36.199 perhaps as little as five million dollars of your own money, 0:10:36.320 --> 0:10:38.760 and you're gonna go to a bank and you're gonna 0:10:38.800 --> 0:10:41.760 borrow all the rest of the money, and then you 0:10:41.880 --> 0:10:44.959 will at that moment you own a million barrels of 0:10:45.320 --> 0:10:48.360 Russian oil. So you are long physical. You want to 0:10:48.400 --> 0:10:50.760 protect yourself because you don't you don't want to see 0:10:50.760 --> 0:10:54.000 a price drop hurting use. So you will take a 0:10:54.080 --> 0:10:57.160 short position on the futures market to make sure that 0:10:57.240 --> 0:11:01.079 you you are head long physical, short paper. Everything s 0:11:01.080 --> 0:11:03.640 will be fine. And then you get a vessel, which 0:11:03.679 --> 0:11:05.880 is complicated because there are not many companies who want 0:11:05.920 --> 0:11:08.400 to go to a Russian port to pick up the crude. 0:11:08.679 --> 0:11:11.200 You will have to deal with all the operational Sometimes 0:11:11.200 --> 0:11:13.160 there is bad weather and you cannot send the rip, 0:11:13.440 --> 0:11:16.520 so it gets complicated. On that say that you get 0:11:16.559 --> 0:11:19.280 everything right, You get the oil into the tanker and 0:11:19.280 --> 0:11:22.360 then you move it to Rotterdam. You try to discharge 0:11:22.360 --> 0:11:26.280 into a refinery. But in that period, just in mind 0:11:26.320 --> 0:11:28.120 that the price of oil goes to a hunt from 0:11:28.120 --> 0:11:30.400 a hundred to a hundred and fifty. You are going 0:11:30.440 --> 0:11:33.120 to be making You are fine because you are headed, 0:11:33.400 --> 0:11:37.640 but obviously the marketin's the change is gonna start demanding 0:11:37.760 --> 0:11:42.040 significant variation margins on that short position, and then you 0:11:42.080 --> 0:11:45.480 have this cast flow mismatch. You have not yet delivered 0:11:45.520 --> 0:11:48.720 the oil, so you have not really cash in your loan. 0:11:49.040 --> 0:11:53.040 Physical position at the same time you're shot on the 0:11:53.120 --> 0:11:57.200 paper is massively underwater. You're getting the marketing calls, so 0:11:57.240 --> 0:11:59.600 you're going to have to go to another bank and say, please, 0:11:59.640 --> 0:12:01.640 can you give me some money and I borrow you 0:12:01.720 --> 0:12:04.520 money because I need to pay to this change. When 0:12:04.800 --> 0:12:08.040 all of these is not just one tanker, but hundreds 0:12:08.080 --> 0:12:11.480 of tankers a day floating around and billions of dollars 0:12:11.480 --> 0:12:14.360 on borrowing, is when it gets very difficult, and when 0:12:14.760 --> 0:12:17.840 some of the companies reached the limit on how much 0:12:18.240 --> 0:12:20.520 they are borrowing from the banks, as when the banks 0:12:20.520 --> 0:12:23.760 say we cannot continue lending to you. And that's where 0:12:23.880 --> 0:12:27.040 we saw the lobby group of the European energy traders 0:12:27.360 --> 0:12:30.280 go to several central banks and saying we are running 0:12:30.280 --> 0:12:34.480 out of liquidity, we have a big problem. Marketing calls 0:12:34.480 --> 0:12:37.600 had effectively killing us. I want to get into this 0:12:37.679 --> 0:12:40.360 idea of whether or not central banks or governments should 0:12:40.360 --> 0:12:44.240 support commodities trading and finance. But before we do one thing, 0:12:44.280 --> 0:12:48.559 I've been wondering, given the volatility and given the types 0:12:48.600 --> 0:12:51.319 of margin calls that we've seen, do people hedge more 0:12:51.679 --> 0:12:54.120 or less in this environment? Because you can kind of 0:12:54.200 --> 0:12:56.840 argue it either way. Right, you know, you don't have 0:12:56.880 --> 0:12:59.600 as much credit, so everything you have is sort of 0:12:59.640 --> 0:13:02.560 just stop in the trade plus can be used for 0:13:02.600 --> 0:13:05.079 the hedge. But on the other other hand, there's so 0:13:05.120 --> 0:13:07.000 much volatility at the moment that you would want to 0:13:07.080 --> 0:13:09.200 make sure that you're hedged. I mean, this is the 0:13:09.240 --> 0:13:12.800 time that everyone should be hedged as well as they can, 0:13:13.320 --> 0:13:18.200 because the market is moving in huge price increases. I mean, 0:13:18.240 --> 0:13:22.480 we have seen Brent crude, a market that for many 0:13:22.559 --> 0:13:26.720 years have never traded more than thirty dollars or forty dollars. 0:13:27.120 --> 0:13:31.120 We have seen price movements of dollars in the space 0:13:31.160 --> 0:13:34.280 of a week. You are not hedged, the market could 0:13:34.360 --> 0:13:36.839 kill you. But you are absolutely right. My suspicion is 0:13:37.120 --> 0:13:40.720 that a lot of the trading houses have reduced significantly 0:13:40.760 --> 0:13:43.600 the hedging you simply because they cannot afford it, which 0:13:43.640 --> 0:13:46.560 is extremely risky, and that's what could bring a company down. 0:13:47.400 --> 0:13:50.280 You know, I want to go back to something just 0:13:50.360 --> 0:13:53.200 in like the why of these companies and I, you know, 0:13:53.320 --> 0:13:56.440 just your explanation. It's like, look, the commodities made somewhere, 0:13:56.440 --> 0:13:59.120 it's probably gonna be consumed somewhere else. You need someone 0:13:59.200 --> 0:14:01.920 to take on the risks and the process of doing that. 0:14:02.480 --> 0:14:07.560 Why did they these companies emerge separately from the major banks? 0:14:07.600 --> 0:14:10.800 Like why in theory is this not just something that's 0:14:10.800 --> 0:14:13.480 done inside the government sex or inside the JP. Morgan 0:14:13.840 --> 0:14:17.439 very good point. And indeed at some point government stars 0:14:17.480 --> 0:14:20.640 and Morgan Stanley were big physical traders. They were moving 0:14:21.160 --> 0:14:23.920 millions of barrels a day of crude and undefined products. 0:14:23.960 --> 0:14:27.040 Coleman starts pre I p O on an oil refiner 0:14:27.080 --> 0:14:30.680 in Rotterdam. Morgan Stanley was a big trader of all 0:14:30.760 --> 0:14:35.400 kinds of commorities including metals, agricultural, etcetera. Etcetera. But over 0:14:35.520 --> 0:14:41.920 time the business gravitated to privately owned independence because, um, 0:14:42.040 --> 0:14:45.280 you have to go to difficult places on earth, places 0:14:45.320 --> 0:14:48.320 that usually regulators will not like banks to be there. 0:14:48.920 --> 0:14:52.480 And and because over the years the good money on 0:14:52.560 --> 0:14:57.040 community trading has been made in operating on those kind 0:14:57.080 --> 0:14:59.880 of Um, what is the nice work gray areas of 0:15:00.000 --> 0:15:02.480 the global economy. It feels like you have to have 0:15:02.560 --> 0:15:05.480 a somewhat mercenary attitude where it's like, this is the 0:15:05.560 --> 0:15:08.360 job the world that Jack and I use on the 0:15:08.400 --> 0:15:10.400 world for sale, and our book was you have to 0:15:10.400 --> 0:15:14.280 be a bit of trust, walk clean. I think that 0:15:14.280 --> 0:15:17.840 that probably is a nice way to say buccaneer or mercenary. 0:15:17.920 --> 0:15:20.440 But look, the commority traders made a lot of money 0:15:20.440 --> 0:15:23.440 over the last thirty or forty years helping sadan Hu's 0:15:23.440 --> 0:15:28.360 saying to bypass un Sancion's, helping upper heads of Africa 0:15:28.560 --> 0:15:34.520 government to get oil, helping um Fidel Castro Cuba barter 0:15:34.840 --> 0:15:39.000 sugar for oil, and keeping the communist revolution alive. And 0:15:39.200 --> 0:15:41.840 they never have a problem whether it was a communist 0:15:41.880 --> 0:15:45.280 regime of our right wing regime. The same commoty traders 0:15:45.320 --> 0:15:48.160 that were helping Castro were dealing with pinot chet in 0:15:48.240 --> 0:15:50.800 Chili to sell the copper, but you need to have 0:15:50.880 --> 0:15:55.280 the appetite to go to where no one goes. I 0:15:55.320 --> 0:15:58.360 mean these when I said earlier that these commoty traders 0:15:58.400 --> 0:16:02.479 are often in or songs, they are. They have executives 0:16:02.480 --> 0:16:05.600 that have been in Libya during the civil war. And 0:16:06.160 --> 0:16:10.000 the hotel lobby where it was, it was an interesting combination. 0:16:10.040 --> 0:16:13.120 You were in Benghasi, the front line was not far away, 0:16:13.920 --> 0:16:17.760 um or checkpoints in the city everywhere, and it was 0:16:17.800 --> 0:16:20.600 a hotel where it was kind of the hotel to 0:16:20.640 --> 0:16:23.280 be in town during the Libyan war. And the people 0:16:23.320 --> 0:16:26.320 who were living in that hotel were a combination of 0:16:26.960 --> 0:16:32.160 a few diplomas, um cultural attaches of those diplomas meaning 0:16:32.160 --> 0:16:37.160 their spies, a few war reporters, and then the commodity 0:16:37.200 --> 0:16:41.120 traders find Libyan oil to put it into the global market. 0:16:54.200 --> 0:16:57.440 So setting aside, I guess the issue of morality as 0:16:57.560 --> 0:17:02.640 as many traders have done historically. Um. You mentioned that 0:17:02.760 --> 0:17:06.159 the fact that commodities traders just make tons of money 0:17:06.200 --> 0:17:10.600 over time, and I'm curious what the money making opportunity 0:17:10.720 --> 0:17:13.320 is like right now, because again it kind of feels 0:17:13.320 --> 0:17:16.320 like a best of times, worst of time scenario. So 0:17:16.920 --> 0:17:20.600 the opportunity to make profit is there if you can 0:17:20.640 --> 0:17:24.879 secure the funding and navigate the volatility. But it seems 0:17:24.880 --> 0:17:27.840 like the industry is also starting to um split a 0:17:27.880 --> 0:17:30.640 little bit, like the big guys are taking even more 0:17:30.720 --> 0:17:33.399 market share. Some of the smaller players seem to be 0:17:33.440 --> 0:17:37.240 really squeezed by the financing pressures. What's going on there? 0:17:37.240 --> 0:17:41.800 You're right, the banking financing is gravitating towards the big 0:17:41.800 --> 0:17:45.360 players because the banks feel that they have enough equity 0:17:45.400 --> 0:17:49.639 to withstand the volatility, and the smaller medium sized traders 0:17:49.640 --> 0:17:53.080 are really struggling to get support from the banks. The 0:17:53.119 --> 0:17:56.639 opportunity right now you can't make it through. You can 0:17:56.800 --> 0:18:00.000 whether the volatility. You could make a ton of money 0:18:00.040 --> 0:18:03.880 in this market. I mean, think about Russian oil um 0:18:04.200 --> 0:18:07.040 the flagship of Russian Crewe is something that we call 0:18:07.240 --> 0:18:12.720 urals that is selling around thirty five dollars discount to brand, 0:18:12.840 --> 0:18:15.199 which is the main benchmark. So if you are a 0:18:15.200 --> 0:18:18.920 commuity trader, you could buy from rosnev oil at a 0:18:19.000 --> 0:18:22.119 thirty five dollar discount, put it on a boat and 0:18:22.160 --> 0:18:24.359 ship it to India where you could sell it at 0:18:24.400 --> 0:18:28.000 five dollar discount. You could make thirty percent margin on 0:18:28.040 --> 0:18:31.320 a barrel of oil right now, which is a lot 0:18:31.359 --> 0:18:33.360 of money. I mean, this is this is an industry 0:18:33.440 --> 0:18:37.359 where making fifty cents on a barrel of oil is 0:18:37.359 --> 0:18:39.159 a big profit, and all of a sudden you have 0:18:39.520 --> 0:18:43.840 thirty dollar profitability options. Uh, and that's what they're doing. 0:18:43.840 --> 0:18:45.679 I mean, you see the same traders who are buying 0:18:46.119 --> 0:18:49.080 Russian oil at a discount of certified dollars, they're selling 0:18:49.080 --> 0:18:52.879 it to India at a five dollars discount. There's a 0:18:53.400 --> 0:18:55.600 for anyone who is interested or if you have a 0:18:55.680 --> 0:19:00.440 terminal there we have a urals Brent spread ticker fu 0:19:00.560 --> 0:19:03.840 d b M one and you can see like you know, 0:19:04.040 --> 0:19:07.240 up until basically at the beginning of February, this was 0:19:07.359 --> 0:19:10.719 a you know, it looked like Russian oil typically traded 0:19:10.760 --> 0:19:14.520 for about a dollar fifty cheaper than brand and currently 0:19:14.680 --> 0:19:17.840 it's thirty one dollars cheaper. So here's the basically, here's 0:19:17.880 --> 0:19:20.520 this huge opportunity. All you need to do is find 0:19:20.560 --> 0:19:23.000 the boat. It's such a crazy like that's the basic idea. 0:19:23.320 --> 0:19:25.399 If you can find a boat that can get it 0:19:25.440 --> 0:19:28.520 can ship into India for less than thirty dollars a barrel, 0:19:28.600 --> 0:19:30.240 you need the boat, and you need also bank was 0:19:30.280 --> 0:19:32.040 willing to finance that, or you need to have the 0:19:32.080 --> 0:19:34.920 equity to to to finance this operation on your own 0:19:34.920 --> 0:19:39.159 balance sheet. And then I mean, but he asked the question, 0:19:39.200 --> 0:19:44.120 will will Joe Commodities incorporated on the British Building Islands 0:19:44.280 --> 0:19:47.000 want to get involved in this? Would you want to 0:19:47.040 --> 0:19:51.400 be trade in Russkan oil? And many many people will 0:19:51.440 --> 0:19:53.440 say no, I don't want to do anything with Russia, 0:19:53.520 --> 0:19:55.920 but a lot of the Commoity trader said, well, we 0:19:56.160 --> 0:19:58.879 are not involved in politics. We have both politics, and 0:19:58.880 --> 0:20:02.600 we are here about out making money and it's legal 0:20:02.640 --> 0:20:04.560 to move the oil, so we're going to move it 0:20:04.680 --> 0:20:07.240 and they're obviously making a lot of money. Tracy. It 0:20:07.280 --> 0:20:10.320 actually reminds me a little bit of the same bankman 0:20:10.359 --> 0:20:14.760 freed bitcoin trade from, like the huge gap in bitcoin 0:20:14.840 --> 0:20:17.160 pricing in the U s and Japan finding a way 0:20:17.200 --> 0:20:20.200 to like but there's a reason why that that gap exists. 0:20:20.240 --> 0:20:24.159 So okay, speaking of gaps and crazy charts, there is 0:20:24.200 --> 0:20:27.040 something that you tweeted this morning, have a about the 0:20:27.160 --> 0:20:32.560 ultra low sulfur diesel futures closing like a crazy amount, 0:20:32.600 --> 0:20:34.640 And there's been a couple of charts that just look 0:20:35.160 --> 0:20:37.720 like something weird is going on in the market. We're 0:20:37.720 --> 0:20:41.320 getting these odd technical squeezes higher. What's going on there 0:20:41.400 --> 0:20:45.000 and how is that related to the financing situation? Well, 0:20:45.800 --> 0:20:48.399 the diesel market. I mean, I have been warning that 0:20:49.160 --> 0:20:51.439 we are talking at about the problem in the oil market, 0:20:51.480 --> 0:20:55.119 the crude market, but we're real Thinness is what we 0:20:55.200 --> 0:20:57.920 call the middle of the barrel when he's refined. That's 0:20:58.000 --> 0:21:00.240 diesel and jet fuel, and we have barely all of 0:21:00.280 --> 0:21:03.800 it because consumption is booming because Russia produced a lot 0:21:03.840 --> 0:21:08.919 of diesel. What's happening there is that on community markets, 0:21:08.960 --> 0:21:11.320 when you are on the futures market at the end 0:21:11.359 --> 0:21:15.119 of the day, some of those contrasts are still physically deliverable. 0:21:15.160 --> 0:21:18.120 You take a long or short position, and you may 0:21:18.480 --> 0:21:21.879 take or have to deliver the community to this change. 0:21:22.640 --> 0:21:25.959 Inventories of diesel in the East Coast of the United 0:21:26.000 --> 0:21:29.280 States are at the moment at the lowest seasonal level 0:21:29.359 --> 0:21:33.080 since we have data that's thirty two years um. The 0:21:33.280 --> 0:21:36.480 pricing point for the futures market for diesel in the 0:21:36.560 --> 0:21:39.760 United States is here in New York Harbor. That is, 0:21:39.800 --> 0:21:43.960 New York Harbor is where you price diesel for basically 0:21:44.000 --> 0:21:47.160 the whole of the Americas, and what happened here really matters. 0:21:47.400 --> 0:21:50.639 It's so important that it was a big energy trade 0:21:50.640 --> 0:21:54.639 there in the nineties at morganized Stanley, who he was 0:21:54.720 --> 0:21:57.000 known as the King of New York Harbor because he 0:21:57.040 --> 0:22:00.199 controlled all the leases of all the oil tanks and 0:22:00.280 --> 0:22:02.960 he could in some ways I think that the world 0:22:02.960 --> 0:22:05.720 manipula will be wrong, but he could sway the market 0:22:05.760 --> 0:22:09.520 on his favor very very often. Because we have so 0:22:09.640 --> 0:22:14.560 little inventory, everyone who is short in this market is 0:22:14.600 --> 0:22:18.000 trying to close the positions because came Friday they need 0:22:18.040 --> 0:22:20.680 to deliver the diesels. There is no diesel around. The 0:22:21.000 --> 0:22:24.879 lawns are very happy holding their positions. And what we 0:22:25.000 --> 0:22:28.520 have was a hell of a squeeze over the last 0:22:28.600 --> 0:22:33.800 forty eight hours where um the premium for May to 0:22:34.040 --> 0:22:38.320 June contract balloon to an incredibly high level. I mean 0:22:38.359 --> 0:22:40.960 it's something that again, you know, this is a chart 0:22:41.040 --> 0:22:44.880 that we shall see. I spread of no more than 0:22:44.960 --> 0:22:49.840 five ten cents will be something unprecedented. And yesterday we 0:22:50.000 --> 0:22:53.240 went beyond seven defense, which was the chart one mesical 0:22:53.600 --> 0:22:56.000 and it was it was a clear sign that it 0:22:56.160 --> 0:22:59.800 was a short position in deep trouble, uh knowing that 0:23:00.119 --> 0:23:03.320 in three days he has borrows, it doesn't have any borrows, 0:23:03.359 --> 0:23:05.120 and it needs to get out and he would pay 0:23:05.200 --> 0:23:08.120 whatever is needed to get out of the So like, 0:23:08.440 --> 0:23:13.080 it's a pretty big societal disaster. If certain commodities simply 0:23:13.119 --> 0:23:16.840 cannot be delivered. If you if if if, if planes 0:23:16.960 --> 0:23:20.480 can't get jet fuel, that's a really big economic problem. 0:23:20.600 --> 0:23:24.719 In fact, it briefly happened at the airport in Austin, 0:23:24.760 --> 0:23:28.280 Texas that they ran out of fuel at that location. 0:23:28.520 --> 0:23:33.879 But other things, obviously food, obviously huge implications. You know, 0:23:33.960 --> 0:23:38.359 this stuff really matters, and so it's interesting, Um, you know, 0:23:38.760 --> 0:23:40.199 talk to us a little bit about the role of 0:23:40.280 --> 0:23:43.399 regulators in the central banks, because you know, there was 0:23:43.480 --> 0:23:46.280 talked last month with the whole Nickel blow up about 0:23:46.320 --> 0:23:50.000 what should the central banks be backstopping or bailing out 0:23:50.119 --> 0:23:53.600 some of the players in this space because it's so crucial. 0:23:53.640 --> 0:23:57.560 I mean, what is uh do does there need to 0:23:57.640 --> 0:24:02.520 be more of a reg gulatory infrastructure such that if 0:24:02.560 --> 0:24:05.919 there is need for bailout or emergency financing, the central 0:24:05.920 --> 0:24:08.720 banks or in the position to provide it. Well, using 0:24:08.800 --> 0:24:11.600 the example that I gave you, if you know, Joe 0:24:11.680 --> 0:24:16.879 commodity is incorporated. Uh, well, you have no regulation. No 0:24:16.920 --> 0:24:18.960 one is looking at you. It's pretty like that you 0:24:19.000 --> 0:24:21.560 could do whatever you please. And and and you know this, 0:24:21.760 --> 0:24:24.840 this this happened. Just in mind that that trade that 0:24:24.920 --> 0:24:27.000 we in mind, you know, buying a barrel of of 0:24:27.160 --> 0:24:30.320 Russian oil and deliberate into rotther than you will encounter 0:24:30.720 --> 0:24:33.680 not a single regulator other than on the financial side. 0:24:33.720 --> 0:24:36.119 And the financial side, when you're putting your head, you 0:24:36.160 --> 0:24:38.840 will have the CFTC looking at you what you are doing. 0:24:39.040 --> 0:24:42.159 But on the physical side, there is absolutely nothing. You 0:24:42.280 --> 0:24:44.760 do put on a ship, put it on the shape, 0:24:44.920 --> 0:24:48.280 and there is no regulation. And sometimes there is nothing 0:24:48.280 --> 0:24:52.320 even a single country, because you may not even buy 0:24:52.560 --> 0:24:56.280 the oil from the terminal. You may buy the oil 0:24:56.440 --> 0:25:00.560 on the high seas from you know, some science. Two 0:25:00.600 --> 0:25:04.160 oil tankers get together, we call it ship to ship transfer. 0:25:04.440 --> 0:25:06.480 They get together on the high seas. They can move 0:25:06.560 --> 0:25:09.720 the oil from one tank to the and you're on 0:25:09.760 --> 0:25:13.040 the high seas. It's literally you are almost the only 0:25:13.119 --> 0:25:16.160 rules there is the United Nations Convention of the Sea. 0:25:16.160 --> 0:25:19.720 It's kind of propriacy level. So you you you don't 0:25:19.720 --> 0:25:24.560 have any regulation. And and it's quite interesting the things 0:25:24.560 --> 0:25:26.880 that you could get away, or you could almost get 0:25:26.920 --> 0:25:30.840 away until very recently. For example, you were incorporated in 0:25:30.880 --> 0:25:34.960 Switzerland and you decide to bribe someone to get business 0:25:34.760 --> 0:25:39.760 a businessman overseas. Not only that was considered legal until 0:25:39.840 --> 0:25:44.600 very recently, but it was tax deductible. So the Swiss 0:25:44.640 --> 0:25:48.160 were rather a commodative to what the commoti traders needed 0:25:48.200 --> 0:25:50.560 to do. And on the book we tell the story 0:25:50.600 --> 0:25:53.120 of some commoti traders telling us that they were traveling 0:25:53.160 --> 0:25:56.800 to London with half a million pounds on the briefcase 0:25:56.880 --> 0:25:59.320 to to make payments to two people. I mean, they 0:25:59.320 --> 0:26:03.119 call it commissions, but those are brown envelopes. There's also 0:26:03.359 --> 0:26:06.480 there's a great story in your book about the Soviet 0:26:06.560 --> 0:26:10.320 Union basically owning the US and the commodities traders in 0:26:10.359 --> 0:26:13.600 the nineteen seventies by going from commodities house to commodities 0:26:13.640 --> 0:26:16.159 house buying up grain, and no one realized they were 0:26:16.200 --> 0:26:18.719 doing this with everyone. Because they don't talk to each other, 0:26:18.840 --> 0:26:21.160 they keep everything secret, and because there is no one 0:26:21.480 --> 0:26:23.920 that they need to report all of these transactions. There 0:26:24.000 --> 0:26:27.359 is not that registry. If you are trading on the 0:26:27.400 --> 0:26:31.359 financial market, that you are buying oil futures or options 0:26:31.400 --> 0:26:33.879 all of those trades are registries. On one there is 0:26:33.880 --> 0:26:38.080 a trade repository. The CFTC could look into it, the 0:26:38.200 --> 0:26:40.960 FED can look into it. You know, if any any 0:26:41.119 --> 0:26:45.160 indication of wrongdoing, someone can go and see exactly who 0:26:45.240 --> 0:26:48.680 bought what at what price with whom. On the physical 0:26:48.800 --> 0:26:52.800 market you could buy oil, metals, agricultural commodities and you 0:26:52.840 --> 0:26:55.920 do not have to disclose anything. There has been at terms. 0:26:55.920 --> 0:26:59.520 I mean in nineteen seventy nine they D seven agreed 0:26:59.600 --> 0:27:04.000 to create EATE, an international repository of oil physical deals. 0:27:04.320 --> 0:27:07.560 And of course what is now forty three years later 0:27:07.760 --> 0:27:10.480 we are here and that has not happened because opposition 0:27:10.520 --> 0:27:13.280 from from the industry. I can't even imagine getting to 0:27:13.320 --> 0:27:16.200 the point where people would agree to it now much 0:27:16.280 --> 0:27:20.880 less enacted. Like it just seems like when I recently 0:27:21.000 --> 0:27:23.600 wasn't speaking to people on the regulatory wall and and 0:27:23.640 --> 0:27:26.600 say well you could do you could create a registry, 0:27:26.680 --> 0:27:29.960 and they will absolutely bemused that. I indicate a look 0:27:30.000 --> 0:27:33.240 look at the G seven V nine communicated was the 0:27:33.240 --> 0:27:36.800 samit in Tokyo is there he says, we agree, the 0:27:36.920 --> 0:27:41.000 G seven agrees to create an international database of trades. 0:27:41.080 --> 0:27:43.239 And they were like, well, that would not happen. Now, 0:27:43.280 --> 0:27:46.080 it's no way that all the country WI will agree. 0:27:46.280 --> 0:27:48.800 So just going back to the central bank point though, 0:27:48.960 --> 0:27:51.399 so it seems like so far most of the major 0:27:51.480 --> 0:27:55.359 central banks have swatted away this idea of providing support. 0:27:55.440 --> 0:27:57.760 So the e c B kind of did it more definitively, 0:27:58.000 --> 0:28:00.959 the FED has made noises that suggest that it's not 0:28:01.040 --> 0:28:06.800 interested in backstopping commodities traders. Is the a why not? Um? 0:28:06.840 --> 0:28:09.480 I guess moral hazard is the sort of big one there, 0:28:09.680 --> 0:28:12.960 But b it is part of the idea that they 0:28:13.000 --> 0:28:16.439 get support through banks that are back stopped by the 0:28:16.520 --> 0:28:19.520 third Yeah. I mean I think that the central bands 0:28:19.520 --> 0:28:23.240 have looked into commoted trading recently and they found two 0:28:23.280 --> 0:28:26.359 things that I think that they didn't like. One and 0:28:26.480 --> 0:28:28.960 you know, the Bank of England was rather candid about it. 0:28:29.040 --> 0:28:32.680 They put opposition paper just indicating that they could not 0:28:32.760 --> 0:28:34.840 really even understand what was going on because of the 0:28:34.840 --> 0:28:37.840 opacity of the market. Uh and you know that that 0:28:37.960 --> 0:28:41.720 to to to see a central band recognizing publicly we 0:28:41.800 --> 0:28:44.680 look at these we found it to be very opaque, 0:28:45.080 --> 0:28:47.000 so we don't really know what's going on. I was 0:28:47.440 --> 0:28:49.880 it's rather concerning both the EA CY b and the 0:28:49.920 --> 0:28:54.120 FED say, well, the threshold for intervention of an unregulated market, 0:28:54.120 --> 0:28:56.720 as they call it, is very high. And the FED, 0:28:57.320 --> 0:29:00.320 using FED to speak effectively told the industry will be 0:29:00.320 --> 0:29:03.280 a good idea if you raise equity and you show 0:29:03.400 --> 0:29:05.760 up your your own finance. I mean, let's not forget 0:29:05.760 --> 0:29:07.960 a lot of these companies are privately owned that there 0:29:08.000 --> 0:29:10.200 are very few that they are listed on the market. 0:29:10.400 --> 0:29:13.440 But they are also owned by extremely wealthy individuals. I 0:29:13.440 --> 0:29:16.040 mean they're making billions of dollars every year, and the 0:29:16.160 --> 0:29:20.280 partners could put money back into into the business. Um. 0:29:20.320 --> 0:29:24.280 The problem for the central banks is what if a 0:29:24.360 --> 0:29:28.480 big multi trade company was to fail and it goes 0:29:28.640 --> 0:29:31.920 under with billions of dollars on credit lines to a 0:29:31.960 --> 0:29:35.160 bunch of European banks, and all of a sudden you 0:29:35.240 --> 0:29:38.640 realize that the likes of we were commenting earlier, you know, 0:29:39.680 --> 0:29:43.960 uh banks who have branches on the highest treet in 0:29:44.000 --> 0:29:47.720 Europe have two, three, five six billion dollars of exposure, 0:29:48.320 --> 0:29:52.040 and you don't know what if anyone else gonna calm down, 0:29:52.480 --> 0:29:55.880 the industry gets under massive stress. I think that we 0:29:55.960 --> 0:29:59.160 can get into a position in which central bands hands 0:29:59.280 --> 0:30:03.440 maybe use forced into act and supporting the industry. But 0:30:03.600 --> 0:30:06.680 it gets complicated because a difference of the a lot 0:30:06.720 --> 0:30:09.480 of the banks, a lot of these com multi trading 0:30:09.520 --> 0:30:12.080 houses are not even incorporated in Europe. You are going 0:30:12.120 --> 0:30:14.760 to be bailing out companies that are in the British 0:30:14.800 --> 0:30:19.160 bulding Islands, in um in Dubai, in Singapore, and and 0:30:19.240 --> 0:30:24.640 companies also that you could discuss whether what Liman Brothers 0:30:24.720 --> 0:30:27.760 or band stands we're doing, we're good for society and 0:30:27.760 --> 0:30:30.320 so on. But these companies, a lot of the trouble 0:30:30.400 --> 0:30:32.880 that they're getting now is because they are trading Russian oil, 0:30:33.720 --> 0:30:37.320 which goes so just in mindor situation in which a 0:30:37.360 --> 0:30:40.680 central bank effectively has to bail out a commulti trading house, 0:30:41.200 --> 0:30:44.440 and the central bank is either the FED or the EASYB, 0:30:44.920 --> 0:30:47.480 and you are bailing out a community trading house which 0:30:47.520 --> 0:30:51.280 is involved in shifting Russian oil, which is more or 0:30:51.360 --> 0:30:55.280 less against what the company trading and trading house and 0:30:55.320 --> 0:30:58.600 the tax haven making it easier for latter we're to 0:30:58.600 --> 0:31:02.480 get revenue. And now coming potentially thinking the easy B 0:31:02.680 --> 0:31:04.760 or the Bank of England to the FED us in 0:31:04.840 --> 0:31:08.240 mind what the hearing in Capitol Hill when they ask 0:31:09.120 --> 0:31:12.280 cherman power and Secretary jal And why you bail out 0:31:12.320 --> 0:31:16.080 these guys? I mean, you know, you understand why the 0:31:16.160 --> 0:31:19.320 FED and the easy we were terrified at that situation. 0:31:19.360 --> 0:31:22.280 But on the other hand, while both the EASY b 0:31:22.440 --> 0:31:25.440 and the AND and the FED have said no, I 0:31:25.480 --> 0:31:27.440 think that they're very aware that they could be a 0:31:27.520 --> 0:31:31.080 situation in which they may have to because the financial 0:31:31.120 --> 0:31:33.480 health of a number of European banks is at risk, 0:31:33.960 --> 0:31:37.160 But the political consequence of having to bail out these 0:31:37.160 --> 0:31:41.120 guys were are terrifying. Yeah, I hadn't thought I hadn't 0:31:41.120 --> 0:31:43.959 thought about that at all. Something that you talk about 0:31:44.360 --> 0:31:47.360 is and and you know, again, I guess I'm going 0:31:47.360 --> 0:31:51.120 back to like the why these companies is that in 0:31:51.160 --> 0:31:53.320 the past, and maybe it's with oil, but I think 0:31:53.320 --> 0:31:57.920 other commodities as well, the supply chains were much more 0:31:58.800 --> 0:32:02.360 vertically integrated, and so whether from the drilling to the 0:32:02.400 --> 0:32:05.760 literal gas station where someone would get their fuel, it 0:32:05.840 --> 0:32:08.160 might have been like all one company. And then it's 0:32:08.200 --> 0:32:11.160 sort of like as that fragmented. You talk a little 0:32:11.160 --> 0:32:16.600 bit about how the trading houses emerged out of essentially 0:32:16.720 --> 0:32:21.760 restructuring of the industry itself. It happened mostly around the 0:32:21.760 --> 0:32:24.480 seventies sixties and seventies, and and you know, oil was 0:32:24.720 --> 0:32:27.840 particularly the one that broke down. I mean it was 0:32:27.880 --> 0:32:32.160 a time where everything was particularly integrated in the oil 0:32:32.200 --> 0:32:37.280 industry exce on oil exce and oil fields will produce oil, 0:32:37.320 --> 0:32:41.200 they will put on excellent own pipelines into excellent tankers 0:32:41.200 --> 0:32:45.720 to exon refineries and to exon gas stations. And that 0:32:46.240 --> 0:32:50.760 broke down for a number of reasons, very importantly nationalization 0:32:50.880 --> 0:32:53.320 of the oil resources in the Middle East and North 0:32:53.360 --> 0:32:57.120 Africa through the seventies, um the commoti trade. That when 0:32:57.400 --> 0:33:00.480 the Middle East countries nationalized that they're oil, all of 0:33:00.520 --> 0:33:03.120 the sudden, those countries who have never solved it on 0:33:03.240 --> 0:33:07.040 oil have plenty to sell and they needed someone to help. 0:33:07.080 --> 0:33:10.880 And that came the oil traders who became the big intermediaries. 0:33:11.320 --> 0:33:15.120 And the industry has really broke down. There is not 0:33:15.280 --> 0:33:19.760 that vertical integration anymore, and the traders have have benefited 0:33:19.760 --> 0:33:23.600 from that. Would you expect some form of vertical integration 0:33:23.680 --> 0:33:27.640 to return, like the obvious one given the shipping shortage 0:33:27.800 --> 0:33:30.960 shipping issues would be for commodities traders to just start 0:33:31.200 --> 0:33:35.280 buying or building a bunch of huge, very large crude 0:33:35.320 --> 0:33:38.480 carriers or stuff like that would that kind of thing 0:33:38.520 --> 0:33:41.320 come back. I think that where you may have some 0:33:41.480 --> 0:33:46.080 vertical integration is companies have come to realize now that 0:33:46.440 --> 0:33:50.120 if they need a particular supply that is in critical 0:33:50.200 --> 0:33:53.720 for their business and no one is investing, they may 0:33:53.760 --> 0:33:56.120 have to do it themselves. I mean test Lies is 0:33:56.200 --> 0:33:58.720 kind of a good example of these, I mean Elements 0:33:58.800 --> 0:34:01.800 is talking about the shortages of lithun. So you could 0:34:01.800 --> 0:34:04.280 see at some point Tesla having to go into mining 0:34:04.360 --> 0:34:08.880 lithun or coinvesting with some traders into that because you know, 0:34:09.239 --> 0:34:11.560 in effect you have a market failure, so you may 0:34:11.680 --> 0:34:14.600 want to integrate. The one thing that I see, which 0:34:14.640 --> 0:34:19.080 is not vertical integration, but is uh the commoity traders 0:34:19.080 --> 0:34:22.600 have benefited a lot from their movement by everyone to 0:34:22.800 --> 0:34:25.480 use in time. They were the ones who were holding 0:34:25.520 --> 0:34:28.759 inventories for everyone else, and they made money from that. 0:34:28.800 --> 0:34:30.759 I mean a lot of companies they didn't have to 0:34:30.800 --> 0:34:33.840 carry inventories. The inventories were in the hands of the traders. 0:34:33.880 --> 0:34:37.080 The traders were financing those inventories. So a lot of 0:34:37.520 --> 0:34:40.960 chief financial officers of companies that need resources were very 0:34:40.960 --> 0:34:44.760 happy not to carry those financing course, all the sudden 0:34:44.840 --> 0:34:47.000 you realize that just in time may not be a 0:34:47.000 --> 0:34:49.799 great idea. And you are a company that needs a 0:34:49.840 --> 0:34:52.799 lot of aluminium or a lot of copper, you may 0:34:52.920 --> 0:34:55.400 want to move from relying a bit less on the 0:34:55.400 --> 0:34:58.840 commority traders and controlling a lot more of those inventories. 0:34:59.040 --> 0:35:02.080 Which is really bad right now because we have low 0:35:02.120 --> 0:35:06.279 inventories everywhere, supplies trolling with demand and we are having 0:35:06.440 --> 0:35:09.440 is a number of companies building their own inventories right 0:35:09.480 --> 0:35:12.640 now at the worst possible time, which is exacerbating the 0:35:12.680 --> 0:35:16.759 short Yeah, this is a real diversion. But while you're here, 0:35:16.840 --> 0:35:20.000 I'm just gonna ask you, did anyone actually get paid 0:35:20.080 --> 0:35:23.480 to take oil in spring when it went negative? Like 0:35:23.520 --> 0:35:25.680 were there's some people in a position where they like 0:35:25.719 --> 0:35:29.120 took oil and got paid the warehouse it made a fortune. Yeah, 0:35:29.560 --> 0:35:32.480 there were. There were some commoty traders certainly buying oil 0:35:32.520 --> 0:35:35.200 in cushion. Uh. And you know by buying, I mean 0:35:35.280 --> 0:35:37.799 getting paid to take the oil. There was not a 0:35:37.840 --> 0:35:41.000 lot of it. Uh. And you know the reason that 0:35:41.080 --> 0:35:43.880 we went negative was a lot of technicality around the 0:35:44.040 --> 0:35:47.280 contract and probably some people pushing the market at closing 0:35:47.480 --> 0:35:49.960 in the in the right direction for for their for 0:35:50.080 --> 0:35:53.839 their positions. But yes, there were commuity traders who that day, 0:35:53.920 --> 0:35:55.840 and not only that day, I mean on the physical 0:35:55.920 --> 0:35:59.360 market in the US for a few weeks before the 0:35:59.400 --> 0:36:04.279 doublet when negative we have domestic grades on kind of 0:36:04.960 --> 0:36:08.239 areas were very difficult to move the oil out where 0:36:08.239 --> 0:36:11.160 prices were negative, and some of the commuity traders were 0:36:11.360 --> 0:36:14.360 we're taking the oil I mean Mercuria, big oil trader 0:36:14.600 --> 0:36:17.440 who takes oil in some areas of the U S 0:36:17.480 --> 0:36:21.640 which had lacked lockdown, with very very difficult access over 0:36:22.360 --> 0:36:26.480 two pipelines and so on, was buying negative and negative 0:36:26.520 --> 0:36:44.080 prices for about two weeks. There's one part of the 0:36:44.120 --> 0:36:47.239 commodities ecosystem that we haven't really discussed yet, and it 0:36:47.360 --> 0:36:49.920 was the drama that I was referring to in the intro, 0:36:50.120 --> 0:36:53.640 and that's the exchanges. And the big drama was the 0:36:53.680 --> 0:36:57.120 London Medals exchange canceling a bunch of Nichols trades after 0:36:57.520 --> 0:37:00.719 the price just went absolutely nuts. And this was really 0:37:00.760 --> 0:37:04.680 controversial at the time. But you know, obviously a lot 0:37:04.680 --> 0:37:07.760 of what the commodities traders are doing are through futures 0:37:07.800 --> 0:37:11.840 contracts that go through an exchange. What sort of response 0:37:11.880 --> 0:37:14.879 have we seen from the exchanges in terms of adapting 0:37:15.280 --> 0:37:18.840 to this new environment, well, the response from these changes 0:37:18.880 --> 0:37:24.000 have been to increase margins massively to everyone and particularly 0:37:24.120 --> 0:37:28.120 not use variation margins. By initiation margins very expensive right 0:37:28.120 --> 0:37:33.120 now to put a trade on energy commodities oil, power, gas, 0:37:33.400 --> 0:37:36.120 it just have got very very expensive. I think that 0:37:36.440 --> 0:37:38.759 you know that the reaction from these changes have been, 0:37:39.960 --> 0:37:42.760 Oh my gosh, we got very very close to disaster 0:37:42.880 --> 0:37:46.080 with the Leemy. I mean the Leemy have not shut 0:37:46.120 --> 0:37:48.879 down the nickel market and then canceled the trade, which 0:37:48.920 --> 0:37:52.400 is extremely controversial the session and many people on the 0:37:52.440 --> 0:37:54.480 market will say illegal decision and this is going to 0:37:54.560 --> 0:37:58.120 be uh, there's gonna go into lawsuits, etcetera, etcetera. But 0:37:58.960 --> 0:38:02.400 these changes have been quite open. Four or five brokers 0:38:02.400 --> 0:38:05.959 will have default that morning. The market was shut down 0:38:06.000 --> 0:38:08.279 at a fifteen in the morning and the trades were 0:38:08.360 --> 0:38:11.239 canceled at a fifteen in the morning. Market calls were 0:38:11.320 --> 0:38:14.759 due and nine. So we can say that four or 0:38:14.760 --> 0:38:17.640 five big brokers at the enemy were forty five minutes 0:38:17.880 --> 0:38:23.560 from going berry. Um if they if the brokers go, uh, 0:38:23.800 --> 0:38:27.560 what happened to because then the brokers default to the 0:38:27.600 --> 0:38:30.120 exchange and the clearing house. What would have happened to 0:38:30.160 --> 0:38:32.480 the clearing house. The change said that the clearing house 0:38:32.480 --> 0:38:35.759 will have survived, but we don't know the reality and 0:38:35.800 --> 0:38:37.960 what will have happened to some of the banks which 0:38:37.960 --> 0:38:41.359 are behind the brokers. I mean the financial consequences could 0:38:41.400 --> 0:38:44.600 have been significant billions of dollars of losses. And you know, 0:38:44.680 --> 0:38:46.480 a lot of the race today we have moved the 0:38:46.600 --> 0:38:50.399 race out of OTC markets into clearing houses. Uh, and 0:38:50.560 --> 0:38:52.440 you know, we don't know. And this was a test, 0:38:52.480 --> 0:38:56.680 I mean, having to cancel the trades. It's a massive decision. 0:38:56.719 --> 0:38:59.160 I mean that you know, my my, my, my ward 0:38:59.239 --> 0:39:01.160 is my bond. I have a trade, I have a 0:39:01.160 --> 0:39:05.960 contract and that's dawn and those contracts were evaporated in minutes. UM, 0:39:06.000 --> 0:39:09.560 So there's changes. Reaction so far is to increase margins 0:39:09.600 --> 0:39:12.680 and trying to make sure that the buffer on the 0:39:12.719 --> 0:39:17.000 clearinghouse is there for a potential default. But obviously that's 0:39:17.080 --> 0:39:19.440 draining a lot of liquidity from from this change. We 0:39:19.520 --> 0:39:22.320 have seen liquid in the oil market at a six 0:39:22.320 --> 0:39:26.640 seven year low that's not coming back. Um At times, 0:39:26.680 --> 0:39:29.840 the oil market, I think that I said that the 0:39:29.960 --> 0:39:32.480 bid as a spread on double T I which usually 0:39:32.480 --> 0:39:34.560 is no more than one cent. There were times that 0:39:34.719 --> 0:39:37.399 was seven eighth fens wide, which I said, well, that's 0:39:37.600 --> 0:39:39.680 wide enough to put an oil tanker through. I mean, 0:39:39.719 --> 0:39:43.600 like you could make a fense of a dollar just basically, 0:39:43.600 --> 0:39:46.440 are we try and beat as beat as spread on 0:39:46.520 --> 0:39:48.319 dou w t I, which is as insane as it's 0:39:48.360 --> 0:39:51.200 kind of almost free money crazy, you know, you're we're 0:39:51.200 --> 0:39:53.520 talking about like, oh, these commodity traders and make a 0:39:53.600 --> 0:39:55.600 ton of money, but they weren't always. I mean, and 0:39:56.080 --> 0:39:59.759 then let you know, prior to COVID, commodities was not 0:40:00.160 --> 0:40:03.799 booming business. And one of the themes that comes up 0:40:04.080 --> 0:40:06.640 a lot on odd lots is um you know, this 0:40:06.719 --> 0:40:10.400 idea of like under investment, under investment in physical resources, etcetera. 0:40:10.600 --> 0:40:13.040 But I'm curious also about like the sort of I 0:40:13.080 --> 0:40:16.640 guess the E S G aspect because my impression is, 0:40:17.040 --> 0:40:20.319 and I think some people want to dismiss that. Other 0:40:20.360 --> 0:40:23.279 people say it's everything, But my impression is a lot 0:40:23.360 --> 0:40:27.600 of people just either different kinds of financial companies just 0:40:27.640 --> 0:40:29.960 sort of like cut all of their units related to 0:40:30.000 --> 0:40:33.120 restractive industries, related to mining and so forth, like we're 0:40:33.160 --> 0:40:36.080 just gonna get out of this business. It does feel 0:40:36.160 --> 0:40:42.120 like the sort of negative attitude towards dirty industries really 0:40:42.160 --> 0:40:45.360 caused a lot of these sort of financing and to disappear. 0:40:45.640 --> 0:40:48.120 The Russian based in the Ukraine has been really the 0:40:48.200 --> 0:40:51.440 finalist draw on on on the market. That has tightened 0:40:51.440 --> 0:40:54.960 things a lot, But the market was already tightened, tightening 0:40:55.040 --> 0:40:57.440 a lot on the on the run up. And and 0:40:57.520 --> 0:41:00.080 one reason is that we have on that investment in 0:41:00.400 --> 0:41:04.160 fossil fuels, in mining, it just generally has been seen 0:41:04.160 --> 0:41:07.319 as a deity industry. E. S G has kicking. We're 0:41:07.360 --> 0:41:09.719 not having probably enough investment. I mean here we are 0:41:10.320 --> 0:41:14.480 at unprecedented prices for coal. I mean a good price. 0:41:14.760 --> 0:41:17.600 If you have told a coal miner a couple of 0:41:17.680 --> 0:41:20.919 years ago that two hundred and fifty dollars a tone, 0:41:21.200 --> 0:41:22.640 whether they will take it, I mean they will have 0:41:22.719 --> 0:41:25.279 signed a contract right now, thank you very much. That's 0:41:25.320 --> 0:41:27.560 a great price. And the market is now at four 0:41:27.640 --> 0:41:30.799 hundred and no one is building a mine, no one 0:41:30.880 --> 0:41:33.720 is opening that. Everybody got out of coal finance. Everyone 0:41:34.440 --> 0:41:36.879 everyone is out of coal finance. You could not get 0:41:36.920 --> 0:41:39.759 a bank to finance a coal mine. And you know 0:41:39.880 --> 0:41:42.760 some of the call companies I speak to the CEOs 0:41:42.800 --> 0:41:44.919 and said, why you are not now announcing a big 0:41:44.920 --> 0:41:47.320 expansion and so on, because he said, if I announced 0:41:47.360 --> 0:41:50.080 that we're expanding products and capacity, my share price goes 0:41:50.120 --> 0:41:52.719 down ten percent. Because that's the last thing that you know, 0:41:52.760 --> 0:41:55.359 we have targets that we have to reduce. And you know, 0:41:56.080 --> 0:41:58.920 the sad thing right now of the energy transition is 0:41:58.960 --> 0:42:03.040 that we have been told about cutting emissions, reducing CO 0:42:03.080 --> 0:42:05.759 two and so on and two we're going to see 0:42:05.840 --> 0:42:08.600 record demand for oil, record demand for natural gas, and 0:42:08.680 --> 0:42:12.480 record demand for thermal coll and that's despite the fact 0:42:12.520 --> 0:42:15.000 that we have been trying to reduce reliance on thermal 0:42:15.040 --> 0:42:17.560 call for the last I mean, some people will say 0:42:17.680 --> 0:42:20.440 hundreds and fifty years, but seriously for the last twenty years. 0:42:21.239 --> 0:42:24.440 I have a related but slightly weird question. Um. But 0:42:24.600 --> 0:42:27.640 speaking of under investment, you know central banks around the 0:42:27.680 --> 0:42:30.439 world gearing up for rate hikes if they haven't done 0:42:30.480 --> 0:42:34.000 so already, and the whole intent there is to try 0:42:34.040 --> 0:42:37.840 to bring down inflation, which presumably with lower commodities prices. 0:42:37.880 --> 0:42:42.200 But I'm curious how do commodities traders feel about rate 0:42:42.280 --> 0:42:44.759 hikes at the moment, because the other argument you could 0:42:44.800 --> 0:42:48.040 make is that you're increasing the cost of capital, the 0:42:48.080 --> 0:42:51.719 cost of funding at precisely the wrong time for that 0:42:51.840 --> 0:42:57.239 particular industry. I mean commodity traders. They feel that demand 0:42:57.600 --> 0:43:01.000 is outstrapped in supply and that the only thing that 0:43:01.080 --> 0:43:04.080 could bring down the market is just a good old 0:43:04.120 --> 0:43:09.480 fashioned procession. Uh So, can you reduce commotive prices via 0:43:09.640 --> 0:43:12.560 interest rates hikes? Yes, but at the court of killing 0:43:12.560 --> 0:43:15.600 the economy. But if you're going to achieve the south landing, 0:43:15.680 --> 0:43:17.399 I don't I don't think that you are. I mean, 0:43:17.400 --> 0:43:19.640 the demand is going to be still there. I don't 0:43:19.640 --> 0:43:22.520 see how that's just gonna reduce inflation. I mean, nothing 0:43:22.560 --> 0:43:25.200 that the FAT can do other than killing the economy 0:43:25.560 --> 0:43:28.040 can bring more oil, or more coal or more wheat. 0:43:28.080 --> 0:43:30.400 I mean, you know that just we have a problem 0:43:30.440 --> 0:43:33.000 with with supplies right now because we have lost the 0:43:33.200 --> 0:43:36.239 number one and number three supplier to the Wall and 0:43:36.719 --> 0:43:38.600 the e c B, the Bank of England or the 0:43:38.640 --> 0:43:40.799 FAT cannot do anything about that. I mean, you know, 0:43:40.920 --> 0:43:44.239 higher interest rates are not gonna produce more wheat, and 0:43:44.280 --> 0:43:47.160 they're not gonna produce more oil. But you know, interestingly, 0:43:47.600 --> 0:43:50.400 I'm interesting it is the designed statement of the obvious. 0:43:50.400 --> 0:43:53.879 Why now the global economy faces much higher energy, cause 0:43:53.960 --> 0:43:58.479 much higher food costs, and higher cost of money. So 0:43:58.640 --> 0:44:02.799 you know, I I have a hard time wrapping my 0:44:02.840 --> 0:44:05.960 head around how big of a deal it is to say, Okay, 0:44:06.239 --> 0:44:09.560 some European countries are gonna buy Russian gas in rubles, 0:44:09.719 --> 0:44:12.640 or maybe China is going to enter into some contract 0:44:12.680 --> 0:44:15.480 of Saudi Arabia to use you end. Some people when 0:44:15.520 --> 0:44:17.960 these headlines hit there's a huge deal at the end 0:44:18.000 --> 0:44:20.640 of the dollar, And I'm always like not sure how 0:44:20.680 --> 0:44:23.319 to think about it. Just what's your take, and like 0:44:23.360 --> 0:44:27.960 how significant is pricing commodity sales and non dollar currencies. 0:44:28.239 --> 0:44:29.759 Is it a big deal or is it sort of 0:44:29.800 --> 0:44:32.440 just accounting? Depends on what we are talking about. We 0:44:32.440 --> 0:44:36.719 are talking about pricing the commoity in a non dollar currency, 0:44:36.800 --> 0:44:39.080 then I think it's a big deal. But a lot 0:44:39.120 --> 0:44:42.200 of what we are talking about is about embosing the 0:44:42.480 --> 0:44:46.440 commodities pricing dollar, but you are you are pricing dollars. 0:44:46.480 --> 0:44:49.000 But when you you transfer the money, you you wire 0:44:49.040 --> 0:44:51.319 the money in a different currency, which is a very 0:44:51.360 --> 0:44:55.399 different thing from you know, no, non pricing indollars. Look, 0:44:55.640 --> 0:44:58.560 I do think that it does have an impact. Obviously, 0:44:58.680 --> 0:45:00.319 there are a number of countries that they try to 0:45:00.360 --> 0:45:04.920 reduce their reliance on the dollar. But it was quite interesting. 0:45:04.960 --> 0:45:07.520 I was recently speaking to a senior executive of a 0:45:07.560 --> 0:45:10.640 Middle East company about what would you would you want 0:45:10.680 --> 0:45:13.880 to to get pay in juan? And and you know, 0:45:14.000 --> 0:45:16.480 he's not a friend of the United States, this this 0:45:16.600 --> 0:45:20.040 particular gentleman. But he he said, and then what do 0:45:20.120 --> 0:45:22.840 we do with the duan? We get paid with the juan. 0:45:23.000 --> 0:45:26.200 It's not converted, it's not properly convertible. We can pay 0:45:26.280 --> 0:45:29.040 for for Chinese goods, but we have enough demand for 0:45:29.120 --> 0:45:31.279 Chinese and staff. And say, like, they may not like 0:45:31.400 --> 0:45:34.279 the dollar, they may not like policies with the United States, 0:45:34.320 --> 0:45:36.120 but they know that the moment that they have the dollar, 0:45:36.239 --> 0:45:39.319 they can compare that to anything that they want. They 0:45:39.320 --> 0:45:43.280 can move it around, etcetera, etcetera. So you've been covering 0:45:43.320 --> 0:45:47.560 commodities for a very long time, and obviously your book 0:45:47.560 --> 0:45:51.080 deals with the long term history of commodities trading. What 0:45:51.400 --> 0:45:55.280 about the past month or so has surprised you? What's 0:45:55.280 --> 0:45:58.080 been the most striking to you? A couple of things. 0:45:58.640 --> 0:46:03.640 I have been a struck by how little regulators in 0:46:03.680 --> 0:46:07.719 this day know about the industry. The fact that a 0:46:07.760 --> 0:46:09.919 lot of them seem to be completely in the dark 0:46:10.000 --> 0:46:12.600 of what's going on and who are the big players 0:46:12.640 --> 0:46:15.920 and how things work. Considering that we have had several 0:46:15.960 --> 0:46:18.880 white cup calls, I would have thought that the regulators 0:46:18.920 --> 0:46:21.279 will have really getting up to a speed onto that. 0:46:21.400 --> 0:46:25.440 And I that is really concerning because I am not 0:46:25.520 --> 0:46:28.240 a big believer that you need super extra heavy regulation 0:46:28.280 --> 0:46:31.360 on commodities. But really concerns me when when regulators and 0:46:31.400 --> 0:46:34.600 policymakers basically have no idea what's going on, that that 0:46:35.040 --> 0:46:38.120 remains a surprise. The other one, on the other hand, 0:46:38.239 --> 0:46:43.200 has been sell sunsoning how you know, public pressure has 0:46:43.320 --> 0:46:46.040 led to so many players to say, even if this 0:46:46.160 --> 0:46:48.600 is legal, we're not going to touch it. I don't know. 0:46:48.719 --> 0:46:52.560 This is an era of social media where public pressure 0:46:52.600 --> 0:46:56.319 goes quicker to companies. But in the past I would 0:46:56.400 --> 0:46:59.640 have expected a lot more companies to continue dealing on 0:47:00.000 --> 0:47:02.600 scan oil with no problem, and we have seen a 0:47:02.680 --> 0:47:05.719 number of companies just you know, taking a step back, 0:47:05.960 --> 0:47:08.280 and the companies that tried to use the old tricks 0:47:08.360 --> 0:47:11.360 like the blending and things like that getting name and 0:47:11.440 --> 0:47:14.000 shame and very very quickly saying, oh yeah, I would mistake, 0:47:14.120 --> 0:47:16.000 We're not gonna do that. Yeah, you've had some great 0:47:16.040 --> 0:47:19.560 columns about blending. They called Latvian oil and that's that. 0:47:19.719 --> 0:47:24.399 Then it's like coffee. It's like coffee or cocktails. You 0:47:24.400 --> 0:47:26.759 you kind of you know, you mix. So it's when 0:47:27.160 --> 0:47:29.400 when Russian oil is not really Russian oil. I mean 0:47:29.440 --> 0:47:32.120 for some companies, they will say that as long and 0:47:32.440 --> 0:47:34.880 fifty one percent of the oil is from somewhere else, 0:47:35.160 --> 0:47:38.680 the other could be Russian, and then they bend all 0:47:38.760 --> 0:47:41.479 these names which are kind of you know, cocktail names. 0:47:41.520 --> 0:47:44.800 Latvian blend to many study blend to to avoid calling 0:47:44.840 --> 0:47:49.239 it Russian. I just have one more question, and I 0:47:49.239 --> 0:47:51.120 guess it's like a culture thing again. But you know, 0:47:51.120 --> 0:47:54.719 in this world of commodities, commodities being so important, you know, 0:47:54.719 --> 0:47:58.000 and I think of traditional traders maybe they're like physicists 0:47:58.000 --> 0:48:02.160 these days, or electrical engineer or mathematicians or something who 0:48:02.200 --> 0:48:09.720 becomes commodity traders ha um. I mean, like language skills 0:48:09.760 --> 0:48:11.520 might be useful if we're talking about all these like 0:48:11.560 --> 0:48:15.200 international I think that language skills you have to have 0:48:15.280 --> 0:48:17.640 a sense of adventure and you know, be willing to 0:48:17.719 --> 0:48:20.480 live in the middle of nowhere. Trouble two hundred and 0:48:20.480 --> 0:48:23.839 fifty days a year, take quite a lot of personal risk. Um. 0:48:24.000 --> 0:48:27.120 There is as a commoity trading house called or Land 0:48:27.160 --> 0:48:29.719 which is based in Singapore and the CEO is a 0:48:29.760 --> 0:48:34.920 gentleman called Sandy Burge. Mr Burgess started in Nigeria, so 0:48:35.040 --> 0:48:39.239 he he still sends all the down traders upcountry in 0:48:39.280 --> 0:48:41.840 the middle of nowhere for a couple of years. So 0:48:41.880 --> 0:48:44.439 they learned the business that the kind of the hard way. 0:48:44.440 --> 0:48:46.840 I mean, you need to be prepared to go to 0:48:46.920 --> 0:48:50.759 leave in somewhere quite distant. This is not if all 0:48:50.800 --> 0:48:53.040 what you want to do is be sitting in Mayfair 0:48:53.200 --> 0:48:55.920 in London or or you know, Walla Street here in 0:48:55.960 --> 0:48:57.880 New York. That's not the business for you. You have 0:48:58.000 --> 0:49:00.239 to be you have to be willing to go too. 0:49:00.280 --> 0:49:03.200 King Shasha in the Democratic Republic of Congo and know 0:49:03.320 --> 0:49:06.640 everyone there, know the president, know your ways to get 0:49:06.680 --> 0:49:09.200 the copper and cobal out of the country. I think 0:49:09.200 --> 0:49:12.160 a lot of people like that, Like just you're describing that, 0:49:12.400 --> 0:49:13.800 it's like I've bet a bunch of people here that 0:49:13.880 --> 0:49:16.560 It's like I want that. Even in journalism, when I 0:49:16.600 --> 0:49:19.040 started out in financial journalism, I wanted to report on 0:49:19.120 --> 0:49:21.359 commodities and it didn't happen for me, so I had 0:49:21.360 --> 0:49:24.440 to make it happen through our thoughts at various times. Well, 0:49:24.480 --> 0:49:26.520 I mean, you know, you you are a commotive reporter. 0:49:26.680 --> 0:49:28.920 You en visiting a lot of countries that they are 0:49:28.920 --> 0:49:32.759 not the traditional you know, holiday destination, and it's kind 0:49:32.760 --> 0:49:35.640 of my dad used to say, So you look at 0:49:35.680 --> 0:49:38.520 the least of countries and the Foreign Office recommend not 0:49:38.600 --> 0:49:41.560 to travel and you basically your favorite place that you've 0:49:41.640 --> 0:49:43.839 visited that no one else has that hardly anyone else 0:49:43.880 --> 0:49:47.320 has been. Look, I have. I have had a great 0:49:47.400 --> 0:49:49.759 time every time I have been in Iraq. It's it's 0:49:49.760 --> 0:49:53.480 one of those my favorite places back back. It's a 0:49:53.520 --> 0:49:56.600 great place. I have favorite restaurants in back back and 0:49:56.640 --> 0:49:58.640 things like that. I mean, you get to travel to 0:49:58.760 --> 0:50:00.759 a lot to the to the Middle least and and 0:50:01.160 --> 0:50:04.719 Iraq and Iran are a kind of favorite places. But 0:50:04.800 --> 0:50:07.080 also you get you need to get used to from 0:50:07.120 --> 0:50:11.360 time to time to get deported for a few countries. Well, obvious, 0:50:11.440 --> 0:50:13.760 that was fantastic. I think I said at the beginning, 0:50:13.760 --> 0:50:17.160 you're one of the most requested guests, and I can 0:50:17.360 --> 0:50:19.440 I can see why. So I appreciate you so much 0:50:19.440 --> 0:50:21.759 for coming in Lama, thank you for having me man. 0:50:21.920 --> 0:50:24.080 That was great. Thanks so much. Having God, we could 0:50:24.080 --> 0:50:41.239 make it happen. So Joe, obviously, that was a really 0:50:41.280 --> 0:50:44.279 enjoyable conversation. One of the things that struck me is 0:50:45.000 --> 0:50:48.840 just how untransparent this market seems to be. And you know, 0:50:48.960 --> 0:50:52.560 happiest point about how we still don't have a trade 0:50:52.600 --> 0:50:56.879 repository for physical commodities is just like in in this 0:50:56.960 --> 0:50:59.960 day and age, On the one hand, everything in the 0:51:00.040 --> 0:51:05.120 world seems to be tracked except actual physical vital goods, 0:51:05.160 --> 0:51:08.520 which is insane. But on the other hand, I cannot 0:51:08.600 --> 0:51:12.000 see anyone in the current environment actually agreeing to do it. Yeah, 0:51:12.000 --> 0:51:14.359 when you actually that's what I thought too, And when 0:51:14.400 --> 0:51:16.960 you actually think about what it would take, it's like, 0:51:17.000 --> 0:51:19.600 how would you even do that? Like how would you 0:51:19.640 --> 0:51:24.360 regulate and create a central repository for something in which 0:51:24.640 --> 0:51:27.840 you can literally swap the oil from one boat to 0:51:27.880 --> 0:51:31.600 another boat and you could mix the oil so that 0:51:31.760 --> 0:51:33.760 you know, he was talking about the lot ving blend 0:51:33.840 --> 0:51:36.040 of Okay, you have a barrel of oil that's forty 0:51:36.120 --> 0:51:41.040 nine Russian and fifty point zero one something else. Like 0:51:41.320 --> 0:51:44.239 the just the complexity of that, like, how would you 0:51:44.280 --> 0:51:48.560 even like start to conceptualize tracking every trade when there 0:51:48.600 --> 0:51:51.560 are so many ways to just do a unilateral one 0:51:51.600 --> 0:51:53.640 to one hand off of a good you could see 0:51:53.680 --> 0:51:57.200 why it's so tough. Absolutely. And then the other thing 0:51:57.239 --> 0:51:59.640 that was striking to me, I don't know a lot 0:51:59.680 --> 0:52:04.160 of it felt like confirmation of this idea that going forward, 0:52:04.480 --> 0:52:07.719 getting commodities is just going to cost more money, Like 0:52:07.840 --> 0:52:11.080 you're it's going to be more difficult to get financing. 0:52:11.440 --> 0:52:14.040 There's going to be extra volatility, it seems like, which 0:52:14.040 --> 0:52:18.360 means you have to pay additional variation margin. The exchanges 0:52:18.400 --> 0:52:21.719 have already upped the initial margin. So the whole thing. 0:52:22.440 --> 0:52:25.359 And I haven't even mentioned shipping, shipping cross through the roof, 0:52:25.920 --> 0:52:29.440 it just an insurance. It just feels like everything is 0:52:29.440 --> 0:52:33.760 coming together to make it more expensive, expensive and complicated, 0:52:34.160 --> 0:52:36.000 and and and I and I you know, and so 0:52:36.280 --> 0:52:39.600 this idea of like localized shortages where even if you 0:52:39.719 --> 0:52:43.080 ostensibly have the money to pay for the price of 0:52:43.080 --> 0:52:45.840 a commodity that appears on the screen, can you actually 0:52:45.880 --> 0:52:48.760 get it delivered to in a predictable man. It feels 0:52:48.800 --> 0:52:51.719 like that's going to get tougher, or get to stay tough, right. 0:52:51.760 --> 0:52:54.600 It's the sort of disconnect between the financial and the physical, 0:52:54.680 --> 0:52:57.359 which we've been talking about. And that's also why what 0:52:57.440 --> 0:53:00.480 was happening with the New York diesel contract that was 0:53:00.520 --> 0:53:03.000 describing is so interesting as well, because that's the kind 0:53:03.000 --> 0:53:07.160 of localized stress that could happen or you know the other. 0:53:07.280 --> 0:53:11.080 And he made this point, which is that everybody remembers 0:53:11.200 --> 0:53:14.840 when w T I oil went down into negative forty, 0:53:14.880 --> 0:53:17.800 but there were other regional benchmarks like we don't we 0:53:17.840 --> 0:53:19.479 don't talk about them, but if you look on the terminal, 0:53:19.560 --> 0:53:23.560 there's like dozens of North American oil prices depending on 0:53:23.680 --> 0:53:25.920 what pipelines they have access to, in the cost to 0:53:25.920 --> 0:53:28.080 get them out, and some of those were already negative. 0:53:28.080 --> 0:53:31.000 And it's like, well, who's who's who has some empty 0:53:31.040 --> 0:53:34.680 space just at the right moment to charge someone for 0:53:34.800 --> 0:53:37.759 getting their oil off a boat or out of a pipeline. 0:53:38.600 --> 0:53:43.279 Incredibly incredibly complicated during volus. Yeah, like an industry that 0:53:43.360 --> 0:53:48.279 was already insanely granular, it's just getting even more granular 0:53:48.320 --> 0:53:51.240 and specific. It feels like I thought that was interesting too. 0:53:51.360 --> 0:53:54.160 It's like the oil traders, like, what am I going 0:53:54.200 --> 0:53:56.759 to do with that? Chinese? Un Like, Okay, even if 0:53:56.760 --> 0:53:58.640 you don't Even if you don't really love the idea 0:53:58.680 --> 0:54:02.759 of heaving your entire business being denominated in dollars, other 0:54:02.880 --> 0:54:05.160 currencies may not be that appealing. It's nice to have 0:54:05.200 --> 0:54:09.040 a fungible global reserve currency. There are some benefits. Al Right, 0:54:09.200 --> 0:54:11.120 shall we leave it there, Let's leave it there. Okay. 0:54:11.280 --> 0:54:14.080 This has been another episode of the All Thoughts podcast. 0:54:14.120 --> 0:54:16.520 I'm Tracy Alloway. You can follow me on Twitter at 0:54:16.560 --> 0:54:19.560 Tracy Alloway and I'm Joe Wisn't All. You can follow 0:54:19.600 --> 0:54:23.040 me on Twitter at the Stalwart. Follow our guest Javier 0:54:23.120 --> 0:54:25.920 Bloss He's at Javier Blast, and also check out the 0:54:25.960 --> 0:54:29.320 book he co authored with Jack Bargie, The World For Sale. 0:54:29.840 --> 0:54:33.520 Follow our producer Carmen Rodriguez at Carmen Arman. Follow the 0:54:33.520 --> 0:54:37.719 Bloomberg head of podcast, Francesco Leaving at Francesco Today, and 0:54:37.840 --> 0:54:40.600 check out all of our podcasts at Bloomberg under the 0:54:40.640 --> 0:55:06.960 handle at podcasts. Thanks for listening, Tea Ye