November 30, 2011
November 28, 2011
Comment on Model Portfolio activity
switched Ford common to Ford warrants (share/warrant) and placed the excess
funds in other securities that we currently own. Given that the markets were up
3% at the opening we delayed the purchases to see how events shake out.
The markets are up because they
were due for a bounce after 7 down days. Also retail sales over the weekend
were very strong and there are new rumors on Europe about stuff. With the
November Employment report due Friday our guess is that the reflex rally will
be limited till that number is reported. We are fully invested and will remain
so since we believe the U.S. economy is growing and that the European crisis is
HFT/CDS trading created and Media hyped.
Bloomberg explains the extent to
which the Fed loaned trillions of dollars to U.S. and foreign banks during the
2008/2009 financial crisis. We think the Fed had to lend but we also think the banksters
should not have been allowed to benefit financially and are not
entitled to forego criticism for the crappy (criminal) manner they ran their
banks in the last five years before the crisis. It was all about bonuses not
prudent business practices. So what else is new?
The Federal Reserve and the
big banks fought for more than two years to keep details of the largest bailout
in U.S. history a secret. Now, the rest of the world can see what it was
missing…The Fed didn’t tell anyone which banks were in trouble so deep they
required a combined $1.2 trillion on Dec. 5, 2008, their single neediest day.
Bankers didn’t mention that they took tens of billions of dollars in emergency
loans at the same time they were assuring investors their firms were healthy.
And no one calculated until now that banks reaped an estimated $13 billion of
income by taking advantage of the Fed’s below-market rates, Bloomberg Markets
magazine reports in its January issue.
Read the whole article at http://www.bloomberg.com/news/2011-11-28/secret-fed-loans-undisclosed-to-congress-gave-banks-13-billion-in-income.html
November 25, 2011
November 23, 2011
November 22, 2011
Comment on Model Portfolio activity
for a rally is like waiting for Godot.
(The main underlying theme in
the play “Waiting for Godot” by Samuel Beckett is existentialism and the
human struggle to construct meaning in a meaningless life. Specifically, the
futility of life; the lack of purpose; the uncertainty of life; and the anxiety
of existence. Since knowledge about the world is unreliable and memories
regarding the past are unreliable, what gives you an understanding of who you
are, how you came to be here, and what direction you should take in the future?
The characters are crippled with inaction and anxiety. They wait around for the
mysterious Godot, as if then they'll be able to take action. They wait for
something external to give them meaning. There is also a religious
interpretation to this play in the sense that people rely on (wait for)
religious deities and creeds to dictate the next course of action they should
take. People also later attribute their past actions to god(s), and rely on
god(s) to give their life purpose.)
Today is Turnaround Tuesday
but someone forgot to tell Mr./Mrs. Market.
disappointed and dropped 15% and we added shares to accounts with the
DreamWorks dollars from yesterday. HPQ’s report was middling and we are not
adding at this time. We also added Cisco and Dell to accounts that own GM and
swapped half our American Eagle position for Morgan Stanley. And we
switched Nvdia to GE.
November 21, 2011
Comment on Model Portfolio activity
markets are doing their November swoon as Europe remains the bugaboo. The
volatility is disturbing but there is not much we can do about it. The U.S
economy is recovering – slowly- and while Europe is 20% of U.S exports we don’t
think that the discombobulating occurring over there should be having as much
effect as it is on U.S markets.
the markets march to their own tune - with large help from Credit Default
Swaps and HFT and that may be the reality for the future. We note that
Bill Miller is retiring. He is a long time value investor who is throwing in
the towel. That says something about the current volatility. We are too ornery
to do so.
S&P 500 broke 1220 last Friday and is now testing 1190.
switched Boston Scientific to more Alcoa, add Cisco to some larger accounts and
also repurchased a few shares of U.S. Steel. We sold DreamWorks to have funds
available in case Hewlett disappoints tonight. If it doesn’t we redeploy
Corporation : SemiAccurate reports Nvidia’s graphics processors have
been designed into next-gen Apple MacBooks, likely starting with spring models
featuring Intel’s Ivy Bridge chips. This is a major loss for AMD which has been
Apple’s main PC graphics chip supplier. NVDA shares recently traded at $14.15,
up $0.22, or 1.58%. Its market capitalization is $8.59 billion. They have
traded in a 52-week range of $11.47 to $26.17. Volume today was 13,474,686
shares versus a 3-month average volume of 19,854,900 shares. The company’s
trailing P/E is 13.71, while trailing earnings are $1.03 per share.
November 18, 2011
November 14, 2011
Comment on Model Portfolio activity
repurchased Alcoa in accounts.
The markets rallied last week and
are giving some back today. 1222 remains important support on the S&P 500
and it has held on the last two pullbacks. We remain positive on the markets.
November 11, 2011
November 9, 2011
Comment on Model Portfolio activity
take is that the Italian bond “crisis” that is roiling the markets today will
pass into obscurity just as the Greek crisis seems to be doing. We can’t’
control the markets and so they will do what they wish but over the longer term
we expect earnings and revenues of U.S corporations to validate higher stock
has long relied on the fact that its debt level, although high at 120% of gross
domestic product, isn’t rising much, thanks to Rome’s relatively small budget
deficit. But the country still needs to borrow hundreds of billions of euros a
year to repay its debts falling due. Next year, Italy must borrow enough money to
repay more than €300 billion in maturing debts and cover a targeted budget
deficit of up to €25 billion. If investors aren’t willing to lend Italy such
sums, Europe will have to prop up the country with all the money it can
muster—with help from the IMF—or risk a global financial crash.
The compressed comment
on the Italian debt situation points out that the country has a relatively
small annual deficit- on the order of only $25 billion next year- but it needs
to refinance $300 billion in debt next year. Traders are selling bonds and
buying Credit Default Swaps –even though they don’t own the bonds and so don’t
need protection- to force bond prices down and now a Foreign Exchange that clears
trades has decided to raise margin requirements on Italian bonds. Since traders
leverage their investment a rise of 6% -a doubling of margin- is forcing some
traders long the bonds to sell adding to downward pressure.
LCH.Clearnet SA raises initial margin call on Italian bonds
- Cost to banks to raise funds with Italian bonds as collateral to rise
- Funding at the ECB set to rise
LONDON, Nov 9
(Reuters) - The cost of using Italian bonds to raise funds rose on Wednesday
after clearing house LCH.Clearnet SA increased the margin on debt from the euro
zone's third largest country at a time when its bonds yields are close to
levels deemed unsustainable.
government bonds as collateral to access cash in the repurchase (repo) market,
in which a handful of clearing houses play a vital role, assuming lending risks
to provide institutions with the cash.
such as LCH.Clearnet, collect cash in the form of margin on individual trades,
which they hold centrally to refund members left out of pocket in the event of
Ltd took similar action on Portuguese and Irish debt as bond yields soared, it
added to selling pressure on the paper. Both countries were later forced to
10-year Italian government bond yields approaching 7 percent, LCH.Clearnet SA
raised the initial margin call applied to Italian debt by between 3.5 and 5
percentage points across all maturities of BTP and inflation-linked BTP
announced better than earnings but was cautious going forward and with
the markets negative 2% in early trading GM shares opened 10% lower. We
reestablished our position.
Lucent also reported better than earnings last week but the share price
has dropped 40% in the last few days because management was negative going
forward given the turmoil in Europe. We added shares this morning with the
$2.01 per share price less than 5 times forward earnings. We held these shares
through their drop since we are looking for triple from this level.
Boston Scientific Corp. reports a new drug-eluting
stent has produced "excellent outcomes" and met its primary endpoint
in clinical trials involving patients with long coronary lesions.
on Tuesday announced clinical endpoint data for its PROMUS Element Everolimus-Eluting
Platinum Chromium stent system. The trial met a predefined performance goal
comparing it with historical results from another stent treatment, and showed
no cardiac death, heart attack or stent thrombosis at one year, Boston
Scientific said in a news release.
Dr. Paul S. Teirstein, of the Scripps Clinic in
La Jolla, Calif., was the co-principal investigator on the trial. In a
statement, he said the PROMUS stent "achieved impressive clinical
outcomes.” The PROMUS Element Stent System received European approval in 2009,
according to Boston Scientific. It is also marketed in India and China.
In April, the U.S. FDA approved a different platinum chromium (PtCr)
stent system developed by Boston Scientific, called the ION Stent
November 8, 2011
Comment on Model Portfolio activity
Greece seems to have agreed to
the EU stuff. Now the focus has moved to Italy since the HFT boys and girls
need volatility to make their monies. The markets need a rest and so any reason
is a good reason to sputter at these levels.
eliminated Zion and Barnes & Noble - both for a plus scratch.
Our tech and retail stocks report in the next few weeks and we want more cash
Andrew Mellon Secretary of the
Treasury and very rich man in the 1920s to Herbert Hoover:
"Liquidate labor, liquidate
stocks, liquidate the farmers, and liquidate real estate. It will purge the
rottenness out of the system. High costs of living and high living will come
down. People will work harder, live a more moral life. Values will be adjusted,
and enterprising people will pick up the wrecks from less competent
Mitt Romney, a very rich man, on
the mortgage crisis:
“Don’t try and stop the
foreclosure process. Let it run its course and hit the bottom, allow investors
to buy homes, put renters in them, fix the homes up and let it turn around and
come back up.”
November 4, 2011
November 1, 2011
Comment on Model Portfolio activity
The S&P 500 is down 4% in
two days after a nice one month less one day rally. No one said it would be
easy, but pleeeeeeeeeeeeeease.
switched Sprint to Huntington Bank (1 for 2) to improve quality—same upside
potential. We took our profit in Juniper and moved to the same number of shares
of Cisco to reduce volatility but stay in networking.
The article below was written
before Greece decided to schedule a referendum on the bailout. That of course
adds a new element to the European rescue and gives the big boys and girls more
time and reason to trade and work their magic programs. But the arguments pro
(maybe not the first one) and con are still valid.
On the one hand; on the other—
A Complete Guide to The Latest Bullish Arguments and The Bearish Arguments
Read more: http://www.businessinsider.com/a-complete-guide-to-the-latest-bullish-arguments-and-the-bearish-arguments-2011-10#ixzz1cAooftKV
+ The bears are furious as
Europe once again, to their disbelief, unites and puts
forth a €1 trillion package to backstop banks and
sovereign debt markets. Eurozone officials also negotiate
a voluntary haircut of 50% with banks to put Greece on a sustainable
path forward and create time for real reform to take place. The avoidance
of a credit event as well as a recapitalization fund of €106
billion ensures that there will not be a disorderly default and that
infected banks will be ring-fenced thereby stemming the contagion. The
effectiveness of the package results in global equity markets rallying to
finish off the week and the Euro rebounding above the important 1.40 mark.
The greatest impediment to the global recovery has been lifted. Societe
Generale strategists said, “the agreement was likely to prove
sufficient to ease financial stress and should be comprehensive enough to give
the euro area a ‘window of opportunity’ to put its house in order”.
+ 3Q GDP grows at its fastest
pace this year in a marked rebound from the prior quarter. The gains are
lead by…. the resilient consumer. Double-dippers
are finished. Ignore the consumer confidence surveys.
Yes, people are glum about the economy but life goes on. People are
learning to live with the current circumstances, which by
the way are slowly getting better. The holiday shopping
season will pleasantly surprise judging by this
news and the most
recent uptick in confidence as per the University of Michigan
Consumer Sentiment Survey. Moreover, according to the Chicago Fed National Activity
economy isn’t in recession, only a soft-patch. The 3
month moving average rose to -0.21 in September from -0.28. The
improvement was centered around employment-related indicators. And
finally, the Philly Fed State Coincident Index increased
in September and shows continued improvement from this
+ The S&P 500 has broken
through its 200-day moving average. It has also penetrated the neckline
resistance. The Dow Theory is also back into effect as both the
industrials and transportation averages have broken through their
prior highs. How was the breadth in the latest rally? I would say healthy.
Credit has also
participated in the rally. These are signs that the
technical picture has improved substantially. The index is poised to
challenge the bull market highs. Shorts are getting decimated.
Money managers are hopping on board as seasonality is supportive of
positive returns to finish the year (Santa Claus rally!), they don’t want to
miss the boat! —(S&P 500 below)
+ Yet more signs that the
global economy remains on firm footing: Caterpillar
an A+ in its earnings release, reporting a net income/share
of $1.71 vs. estimates of $1.57, while guiding higher in its forecast.
Order backlogs remain at an all-time high; China’s always salient
flash PMI moves
back into expansion territory, rising to 51.1 from 49.9.
Even better, more signs surface that inflation has
indeed peaked and Mr. Wen has signaled
a in shift in policy, geared more towards growth. No
hard-landing in China = supported global growth picture. Copper rockets
over 11% this week. Even Japan gives investors good news
with September exports rising
by 2.4% YoY vs. estimates of 0.4%, while
household spending came in better than expected and the unemployment-rate fell.
+ While the headline was
negative, Durable Goods Orders
broad strength under the hood. Orders excluding
transportation were up 1.7%, better than the 0.4% expected by analysts, while
business capital investment rose 2.4% (this data series just hit a new all-time
high). Furthermore, we have the American Trucking Association (ATA)
announcing that September’s
tonnage index rose 1.6% after a revised -0.5% reading
(was -0.2%). Chief Economist Bob Costello believes that the economy will
skirt another recession. None of these data points are pointing to a
double-dipping economy. The manufacturing sector is hanging in and
remains very resilient.
+ There are more signs that
the Fed is close to stepping up to support market sentiment and the economy.
Fed Vice Chairman, is
echoing earlier speeches by Fed members Tarullo
and Yellen last week on a possible QE3. It’s a
fantastic time to go long the market and commodities in particular (due to
China’s soft-landing). When will the bears understand that you “don’t
fight the Fed”?
+ New Home Sales popped
5.7% and inventory fell to the lowest in over 6 months as supply continues
to whittle down. Lower supply will eventually lead to stabilized
prices and consumer confidence. Additionally, changes to the
Home Affordable Modification Program (HAMP) will help
make refinancing more accessible and streamlined. Other
programs to unclog the financial arteries related to the
housing market are being discussed. Slowly but surely the housing market
is healing. Have you
seen homebuilding stocks lately?!
- Consumer confidence as per
the Conference Board plunges
in October to the lowest since….(drum roll)…. March ‘09.
Both current nor future conditions are spared; the former dropping from
33.3 to 26.3, while the latter falls from 55.1 to 48.7. Job-related
measures also show deterioration with “jobs not so plentiful” rising to
49.5% from 45%. Meanwhile, the Bloomberg
Consumer Comfort survey corroborates.
Not the results you want to see headed into the holiday shopping season.
- The bull’s thesis that the
global economy remains on firm footing belies the true nature of the recovery’s
condition (or lack there of), especially when looking at the latest Eurozone
Services PMI data. October’s measure shows contraction
for the sector at the broadest pace in more than 2 years (47.2 from
49.1). More austerity coming down the pipe doesn’t bode well in the months
ahead. While “CAT” may have scored an A+ in its earnings and outlook, a slew
of other companies (one of them being 3M) don’t see the same scenario in the
coming quarters. Officials in Hong Kong report
the country’s first drop in exports in almost 2 years and see the outlook as
“bleak”. India is dangerously approaching stagflationary conditions, evidenced
by their recent rate increase coupled with a downgrade of their GDP forecast.
its growth forecast as well.
- Let’s simplify
the opprobrium with regards to the Eurozone’s latest bailout (nitty
gritty can be seen here).
1st) it fails to respect the laws of mathematics, such as factoring
out pre-existing commitments and guarantees that won’t be paid (“stepping-out
guarantors”: Greece, Ireland, Portugal, Spain, and Italy); 2nd) it fails
to account for historical first-loss rates of 50% for sovereign defaults, not
the 20% agreed; 3rd) it fully eliminates the possibility of Belgium getting its
rating slashed, which would eliminate their contribution to the bailout
fund—-we’re not even considering France yet, even though the OAT/Bund spreads
are close to record highs; and finally 4) It decimates the Sovereign
CDS market, which has its own unintended
consequences. The best method of protection now is simply not to
buy/provide credit, or outright selling/shorting of sovereign
bonds. On a side note, this bailout result for Greece becomes an
incentive for other countries who have fallen on hard economic times to demand
the same treatment. ”Why should we suffer when they got
rewarded for not fulfilling their austerity promises?”. The circular
nature of this plan, the faulty math, and its the rosy assumptions make it
unequipped to handle even a slight deterioration in the economic
landscape; for instance, a
recession in Europe (which would jeopardize France’s AAA rating),
or a highly probable downgrade in Belgium. The Chinese aren’t confident
and are prevaricating
in their commitment to fund the rescue. To drive this whole point home,
there was little follow-through from Thursday’s rally and doubts
are already resurfacing.
On the subject of Italy, do
the bulls really think that officials are serious about implementing the
“required” austerity? One of the “famed” proposals is to increase its
retirement age from 65
to 67 by the year 2026. And to achieve that, a fight
broke out in the legislative chamber; imagine what actual
near-term austerity would do. Most importantly, the Italian sovereign
debt market didn’t
bite on the solution. An acute sovereign risk remains.
- Governments are incapable of
allocating a nation’s resources. These are
the results of
their actions. And now they just doubled down by leveraging up to save a
failed Euro experiment. Europe, you are not defeating the speculators,
you are making them stronger. The specious plan of leveraging the EFSF is
to infect the core of Europe and more importantly is
beginning to seed a dangerous sense of nationalism as
continued demanded austerity is slowly being seen as a (il)legal act of war.
The more hardship there is (Spain
Unemployment just hit the highest in 15 yrs), the more fervid
this sentiment it will become.
- Do you want to put
stock in some PMI survey gauging peoples’ perceptions of the Chinese economy,
or do you want to see hard evidence
of a slowdown?
some disturbing activity in the property market. The bubble is popping.
Time to choose one of two fatal poisons for the Communist party, Mr. Wen.
Clamp down on credit and you get increased protests as people’s life
savings vanish as the property bubble pops leading to a subsequent
collapse of the economy; or stimulate, leading to wage/panic-induced
inflation spiraling out of control. Material Yuan appreciation seems
to be out of the question, to the chagrin of Congress. Clock’s ticking
Mr. Wen. One thing you might want to remember is that the Fed is pondering
another QE experiment (ie. exporting inflation). Just thought you’d like
- A dangerous escalation took
place between government authorities and “Occupy (You name the city)” movement.
The trend of this campaign is moving toward violence, not compromise. The
country’s politics fell into disrepute long ago, but this may take it to a
whole new level. Politicians better start doing something and soon.
Commodity Traders: The trillion dollar club http://www.reuters.com/article/2011/10/28/us-commodities-houses-idUSTRE79R4S320111028
NEW YORK (Reuters)- For the
small club of companies who trade the food, fuels and metals that keep the
world running, the last decade has been sensational. Driven by the rise of Brazil,
China, India and other fast-growing economies, the global commodities boom has
turbocharged profits at the world's biggest trading houses.
They form an exclusive group,
whose loosely regulated members are often based in such tax havens as
Switzerland. Together, they are worth over a trillion dollars in annual revenue
and control more than half the world's freely traded commodities. The top five
piled up $629 billion in revenues last year, just below the global top five
financial companies and more than the combined sales of leading players in tech
or telecoms. Many amass speculative positions worth billions in raw goods, or
hoard commodities in warehouses and super-tankers during periods of tight supply.
U.S. and European regulators
are cracking down on big banks and hedge funds that speculate in raw goods, but
trading firms remain largely untouched. Many are unlisted or family run, and
because they trade physical goods are largely impervious to financial
regulators. Outside the commodities business, many of these quiet giants who
broker the world's basic goods are little known.
Their reach is expanding. Big
trading firms now own a growing number of the mines that produce many of our
commodities, the ships and pipelines that carry them, and the warehouses, silos
and ports where they are stored. With their connections and inside knowledge --
commodities markets are mostly free of insider-trading restrictions -- trading
houses have become power brokers, especially in fast-developing Asia, Latin
America and Africa. They are part of the food chain, yet help shape it, and the
personal rewards can be huge. "The payout percentage of profits at the
commodities houses can be double what Wall Street banks pay," says George
Stein of New York headhunting firm Commodity Talent.
whose initial public offering (IPO) in May put trading houses in the spotlight,
pays some traders yearly bonuses in the tens of millions. On paper, the partial
float made boss Ivan Glasenberg $10 billion richer overnight.
How big are the biggest
trading houses? Put it this way: two of them, Vitol and Trafigura, sold a
combined 8.1 million barrels a day of oil last year. That's equal to the
combined oil exports of Saudi Arabia and Venezuela.
Or this: Glencore in 2010
controlled 55 percent of the world's traded zinc market, and 36 percent of that
Or this: publicity-shy Vitol's
sales of $195 billion in 2010 were twice those at Apple Inc. As well as the 200
tankers it has at sea, Vitol owns storage tanks on five continents.
U.S. regulations are now
pending to limit banks' proprietary trading -- speculating with their own cash.
The new rules don't apply to trading firms. "Trading houses have huge
volumes of proprietary trading. In some cases it makes up 60-80 percent of what
they do," said Carl Holland, a former price risk manager at oil major Chevron
Texaco, who now runs energy consultancy Trading Solutions LLC in Connecticut.
"They have the most talent, the deepest pockets, and the best risk
In addition to proprietary
trading curbs, the U.S. regulator voted on October 19 to impose position limits
in oil and metals markets. That gives banks who trade futures
cause for concern, but since physical players usually receive exemptions to
limits -- because they are categorized as bona fide hedgers -- trading firms
should go unscathed.
The trading houses' talent and
deep pockets translate into incredible power. "Most commodity buyers in
the world are price takers. The top trading firms are price makers," said
Chris Hinde, editor of London-based Mining Journal. "It puts them in a
The sort of position that has
allowed Vitol to do a brisk oil business with the U.S. government, the besieged
Syrian regime, and Libya's newly empowered rebels simultaneously over the past
few months. In April the company dodged NATO bombs and a naval blockade and
sent an oil tanker into the battered Mediterranean port of Tobruk to extract
the first cargo of premium crude sold by rebels at the helm of a breakaway
Libyan oil company defying Muammar Gaddafi.
Vitol also discreetly supplied
Libya's rebels with $1 billion in fuel, Reuters has learned -- supplies they
desperately needed to advance on Tripoli. Vitol's early running gave the firm
an edge with the country's new political stewards. As it turns the pumps back
on, Libyan oil firm Agoco has allocated Vitol half of its crude production to
While its savvy traders were
doing deals in eastern Libya, Vitol, along with rival Trafigura, kept refined
product supplies flowing to the besieged government of Bashar al-Assad in Syria
as his troops attacked civilians. Trading houses were able to do this because
international sanctions on Syria do not ban the sale of fuel into the country,
but they did not have to fight off much competition for that business.
Despite a relative lack of
regulatory oversight, such reach does attract scrutiny. "There has always
been some concern about the trading firms' influence," said Craig Pirrong,
professor and commodities specialist at the University of Houston, who points
out that some firms "have been associated with allegations of market
Public and regulatory
attention usually rises with prices. A spike in world food prices in 2007
stirred an outcry against the largest grain trading firms; when oil prices
surged to a record $147 a barrel in 2008, U.S. Congress probed the role of oil
trading firms, but found no smoking gun. But in May the U.S. Commodity Futures
Trading Commission sued Arcadia and Parnon, both owned by a Norwegian shipping
billionaire, for allegedly manipulating U.S. oil prices three years ago,
amassing millions of barrels they had no intention of using. The companies
dispute the charges.
Some transgressions make
headlines. A Trafigura-chartered tanker was intercepted in the Caribbean in
2001 on suspicion of carrying illegal volumes of Iraqi crude. In a settlement,
Trafigura agreed to pay a $5 million fine, but wasn't charged with smuggling
and denied wrongdoing. In 2006 a tanker it chartered dumped toxic waste in
Ivory Coast, allegedly making thousands ill and killing up to 16. Courts did not
find any connection between its waste and sick people. Trafigura took legal
action to keep a report about the Ivory Coast incident out of newspapers, but
details were eventually made public.
And it's not just the
Europeans. Executives of Illinois-based ADM, formerly Archer Daniels Midland,
were jailed for an early 1990s international price-fixing conspiracy for animal
feed additive lysine. After Minnesota-based Cargill built a huge soybean
terminal on the banks of the Amazon River in 2003, it was targeted by
Greenpeace and subjected to Brazilian government injunctions for allegedly
encouraging more farming in fragile rainforest. Cargill has since placed a
moratorium on buying soybeans from newly deforested land.
THE SQUEEZE AND THE ARB
For many commodities traders,
the most profitable ploy has been the squeeze, which involves driving prices up
or down by accumulating a dominant position. In the early 2000s, the Brent crude oil stream --
used as a global price benchmark -- fell to 400,000 barrels per day from more
than 1 million in the late 1980s. A few traders seized the chance to buy what
amounted to almost all the available supply. Price premiums for immediate
supply spiked, sapping margins for refiners worldwide. U.S. refiner Tosco sued
Arcadia and Glencore for market manipulation; the case was settled out of
In metals, stock in warehouses
can be tied up for years as loan collateral, allowing the same traders who
dominate the metals market to control a huge chunk of world supply -- an
apparent conflict of interest that has drawn criticism from the UK parliament.
"The warehouses seem to
have an infinite capacity to absorb metal, but a very small capacity to release
it," said Nick Madden of Novelis, the world's top rolled aluminum
Trading houses saw the
opportunity to leverage metals warehousing after the 2008 financial crisis. Of
the six major metals warehousers only one, Dutch-based C.Steinweg, remains
independent. Trading houses competed with banks for the spoils -- Glencore,
Trafigura and Noble took one warehousing company each, Goldman and JP Morgan
And unlike commodities
producers, such as U.S. oil giant Exxon Mobil, trading firms don't just make
money when prices go up. Most rely on arbitrage -- playing the divergence in
prices at different locations, between different future delivery dates, or
between a commodity's quality in different places.
That's what Koch, Vitol and
others did in 2009 when they parked 100 million barrels of oil in seaborne
tankers. Thanks to a market condition known as contango -- a period when buyers
pay more for future delivery than to receive their cargoes promptly -- they
could sell futures and lock in profits of $10 a barrel or more.
Many of the biggest players in
oil and metals trading trace their roots back to notorious trader Marc Rich,
whose triumph in the 1960s and 70s was to create a spot market for oil, wresting
business away from the majors.
Belgium-born Rich joined
Philipp Brothers, subsequently Phibro, aged 20, leaving in 1974 with a fellow
graduate of the Phibro mailroom, Pincus "Pinky" Green, to set up Marc
Rich and Co AG in Switzerland.
Rich, now 76, would later end
up on the FBI's most-wanted list for alleged tax evasion and trading oil from Iran
after the revolution in 1979. He was later pardoned. His partners seized control
of the firm in 1994, renaming it Glencore.
Several big trading houses are
still family-held -- firms like agricultural giant Cargill, the top private
U.S. company, or Kansas-based Koch Industries, a close No. 2. Koch's chief
executive Charles Koch, a libertarian activist with a $22 billion personal
fortune according to Forbes, has said his company would go public "over my
dead body". "The thinking is, why open the books to the world?"
said a former lobbyist for Koch who requested anonymity. "Koch benefits
from privacy, and it's astonishingly agile and profitable as is."
The old guard now faces a
challenge from a new breed of Asian competitors. Companies like Hong Kong-based
Noble and Singapore's Olam and Hin Leong are not new, but they are spreading their
wings as China's influence in commodities markets increases. Chinese state
funds have flowed into Noble and private Asian traders. As China's clout grows,
it's very likely that Chinese firms will build trading dynasties of their own.
In a move borrowed from the playbooks of western rivals, state-run oil firm
PetroChina has set up a Houston oil trading desk and leased massive oil storage
tanks in the Caribbean. "China is becoming more like a
Glencore," said Hinde. "The Chinese state is funding nimble trading
firms to do its bidding. We don't hear much about them yet, but in time we
Here's a look at the 16
companies, with aggregate revenues of $1.1 trillion, that trade energy, metals
SAILING CLOSE TO THE WIND
WHO: Vitol, founded 1966 in
Rotterdam by Henk Vietor and Jacques Detiger
WHERE: Geneva and Rotterdam
WHAT: Oil, gas, power, coal, industrial metals, sugar
TURNOVER: $195 billion (2010)
CEO: Ian Taylor STAFF: 2,700
On the world oil markets the
name Vitol is as familiar as Exxon is at the petrol pump.
In public, for a company that
turned over almost $200 billion last year trading 5.5 million barrels a day,
its profile is nigh on subterranean.
But earlier this year the
world's wealthiest oil trader raised that profile, and did its reputation no
harm, by becoming the first to deal with Libya's rebels, long before the
overthrow of Muammar Gaddafi.
That helped balance the
reputational damage of being fined -- along with many other companies -- for
paying surcharges a decade ago to Saddam Hussein's Iraqi oil ministry during
the U.N. oil-for-food program.
Vitol's Saddam connection does
not seem to have hurt it in Iraq. It became the first company to supply
gasoline to the energy ministry after the war in 2003, and now is both a buyer
of Iraqi crude and supplier of refined products.
An array of storage tanks on
five continents oils the wheels of its vast trading operation and it has
stepped into the gap left by the oil majors as they reduce their downstream
presence to focus on upstream exploration and production.
With African investors Helios
Investment it recently paid a billion dollars to buy Shell's fuel marketing
operation across 14 West African countries, keeping the Shell branding.
It has also dipped a toe in
the upstream business. Together with Glencore, it pre-qualified to bid for
exploration rights in Iraq in a licensing round next year that that could add
the Iraqi upstream to its offshore West Africa operations.
Its early dealings with the
Libyan rebels may offer the chance of a foothold in Libya's oil and gas
"Vitol's goal was to
supply the refined products and then try to pick up upstream assets in
Libya," said a western diplomatic source.
Glencore's flotation has
sparked speculation about a possible Vitol initial public offering and what it
would be worth. Vitol says it is happy with its private status and has no IPO
By annual revenue Vitol is
richer than Glencore but the numbers aren't directly comparable -- Glencore
owns more hard assets which, typically, are far more profitable than trade
Vitol's wealth is spread
across only 330 share-holding employees, fewer than Glencore's 500. While Vitol
would not comment, industry talk has it that none of its senior employees,
including CEO Ian Taylor who joined from Shell in 1985 or long-timer Bob Finch
who heads Vitol's coal business, holds more than 5 percent of the company. That
would put them well below the 16 percent stake Glencore CEO Ivan Glasenberg
owns in his firm.
The company's deal with
Libya's rebels was a gamble. Sanctions targeted Gaddafi. The firms now
controlled by the western-backed rebels might still legally be linked to
Libya's national oil corporation. Was Vitol in violation? Lawyers said doing
business with the rebels still required great care. But by the end of April, a
U.S. Treasury directive authorized the Vitol transactions.
"They sail as close to
the wind as they possibly can legally," said an oil analyst who requested
anonymity. "That's the nature of their business."
(additional reporting Barbara
PRIVATE TO PUBLIC
WHO: Glencore, founded 1974 as
Marc Rich and Co. renamed Glencore in 1994
WHERE: Baar, Switzerland WHAT:
Metals, minerals, energy, agricultural products
REVENUE: $145 billion in 2010
CEO: Ivan Glasenberg
STAFF: 2,800 people directly;
55,000 at Glencore's industrial assets
By Clara Ferreira Marques
cast aside its famed secrecy earlier this year with a record market debut that
turned its executives into paper millionaires and propelled the firm into the
Founded in 1974 by Marc Rich,
who fell foul of U.S. authorities but was later pardoned by President Bill
Clinton, Glencore has assets spanning the globe and an oil division with more
ships than Britain's Royal Navy. Top officials in many other large trading
companies began their careers at Glencore.
The company handles 3 percent
of the world's daily oil consumption. It's one of the largest physical
suppliers of metals including zinc, lead and nickel, and a leading grain
exporter from Europe, the former Soviet Union and Australia.
Though it began as a pure
metals and oil trader, Glencore has bought a wealth of industrial assets since
the late 1980s which now stretches from South American farmland to copper mines
Belgium-born Rich sold his
stake in 1994.
The company's largest
shareholder is now former coal trader and Chief Executive Ivan Glasenberg, an
intense and charismatic South African who holds a stake of just under 16
percent, worth around 4.5 billion pounds at current prices.
Still not entirely comfortable
with his public profile, Glasenberg has described his shift into the glare of
publicity as "crossing the Rubicon". He is flanked in the top
investor table by the youthful heads of Glencore's major divisions. Together,
Glencore employees, including many of its top traders, own just under 80
percent of the company.
Glencore has long made its
fortune by working on the fringes and in areas where few others dared. That
strategy has often succeeded, though last month it found itself at the center
of a dispute in the newly minted nation of South Sudan. A row over oil export
control could jeopardize its role in selling the nation's crude.
Glencore's initial public
offering was the largest globally this year, attracting huge publicity as well
as arguments that it marked the top of the commodities cycle. The shares listed
at 530 pence in May but have since traded below that, dropping almost a quarter
in three months.
A large part of Glencore's market
value comes from its listed stakes in other companies, most notably a 34.5
percent holding in Swiss miner Xstrata. Glencore has said publicly it would see
"good value" in a merger with Xstrata, but that has so far been
rejected by other, smaller, shareholders.
WHO: Cargill, founded 1865 by
William Wallace Cargill at the end of the U.S. Civil War
WHERE: Minneapolis, Minnesota
WHAT: Grains, oilseeds, salt, fertilizers, metals, energy
TURNOVER: $108 billion (2010)
CEO: Greg Page STAFF: 130,000
By Christine Stebbins
Tucked away in a private
forest an hour's drive from the downtown high rises of mid-western Minnesota
stands a brick mansion that strikes most visitors the same way: isolated,
solid, regal, powerful.
Inside the "lake
office," as it is known, sits the chairman of Cargill Inc., one of the
largest privately held companies in the world.
Over the last 145 years,
Cargill has grown from a single grain storage warehouse by an Iowa railroad to
a behemoth of world commodities trade, straddling dozens of markets for food
and other essential materials -- salt, fertilizer, metals.
With global sales of $108
billion in 2010, Cargill would have ranked No. 13 in the Fortune 500 list of
publicly held companies, just behind Wall Street banking giant Citigroup.
But Cargill is anything but
public. Despite a concerted campaign in recent years to put forth a friendlier
face and personality through advertising and more appearances by its executives
in public forums, Cargill is bound together by a culture of confidentiality,
aggressiveness -- and winning.
"By and large they move
as a team," says one retired wheat trader who did business with Cargill
for decades. "They have some superstars but mostly a lot of team players
-- what I would describe as well grounded, fundamental traders."
One of their secrets: filling
the empty barges headed home.
"You've always had grain
going down the river and going through the Gulf and being exported. One of the
great things that Cargill did was develop the salt business to transport back
up, eliminate the snow during the wintertime, and fill barges back up with back
hauls," the wheat trader said.
"It was done a long time
ago. People forget about it. But it was absolutely one of the greatest moves in
Cargill hopes to dominate new
markets as well. Two examples: it makes biodegradable and recyclable plastics
out of corn at its $1 billion complex at Blair, Nebraska, and is creating new
low-calorie food ingredients for such multinationals as Kraft, Nestle and Coca
At times Cargill's power has
got it into trouble. In 1937 the Chicago Board of Trade forced the company to
sell its corn contracts and Secretary of Agriculture Henry Wallace accused it
of trying to "corner" the U.S. corn market. In 1972 Cargill came
under attack as it secretly sold millions of tonnes of wheat to Russia,
using a U.S. export subsidy program to boot -- and boosting food inflation.
It helps that the firm usually
has the backing of Washington. In early 2007, when world grain prices were
surging toward all-time highs, it faced a problem in Ukraine. Citing concerns
over potential shortages and rising bread prices, Kiev had placed export quotas
on cash crops and temporarily stopped granting export licenses for corn, wheat,
barley and other grains.
Cargill, as well as fellow
U.S. commodity trading firms Bunge and ADM, "agreed to undertake a public
relations effort with the goal of creating a political problem for the
Government of Ukraine", according to a 2007 diplomatic cable by the U.S.
ambassador to Ukraine that was obtained by WikiLeaks and made available to
Reuters by a third party.
To achieve this, "it
would be necessary to recruit the (Ukrainian) farmers to take an active role.
This would be a challenge, since small farmers were unorganized, and most had
already cashed in their crops by selling to the traders early... Grain traders
welcomed our offer to lend a diplomatic hand," the ambassador wrote.
Asked to comment, Cargill said
the company actively backs free trade to boost agriculture in all countries and
"is in dialogue with many important audiences, including governments...
Additionally, we don't believe export bans are the solution to either high
grain prices or price volatility." ADM declined to comment and a spokesman
for Bunge could not be reached.
WHO: Koch Industries, founded
1920s by Fred Koch
WHERE: Wichita, Kansas
WHAT: Oil TURNOVER: $100
CEO: Charles Koch STAFF:
By Joshua Schneyer
Founded in the 1920s by
patriarch Fred Koch, a U.S. engineer who developed a new method of converting
oil into gasoline, Koch helped to build a refining network in the Soviet Union
in the 1930s. Fred Koch returned to the United States with a visceral hatred
for Joseph Stalin and communism. A fiercely libertarian ideology and ultra-competitive
engineering prowess live on at Koch Industries' spartan headquarters in
Wichita, Kansas, a former Koch executive told Reuters.
With around $100 billion in
sales, Koch Industries is a heavyweight among U.S. oil trading firms, and one
of the most secretive U.S. corporations. Investors can forget about buying
shares in the wildly profitable, family-run firm any time soon.
In oil markets, Koch is a
brutally efficient middleman. A master of physical markets, it owns a
4,000-mile U.S. pipeline network and three of the country's most profitable
refineries. Many small producers rely almost entirely on Koch to buy, sell and
ship their crude. The company now operates in 60 countries.
The Koch brothers, Chairman
and CEO Charles and co-owner David Koch, are high-profile supporters of
libertarian and anti-regulation U.S. politics. Among their campaigns is one to
end the U.S. Environmental Protection Agency's mandate for regulating
greenhouse gas emissions. A profile in the New Yorker magazine last year identified
the brothers as behind-the-scenes operators who bankroll the U.S. Tea Party
movement. The Kochs have denied funding the Tea Party, but their empire's
far-reaching tentacles in the political arena have spawned a nickname: the
The firm's traders, according
to two industry sources, made a fortune for Koch in 2009-10 during a contango
in U.S. oil markets -- a period when oil for future delivery was higher priced
than immediate cargoes. Koch moved quietly to lead a boom in U.S. offshore crude
storage, buying millions of barrels at cheap spot prices, parking them in
supertankers near its Gulf Coast pipelines, and simultaneously selling into
With Koch's easy access to
tankers and pipelines, the strategy locked in profits of up to $10 a barrel
with virtually no risk, traders said. When spot and futures prices began to
converge, Koch would quietly slip crude from the ships into its onshore
pipelines. Koch declined to discuss its trading with Reuters.
Former Koch employees were
implicated in improper payments to secure contracts in six foreign countries
between 2002 and 2008, and the company's officers admitted in a letter made
public by a French court last year that "those activities constitute
violations of criminal law", according to a report in Bloomberg Markets
Magazine this month. The report also details sales by a foreign Koch subsidiary
of petrochemical equipment to Iran, which is subject to U.S. sanctions, and a
history of criminal or civil penalties for oil spills, a deadly 1996 U.S.
pipeline blast, and under-reporting of emissions of benzene, a carcinogen, from
a Texas refinery in 1995.
On its website Koch said it
dismissed several employees of a French subsidiary upon learning of the
improper and unauthorized payments. It also said its foreign units had ended
sales to Iran "years ago", and did not violate U.S. law by conducting
business with Iran earlier. Koch said its 90s-era pipeline blast was "the
only event of its kind" in the company's history, and that a report to
Texas regulators was voluntarily submitted by the company in 1995 to reflect
higher emissions than it had originally reported. Koch eventually pleaded
guilty in 2001 to a felony charge related to its reporting of the benzene
The firm's far-ranging industrial
interests also include chemicals, forestry, ethanol, carbon trading and
ranching. Its huge lobbying budget in Washington -- estimated at $10.3 million
a year in a recent investigation by the Center for Public Integrity -- stands
in contrast to Charles Koch's frugal demeanor within the firm.
The CEO sometimes flies to
speaking engagements with no entourage. When in Wichita, he often dines in the
Koch cafeteria. When out-of-town employees visit, he has taken them to dinner
at seafood chain Red Lobster, a former Koch employee said. "But make no
mistake, if you perform well at Koch, you are richly rewarded in salary
terms," the person added. "And if you don't, you're out of there
CORN BELT KINGS
WHO: ADM, formerly Archer
Daniels Midland, founded 1902 by John Daniels and George Archer
BASED: Decatur, Illinois
TADES: Grains, oilseeds, cocoa
TURNOVER: $81 billion (2010)
CEO: Patricia Woertz STAFF:
By Karl Plume
"Corn goes in one end and
profit comes out the other."
That comment, by Matt Damon's
character Marc Whitacre in the 2009 corporate scandal film "The
Informant", described how U.S. agricultural firm Archer Daniels Midland
Co. turned grain into gold. The line may be simplistic but it's not too far
from the truth.
Decatur, Illinois-based ADM is
one of the world's biggest commodities traders. It buys and sells multiple
crops, mills and grinds and processes them into scores of products, both edible
and not, and ships them to markets around the world.
A small Minnesota linseed
crushing business more than a century ago, the firm is now is so big its
financial performance is often viewed as a barometer of agribusiness as a
whole. It owns processing plants, railcars, trucks, river barges and ships. It
has trading offices in China, palm plantations and chemical plants across Asia,
and silos in Brazil.
"We have a system that
monitors the supply and demand needs, because often times they are working
independently. For us in the middle, we have the ability then to manage the
commodity risk that can be created by the timing differences between those buys
and sells," said Steve Mills, ADM's senior executive vice president for
performance and growth.
"You'll hear things
through the marketplace or the wire services that it's raining someplace or not
raining someplace and we'll have people on the ground saying 'I don't know what
you're talking about' ... The futures market may take some of that information
and run with it. One of the things that gives us an advantage is that we're
working in the physical markets as well so (we can) absorb all that information
and make the calls."
But ADM's reputation has
endured a black eye or two over the years.
A lysine price-fixing scandal
in 1993 tarred its name after three top executives were indicted and
imprisoned. ADM was fined $100 million by the U.S. government for antitrust
violations. The incident was the subject of "The Informant", filmed
on site in Decatur.
ADM's environmental record has
also been questioned by the Environmental Protection Agency, resulting in fines
and forced installation of pollution control measures.
PUTIN, JUDO, CONSPIRACIES
WHO: Gunvor, founded 1997 by
Swedish oil trader Torbjorn Tornqvist and Russian/Finnish businessman Gennady
WHAT: Oil, coal, LNG,
TURNOVER: $80 billion 2011,
company estimate ($65 billion 2010)
CHAIRMAN: Torbjorn Tornqvist
STAFF: Fewer than 500
By Dmitry Zhdannikov
When it comes to his critics,
Vladimir Putin is a heavyweight puncher. Yet it took Russia's most influential
politician almost a decade to publicly address one of the most serious
allegations against him.
Critics, including the Russian
opposition, put it simply -- Russia's paramount leader helped businessman
Gennady Timchenko create the Gunvor oil trading empire, which saw a spectacular
rise in the past decade when Putin was president and then prime minister.
Putin finally broke his
silence last month: "I assure you, I know that a lot is being written
about it, without any participation on my part.
"I have known the citizen
Timchenko for a very long time, since my work in St Petersburg," Putin
told a group of Russian writers. Putin worked in the mayor's office in the
early 1990s when Timchenko and his friends, Putin said, spun off an oil trading
unit of the Kirishi oil refinery.
"I never interfered with
anything related to his business interests, I hope he will not stick his nose
into my business either," Putin said.
Timchenko doesn't need to be
told to keep a low profile. He is one of Russia's most private tycoons. And his
silence helped feed rumors about Gunvor's remarkable growth.
In 2011 the company will turn
over $80 billion, up from just $5 billion in 2004. In his first public
interview to Reuters in 2007, Gunvor's Swedish co-founder Tornbjorn Tornqvist
was keen to stress that the firm's success was built on its traders' experience
and excellent contacts.
"But ... to involve Mr
Putin and any of his staff in this dialogue is speculation," he added.
That comment didn't help calm rumors and then Timchenko spoke too.
After a newspaper interview he
wrote an open letter in 2008 headlined "Gunvor, Putin and me: the truth
about a Russian oil trader".
"It is true that I,
together with three other businessmen, sponsored a judo club where Mr Putin
became honorary president," he wrote. "That is as far as it goes --
yet time and again, the media wrongly jump to the conclusion that the judo club
connection means that Mr Putin and I are 'close', then leap into
Tornqvist, a former BP trader
and keen yachtsman, says he doesn't share the vision of Mark Rich, the father
of contemporary trading, that political links are the most prized asset in
"If you don't offer
competitive terms, no one will work with you," he told a Russian daily
this month. For Gunvor's rivals, too, favoritism is also an overly simple
explanation of the company's success. They point to very competitive pricing
offered by Gunvor when it comes to Russian oil tenders.
Gunvor's oil dominance has
waned in the past two years -- it is handling around a fifth of Russian
seaborne oil exports, down from a third three years ago. Perhaps to make up for
that, it has moved into new sectors such as natural gas, coal and emissions.
Tornqvist says Gunvor's goal
is to become a truly global company. "We know how to close the gap (with
Vitol and Glencore) and we are actively catching up," Tornqvist said. Like
Vitol, he says, Gunvor has no plans to follow Glencore into an IPO.
THE RICH LINK
WHO: Trafigura, founded 1993
by former Marc Rich traders Claude Dauphin, Eric de Turkheim and Graham Sharp
WHERE: Geneva, Switzerland
WHAT: Oil, metals
TURNOVER: $79 billion (2010)
CHAIRMAN: Claude Dauphin
By Dmitry Zhdannikov and Ikuko
The godfather of oil trading,
Marc Rich, taught one of his most talented apprentices Claude Dauphin almost
every trick in the business. Like Rich, Dauphin created a leading commodities
trading house by applying a knife-edge approach to business. He has made a
But there was one lesson that
Rich must have cut short: how to avoid jail. While Rich himself fled to Europe
in the 1980s to escape possible imprisonment for tax evasion in the United
States, Dauphin spent almost six months behind bars in Ivory Coast in 2006-7 in
pre-trial detention involving a dispute over toxic waste dumping.
Shortly after the material was
dumped, thousands of residents of the city of Abidjan complained of illnesses,
including breathing problems, skin irritation and related ailments. The
government of Ivory Coast said 16 people died. The material was dumped in
open-air sites around Abidjan in August 2006 after being unloaded from a
Trafigura said it entrusted
the waste to a state-registered Ivorian company, Tommy, which dumped the
material illegally at sites around Abidjan.
"We went to the Ivory
Coast on a mission to help the people of Abidjan, and to find ourselves
arrested and in jail as a result has been a terrible ordeal for ourselves and
our families," said Dauphin.
Trafigura paid a $200 million
settlement and the country's prosecutor declared that there was no evidence of
any illegality or misconduct by any Trafigura company or staff.
In London, Trafigura reached a
pre-trial settlement to put an end to a class-action suit from some 31,000
residents. The judge said there was no evidence the waste had caused anything
more than "flu-like symptoms" and said some media had been
irresponsible in their reporting.
The scandal has hardly
hampered the firm's stellar growth.
It has grown into the world's
third-largest independent oil trader and second-largest industrial metals
trader in less than 20 years, since it was set up in the early 1990s by Dauphin
and fellow traders Eric de Turckheim and Graham Sharp.
Like rival Vitol, Trafigura
has seized the opportunity to get into oil storage as oil majors focus on
production. It announced in early October that it may float its storage
subsidiary Puma Energy within 18 months.
Trafigura was also quick to
recognize the potential of storage in the industrial metals markets. It bought
UK-based metals warehouser and logistics firm NEMS in March 2010, a month after
Goldman Sachs had acquired rival Metro and several months before Glencore and
JP Morgan moved into the business.
SEVEN-YEAR-OLD IN BIG LEAGUE
WHO: Mercuria, founded in 2004
ENERGY TURNOVER: $75 billion
2011 company estimate (2010, $47 billion)
CEO: Marco Dunand
By Christopher Johnson
Mercuria is just seven years
old, but is already one of the world's top five energy traders.
Headquartered in Geneva,
Switzerland, and named after Mercury, the god of merchants, Mercuria's business
straddles global energy markets.
It has coal mines in
Kalimantan in Indonesia, oilfields in Argentina and Canada plus oil
trading in Singapore, Chicago, Houston and across Europe.
Its meteoric growth has been
piloted by a couple of the sharpest minds in commodities.
Marco Dunand and Daniel
Jaeggi, both Swiss, have worked together closely for more than 25 years in a
string of commodities companies, buying and selling crude and oil products in
many of the hottest oil trading outfits: Cargill, Goldman Sachs' J.Aron,
Salomon Brothers' Phibro and Sempra.
In two decades of oil trading,
Dunand and Jaeggi built fearsome reputations for seeing profit margins where
others could only see potential losses. They were early dealers in a range of
financial derivatives that are now commonplace and brought a level of
sophistication to their trading books that most of their competitors could
often only envy.
"You were always a little
worried, taking the other side of their trades," said one European oil product
trader, who declined to be identified.
Compared with other
independent trading houses, Dunand and Jaeggi are high profile, speaking
periodically to the press and giving regular interviews.
Their move to run their own
empire came in 2004 when they founded Mercuria, raising capital from two Polish
businessmen, Grzegorz Jankielewicz and Slawomir Smolokowski.
Jankielewicz and Smolokowski's
company, J+S Group, traded Russian crude oil and was a leading supplier of oil
to PKN Orlen, Poland's top oil refiner.
In 2006, J+S was raided by the
Polish authorities in connection with an investigation into oil trading in
Poland. J+S denied any wrong-doing and suggested the investigation was
politically motivated. No suggestions of wrong-doing were leveled against
Dunand or Jaeggi.
Dunand, chairman and chief
executive, and Jaeggi, head of global trading, used Mercuria to expand their
trading base from crude and oil products.
The business has grown to 890
employees in 28 countries with a turnover at $75 billion, trading almost 120
million tonnes of oil, coal and gas.
NO IPO, YET
Dunand says he and Jaeggi have
no intention of selling the company they have built so swiftly, or launching an
initial public share offering (IPO). But they have seen interest from potential
investors, and have considered a tie-up with a sovereign wealth fund.
"We are not thinking
about an IPO -- but that doesn't mean we don't have an open mind," Dunand
told Reuters in June. "We are keen to consolidate our culture before we
could think about changing it. Having said that, we have also been approached
by potential investors -- sovereign funds and others -- who wish to make a
private-equity type of investment in our company."
Dunand and Jaeggi are
Mercuria's largest shareholders but an employee share ownership scheme holds
around 40 percent of the company. "We don't see the need to raise money
from the market," Dunand said.
A BRIT IN HONG KONG
WHO: Noble Group, founded 1986
by UK scrap metal man Richard Elman
WHERE: Hong Kong
WHAT: Sugar, coal, oil
TURNOVER: $57 billion (2010)
EXECUTIVE CHAIRMAN: Richard
By Luke R. Pachymuthu
Founded 25 years ago by Briton
Richard Elman, the Hong Kong-based, Singapore-listed Noble Group buys and sells
everything from Brazilian sugar to Australian coal.
Noble's shareholders include
China's sovereign wealth fund, China Investment Corp., which bought an $850
million stake in 2009, and Korean Investment Corp., which has a minority stake.
Elman, the company's chairman,
holds around 30 percent of the company. After dropping out of school he began
his career at 15 in a metals scrap yard in the UK. He spent time trading metal
in Hong Kong before moving to New York and a stint at commodities trading giant
Phibro. Back in Hong Kong, he traded commodities with China in the 1970s and
was the first to sell China's Daqing crude oil to the United States.
Noble has grown by acquiring
troubled competitors. In 2001, for instance, it bought storied Swiss company
Andre & Cie, once one of the world's top five grains traders. Finding
itself with a big client base, but short of the physical supplies it needed to
meet demand, Noble built its own processing facilities. It's a model it has
replicated across various commodities.
Noble is now seeking to spin
off its agriculture business with a listing on the Singapore Exchange. The
grains business accounts for a third of its earnings
and could have a value of more than $5 billion. Wall Street heavyweight JP
Morgan is advising Noble on the planned listing.
The company's early forays
into trading gas and oil left it with a black eye. Noble quit its global
liquefied petroleum gas (LPG) operations in 2010, a year it was censured in
Nigeria for discrepancies in gasoline shipping lists. Nigeria's Petroleum
Product Pricing Regulatory Agency (PPPRA) said that in one transaction the
amount of fuel submitted for subsidies did not match the actual quantity
delivered. The company did not comment publicly on this incident.
And it sounded a rare retreat
this week when sources close to the company said it had shut its European coal
trading operations to focus on Asia and trading.
The China connection
continues. In April Noble appointed Li Rongrong, former chairman of the
state-owned assets supervision and administration commission of China, as a
PRIVATE FIRM, PUBLIC SPAT
WHO: Louis Dreyfus, founded
1851 by Leopold Louis-Dreyfus
WHERE: Paris WHAT: Cotton,
rice, grains, orange juice
TURNOVER: $46 billion (2010)
CEO: Serge Schoen STAFF:
By Gus Trompiz
In the two years since
Margarita Louis-Dreyfus inherited control of the world's top cotton and rice
trader following the death of her husband Robert, the woman the French press
call "the tsarina" has been at the center of one of the most
intriguing struggles in corporate Europe.
Analysts and commentators
focused on differences between the forty-something, Russian-born Margarita
Louis-Dreyfus and chief executive Jacques Veyrat over how to develop the
160-year-old family firm and whether to list its shares or seek a merger deal.
The winner? The tsarina, or
MLD, as the press sometimes also calls her. In April, she and Veyrat told
business daily Les Echos that the CEO would be stepping down to make way for
Serge Schoen, head of Louis Dreyfus Commodities.
The very public power struggle
was all the more remarkable because the company normally keeps everything, from
its precise earnings to the exact age of its main shareholder and chairwoman, a
Louis Dreyfus is a well-honed
global operator, marketing agricultural commodities from wheat to orange juice.
But most analysts think it needs fresh capital to grow, or to buy out minority
family shareholders who will have the option to sell their stakes in 2012.
Unsuccessful talks have taken
place with Singaporean commodities group Olam International Ltd, while bankers
say they have been sounded out about a stock market listing.
Margarita Louis-Dreyfus told
Les Echos that a listing, merger or the entry of a private investor were all
options. But there's little room for maneuver: the majority stake she inherited
is locked up in a trust her husband set up to last for 99 years.
"There is no ideal
solution. What matters is that the group and its name survive," she said.
In the wake of Glencore's
listing this year, there is interest in another big trading house going public;
investors want exposure to long-term demand for commodities.
"I would love for them to
be listed on the stock market," said Gertjan van der Geer, who manages an
agriculture fund for Swiss bank Pictet. "Cargill and Louis Dreyfus are the
large missing players in the commodity trading space."
It doesn't look likely anytime
soon. "There is no rush, the company has been private for 150 years so
there is no specific timing for changing the shareholding structure," one
source close to the company said.
A management shake-up this
year at France's most popular football club, Olympique Marseille, offers more
proof of Margarita Louis-Dreyfus' determination to defend her husband's legacy
and impose hard financial choices.
While pursuing Robert
Louis-Dreyfus' passion for the club, which drained millions from his fortune,
she has placed strict conditions on new investment.
"Olympique Marseille is
at a crossroads," she told supporters in a statement to announce the
changes at the club. It's a message that could apply just as well to the Louis
(Additional reporting by
CASHING IN ON CHINESE PIGS
WHO: Bunge, founded 1818 by
Johann Peter Gottlieb Bunge in Amsterdam
WHERE: White Plains, New York.
TRADES: Grains, oilseeds,
TURNOVER: $46 billion (2010)
CHAIRMAN and CEO: Alberto Weissner
By Hugh Bronstein
Two decades ago, Chinese
farmers fed their pigs just about anything they could lay their hands on. But
since White Plains, New York-based Bunge set up in China in 1998, many have
switched to soy pellets. Result: China's pigs are heavier than ever and Bunge
has become a key supplier to one of the fastest growing economies in the world.
The company, which went public
10 years ago, realized early that rising incomes in Asia could be fed by Brazil
and Argentina, two of the last remaining countries with new farmland left for
It helps that the company's
CEO Alberto Weisser is a Brazilian, and that Bunge has more than 100 years
experience in South America.
"Asian demand for South
American soybeans has exploded over the last five years and Bunge is arguably
the best positioned company in the world as it relates to servicing and
profiting from the Asian demand trend," said Jeff Farmer, an analyst who
follows the company for Jefferies & Company in Boston.
Founded in 1818 in Amsterdam,
the company is the world's No.1 oilseed processor. Along the way it has moved
headquarters to Belgium, Argentina, Brazil and then the United States.
"They go where the
business is," said an industry insider who asked not to be named. "No
sentimental attachments to any country or location. What matters is results,
and you can see that in the way they trade."
It doesn't always work. In
May, Argentina kicked Bunge off the country's exporters' register after the
government alleged it had evaded $300 million in taxes, an accusation the
company denies. Argentina's tax office is investigating dozens of other
agricultural exporters as well.
Despite not being on the
registry, Bunge continues to export grains and agricultural products as usual,
but it cannot cash in on certain tax benefits and it faces hurdles transporting
goods within Argentina, which analysts say could hurt the company's bottom
ASIA'S NEW SUGAR KING
WHO: Wilmar International,
WHAT: Palm oil, grains, sugar
TURNOVER: $30.4 billion (2010)
CHAIRMAN AND CEO: Kuok Khoon
STAFF: 88,000 plus
By Harry Suhartono and Naveen Thakral
Around two decades ago, Kuok Khoon
Hong decided to leave the business empire of his billionaire uncle Robert Kuok
to set up an edible oil business with a big bet: China.
He competed fiercely with
Indonesia's Salim group, the business group commanded by his uncle, and won, to
dominate the edible oil market in the world's most populous nation.
Wilmar is now the biggest soy
player in China with a 20 percent market share, measured in processing
capacity. It is also the largest producer of consumer pack edible oils with
about 45 percent market share.
Wilmar's strategy is to have
its fingers in every part of the supply chain, from point of origin to
In the palm oil business, for
example, it owns plantations, mills, refiners, shippers, bottlers and the
distribution network, in both the top producers, Indonesia and Malaysia, and
the top consumers, India and China.
That gives its traders the
advantage of timely market intelligence.
"We have a daily sales
report from every corner where we operate and if we see sales slowing over a
few weeks, we get to know the changing trend before others," one employee
said, on condition of anonymity.
In 2006 Kuok, now 62,
orchestrated a $4.3 billion merger which consolidated his uncle's palm oil
assets into Wilmar, making it the world's largest listed palm oil firm.
Last year he surprised the
market when he trumped China's Bright Food in a $1.5 billion deal to buy
That complements his plan to
set up a 200,000 hectares plantation in Indonesia's Papua island, which could
make him the new "Asian sugar king", a title once hold by his uncle.
With nearly $10 billion worth
of cash and bank deposits on Wilmar's balance sheet, Kuok is unlikely to stop
his expansion drive there. Investors say he might already have his sights set
on Brazil, to strengthen his position in the global sugar market.
THE CUSHING CUSHION
WHO: Arcadia, founded 1988 by
Japan's Mitsui & Co
TURNOVER: $29 billion, Reuters
OWNER: John Fredriksen
By Caroline Copley and Joshua
Arcadia Petroleum, the
London-based oil trading firm owned by billionaire oil tanker magnate John Fredriksen,
was thrust into the spotlight in May when U.S. commodities regulators sued it
for allegedly manipulating U.S. oil markets in 2008.
In one of its biggest-ever
crackdowns, the U.S. Commodity Futures Trading Commission alleges Arcadia
traders amassed large physical crude positions in Cushing, Oklahoma, to create
the appearance of tight supply at the delivery hub for U.S. oil futures. Fredriksen's
traders then hurriedly sold the physical crude at a loss, the CFTC lawsuit
claims, ending expectations for tight supplies. Overall Arcadia profited by $50
million in derivatives markets as oil futures spreads collapsed, according to
In a May interview with
Reuters, Fredriksen refuted the charges and shot back that "maybe they
(U.S. regulators) are trying to get some revenge" for the 2010 BP oil
spill in the Gulf of Mexico. Several of Fredriksen's
traders worked for BP in the early 2000s, where aggressive oil trading at
Cushing turned huge profits, and also led to BP paying fines for alleged
"It is a normal situation
for oil traders ... They are buying and selling oil. That's what it is all
about," Fredriksen said of the recent CFTC charges.
Risk has often paid off
handsomely for Fredriksen. With a personal fortune estimated by Forbes at $10.7
billion, the 67-year-old was Norway's richest man until he abandoned his
citizenship in 2006 to become a national of Cyprus, where tax rates are lower.
Beyond Arcadia, Fredriksen's
stable of commodities-related firms includes MarineHarvest, a global
salmon-farming conglomerate billed as "the world's largest seafood
company." He also owns oil tanker operator Frontline, U.S. oil trader
Parnon -- also named in the CFTC lawsuit -- energy driller Seadrill and gas
distributor Golar LNG.
Fredriksen became a leading
oil shipping magnate well before buying Arcadia, in 2006. His 28-year-old twins
Kathrine and Cecilie play a growing role in his sprawling business empire,
according to press reports.
Arcadia doesn't make its
revenues public. With 800,000 barrels a day to market, a volume similar to OPEC
country Qatar, Arcadia's annual gross revenue from oil could be around $29
billion based on current prices.
The company lists its trade in
paper derivatives as larger still, or about 10 million barrels a day.
Arcadia has faced controversy
before. Founded in 1988 by Japanese trading giant Mitsui Inc., it was sued in
2000 by independent US refiner Tosco for allegedly conspiring to jack up prices
of European benchmark Brent oil by cornering part of the North Sea physical
crude market. The suit was settled out of court for an undisclosed sum.
Arcadia often trades large
volumes of oil from Nigeria and Yemen,
where it boasts close relationships with state oil firms. In a 2009 State
Department cable from Yemen, obtained by WikiLeaks and provided by a third
party to Reuters, sources told U.S. diplomats that the company used
intimidation tactics including kidnapping threats to buy Yemeni crude at below
market prices. Arcadia's chief executive in Singapore, Stephen Gibbons, denied
the contents of the cable and told Reuters the kidnapping allegations were
60 YEARS OUT OF THE LIMELIGHT
WHO: Mabanaft WHERE: Rotterdam
TURNOVER: $15 billion, Reuters
CEO: Jan-Willem van der Velden
By Jessica Donati
Mabanaft's profile is low even
by the secretive standards of other independent oil traders. The company has
spent six decades trying to keep it that way. Its website reveals little more
than that it is the trading arm of privately owned oil company Marquard & Bahls.
A rare news release announced
that Jan-Willem van der Velden, who started as an international trader at the
company in 1997, would take over as CEO from January this year.
Van der Velden took the reins
of a company on a roll. Mabanaft sold 20 million tonnes of oil in 2010, up from
18 million tonnes in 2009. Pre-tax income for its parent company Marquard &
Bahls was $274 million, up from $252 million the previous year.
That's still a lot less than
the billions the biggest independent oil traders make and a long way off the
revenue of Marquard & Bahls' oil tanking division, the second largest in
the world after Vopak. Which may be why Mabanaft wants to expand beyond its
northern European heartland.
From the 43rd floor of a
Rotterdam skyscraper, staff members can look out over a network of rivers
toward some of Europe's biggest refineries. But Mabanaft has also gradually
opened offices in Singapore and the United States and, in the summer of 2010, a
representative office in India.
As usual, details are scant.
"Mabanaft is aiming to further diversify its product portfolio by pursuing
a controlled geographic growth strategy," is all communications manager Maren
Mertens is able to offer on the subject. Geography isn't the sole focus of
expansion -- it has moved into naphtha, LPG and wood pellets.
CASHEWS TO FORBES
WHO: Olam, founded 1989 by the
Kewalram Chanrai Group, began trading cashews from Nigeria
WHAT: Coffee, cocoa, rice,
TURNOVER: $11 billion
CEO: Sunny Verghese
STAFF: 13,000 plus
By Harry Suhartono
A wealthier world needs more
food. That's the argument of Sunny Verghese, chief executive of Singapore-based
trading firm Olam International.
"We haven't seen this
pace of population growth in our living memory," Verghese told a
conference in Singapore late last year. "We have to increase food
production by 50 percent by 2030, and 80 percent by 2050, with our hands tied
behind our back," he said, referring to constraints to boosting output
such as the lack of land, water and infrastructure.
Verghese still plans to cash
in. In two decades the Bangalore-born trader has built Olam into a $4.5 billion
company involved in around 20 different commodities including coffee, cocoa,
rice, grains and sugar, from a startup that sold Nigerian cashew nuts.
These days, Olam has upstream
operations in everything from a coffee plantation in Laos to a rice business in
Thailand, from almonds in
Australia to cashews in Africa. The firm is now the world's largest shipper of
Robusta coffee and counts Nestle, Hershey, General Mills and Sara Lee as
clients. It is also the world's second largest trader of rice after Louis
The French trading giant
approached Olam with a merger proposal in 2010, but talks failed earlier this
Verghese, who Forbes says is
worth $190 million, believes he can go it alone and aims to quadruple the
company's value by 2015. It helps that Olam has backing in high places:
Singapore state investor Temasek holds a 14 percent stake in the trading firm.
Some analysts point to risk
factors: Olam's exposure to natural disasters, such as recent flooding in
Australia, and social or political unrest such as that in Ivory Coast.
IN SEARCH OF A REFINERY
WHO: Hin Leong, founded 1963
supplying diesel to fishing boats
WHAT: Oil and tankers
TURNOVER: $8 billion (2010)
CHAIRMAN AND CEO: Lim Oon Kuin
STAFF: About 100
By Yaw Yan Chong
Lim Oon Kuin arrived in
Singapore from China over 50 years ago, and started to deliver diesel by
bicycle to boatmen. Now in his mid-60s, the reclusive trader is busy with his
latest empire-building effort: getting government approval to build the
city-state's fourth oil refinery.
Known as OK Lim, the founder
of Singapore's Hin Leong Group wants to build the company from oil trader into
an integrated company. He's well on the way. A fleet of tankers and Asia's
largest commercial storage facility are among the company's assets.
The $5-billion refinery would
pit Hin Leong against refineries already operated in Singapore by oil majors
Shell, ExxonMobil and a joint venture between Chevron and China's PetroChina.
Hin Leong made its name in the
hard-fought Asia fuel oil and distillates market over 20 years ago, and is
arguably the largest independent distillates trader in Asia, regularly mounting
successful trading plays in the Singapore market. It also has a substantial
presence in Asia's fuel oil market, the world's largest.
Lim's Chinese connections have
played a big part in the company's success. It focused initially on shipping
fuel oil cargoes to the mainland, a relationship that has since deepened. Hin
Leong is joining hands with several Chinese firms to build the proposed
Singapore refinery, even as it seeks to build a larger oil storage facility in
the South Chinese province of Fujian.
Lim's biggest bet may have
been an unprecedented 1997 spree in which Hin Leong bought 30 million barrels
of jet fuel and diesel in the key Singapore market -- worth nearly US$800
million over a three-month span. The jury is still out among rival traders on
whether he made or lost a fortune that summer, a debate Lim is unlikely to
In his only media interview,
with Reuters in 2006, Lim credited his success to investment in his tanker
armada -- the "secret weapon" that helped him set up stealthy and
profitable deals in the 1990s -- and his philosophy of perseverance.
"Sometimes you get it
wrong, but you have to accept it," he said.
(Jessica Donati, Christopher
Johnson, Ikuko Kurahone, Richard Mably, Dmitry Zhdannikov reported from London,
Gus Trompiz from Paris, Caroline Copley from Zurich, Emma Farge from Benghazi,
Karl Plume and Christine Stebbins from Chicago, Hugh Bronstein from Buenos
Aires, Joshua Schneyer from New York, Luke Pachymuthu, Harry Suhartono and Naveen
Thukral from Singapore; Editing by Richard Mably, Simon
Robinson and Sara
(This story October 21 story
was corrrected in the 17th paragraph to reflect that Trafigura paid a U.S.
Customs fine on an Iraqi crude cargo in 2001, but denied wrongdoing; clarifies
language on Trafigura's 2009 legal action to prevent a report on toxic waste
dumping in Ivory Coast from being published)
We plan on being in business for at least the next twenty years
and with this in mind we are changing the frequency and content of our internet posts. We will maintain our
concentration on market activity while we simplify our business day. We have been writing about the markets
for 27 years - on a daily basis for 12 years - and giving investment advice for 45 years. Our guess is that
while we haven’t seen and said it all we are pretty close to having exhausted any new words of wisdom
we might wish to convey. Markets don’t repeat but they do rhyme. By not posting dally we will be
freed up to do some summer/winter activities such as gardening/snowshoeing, riding our horses,
walking the dogs and spending a bit more time with the prince and princess when they visit. And
so we are going to end our lengthy daily comments but we will continue to post periodically when
market events warrant and/or when there is activity in the Model Portfolio.
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Summary of Business Continuity Plan