That was one hell of a trade. Boy, what a wild ride.
The Sunday after Lehman fell, pacing my empty trading floor, I realized once and for all that my models and reports could no longer tell me what to do. The one unmistakable fact was that my risks would increase if oil continued its decline. I decided that when I came in on Monday, I’d place a big bet that WTI would do just that.
And on a Saturday morning bike ride up the Hudson, it occurred to me that Mexico might be willing to restructure its deal—selling us back the option it owned, and buying a new one—in a way that would lock in billions of profits for the country, while giving me a much needed windfall too. I dropped my bike in a bush and texted our salesperson about the idea.
There were many other decisions and guesses, some made alone, others with help from my team, and still others made by my boss. All were guesswork, none could I have anticipated in stress testing, and all involved abandoning my original strategy along with the illusion of control it gave me.
On how to buy, store and trade an actual pint of oil. Hilarious :
If gold is the equivalent of a pet rock, then I can confidently say that oil is the equivalent of playing host to a herd of feral cats; it demands constant vigilance and maintenance. If gathered in sufficient quantities, it will probably try to kill you, or at least severely harm your health.
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The ideal oil storage trade works something like this: Buy the crude and immediately agree to deliver it at a later date, thereby locking in the difference between the spot and futures prices for what is, in theory, a riskless profit. In 2008, when the forward price of oil vastly eclipsed the spot price, this kind of arbitrage could net a hefty return.
A true oil storage trade therefore required an early buyer. The usual suspects—think Glencore and Trafigura—wouldn’t dream of touching my puny amount oil, of course. So I looked further afield, all the way to my ex-colleagues, who I thought surely must still harbor those long-ago dreams of owning Black Gold.
Even as Massey polluted the environment and exploited its employees, Blankenship cast himself as the true savior of West Virginia workers, who he claimed were being stifled by radical environmentalists perpetuating the hoax of climate change and by government bureaucrats imposing job-killing regulations. Increasingly he entered the political fray, spending millions to promote his anti-government philosophy.
Above is the one-time mountaintop estate of this gangster.
→ Mother Jones
Following VW’ scandal, here is Jean-Louis Gassée on a necessary transition :
Filling up the cars as described represents 1.3 terawatts pulsing through the grid to the electric filling stations. The Syracuse University page pegs the entire US electric supply at about 1 terawatt. Again, I’m not vouching for exact numbers, just the orders of magnitude. Now, add an uncomfortable twist to those numbers: Transmission loss in the electric grid is more than 7%; compare this to the less than .1% for the transportation and evaporation of gasoline.
The result is that we have more than just the science problem of replacing gasoline with electric energy storage. We also face an infrastructure challenge to, first, generate the electricity and, second, transport it to the filling stations at home or on roadsides. It will take a very long time, huge amounts of money, and interesting politics to solve these two problems. And, while I’m not a diehard GM fan, it should (but won’t) kill the “General Motors killed the electric car” myth.
→ Monday Note
What is happening? Why is China—the country that people once thought was the engine of the world economy—tottering so badly ?
To answer these questions it is necessary to recognize that China was never the engine of the world’s growth. To be such an engine you have to import more than you export. Then you would create a demand that is filled by other countries, which as a result export more than they import. Importers are the engines in the supply trains of the international markets. Exporters are the wagons, pulled by the demand created by the profligates. Think of what drives liquor markets: barmen or drinkers?
Credit: Michael Lomax, Impossible Bottle