The commodities market has always been something I never fully understood. It made sense that companies with exposure to corn or oil would mitigate their risks through a variety of tools (i.e. options, swaps), but otherwise, it never got my attention. However, because there is so much capital in this system, it is an area ripe for profits if you know what you are doing. With this theme in mind, Kate Kelly does a masterful job peeling the layers of the commodities world; from the hedge funds to their regulators, and through that fateful time in the late 2000’s.
The book separates the motivations between the different players of the market by first humanizing them with a face for each layer. You come to sympathize each character’s difficulties and trials as they face their own trials and tribulations. At the hedge fund BlueGold Capital, Pierre Andurand loses half a billion dollars in one day, but not his pride and conviction. At the CFTC (the regulatory body), Gary Gensler remains the ever optimist in life and the system through personal loss and political games. Jon Ruggles, VP of Delta’s fuel, turns around the department from a money losing pit to a hedge fund as smart as the rest of them. You come to understand how people make money or at least make a living around this industry. The question, however, of whether speculation really drives the prices of commodities is not answered explicitly.
I think Kate’s decision to leave it to the readers to make their judgment was a clever way to get people on both sides of the issue to enjoy the book (or, like me, having no real opinion). In my opinion, speculation does effect the commodity market, as people in banks or companies attempt to understand what the smart guys are doing (i.e. hedge funds). Absent of tangible news, like OPEC making an announcement, it’s the people who are “in the know” that drive the direction of the market. But when international conflict and sanctions affect oil supplies, for example, speculation almost becomes a non-factor as not even the largest hedge fund can stem the price movement.
Regardless of the conclusion the reader will draw, this is a well-written book that emulates other successful business books in the market. By humanizing the process, it becomes easier to understand how and why people do the things they do in a market that is widely publicized but understood by few. The book is only 230 pages long; it’ll take just an afternoon of uninterrupted reading to finish. Link to book: The Secret Club that Runs the World (on Amazon)