The Secret Club That Runs the World: Inside the Fraternity of Commodity Traders Read Online Free Page A

topic in the first half of that year alone. Motorists, trucking companies, and other fuel buyers blamed commodity speculators for driving up prices, and they wanted the government to rein things in. Under intense public pressure, Congress and the Commodity Futures Trading Commission vowed to scrutinize the speculators, whotheir own records showed were accounting for a much larger portion of the markets. But the brewing financial crisis and an ongoing political struggle between those in Washington who believed speculators affected commodity prices and those who didn’t made the CFTC slow to act.
    Overseas and in the States, the cost of food was another red flag. Food prices had risen during the market boom of the mid-2000s, but the concurrent inflation of home prices and the availability of cheap credit had blunted the impact on consumer spending. In the years after 2008, the price of staple grains like corn, wheat, and soybeans hit all-time highs, making food products costlier, evenunaffordable. Some analysts believed thatgrain prices were causing revolution in already-stressed places such as Egypt, which played a pivotal role in the 2011 uprising known as the Arab Spring. And while unpredictable weather, poor crop yields, and a rise in demand were certainly influences, some academics also argued thatcommodity indexes like the GSCI were to blame, saying that the structure of those investments, which was to bet over and over again that prices would rise, actually caused such rises to happen in the physical and futures market.
    They had a point, as an academic paper published in 2010 later proved. But the clear evidence of causation was still hard to find; even when a connection appeared obvious, the support for the theory tended to be largely anecdotal. Andurand estimates that during that fateful day in May 2011, BlueGold moved the Brent futures market down an additional $2 or $3—exacerbating by up to 33 percent what was already a huge, $10 down spiral in the crude market. Negative headlines about a lawsuit implicating the hedge-fund manager John Paulson, a large holder of the physically backed gold security known as the GLD, appeared to force gold futures down nearly2 percent on a single day in 2010—a considerable move in a very large market that is difficult for any single party to affect. The idea that there is a connection in both cases is powerful, and likely accurate. But because the impact of market sentiment is impossible to document, we’ll never completely know.
    What is clear is that the last decade in commodity trading had a unique impact, both on the market itself and the public’s perception of commodities as a compelling investment. The abundance of new speculators, the meteoric growth of the GSCI and other, similar investment vehicles, and the general ebullience about the supercycle and its implicit effect on raw materials allmade the market’s shifts more dramatic. That volatility created kings in the trading world’s empowered class, and drove other people and companies into financial ruin. The commodities bubble of the 2000s is a snapshot of one of the most extraordinary periods in American finance, providing an object lesson on the role of markets, regulators, and how the money world can sometimes lose its connection to the real one.

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THE SPECULATOR
    O ver a leisurely lunch one July day a couple of years ago at a sidewalk bistro in Andurand’s hometown of Aix-en-Provence, the warm, bustling city near the Mediterranean coast in southern France, I asked him who was the best commodity trader in the world. “I’d like to say it’s me,” he said, with a small chuckle, then went back to cutting his food.
    Medium-height and beefy at the time, with rimless glasses and short blond hair, Andurand was wearing his standard ensemble that day: linen shirt unbuttoned just enough to reveal a plug of chest hair, relaxed-fit jeans, and suede loafers. He’d spent the morning reminiscing about his youth in Aix