Counterfeiting Scandals Keep Slamming the Commodities Market

Tracy Alloway (0:10)

Hello, and welcome to another episode of the Odd Lots Podcast. I'm Tracy Alloway.

Joe Weisenthal (0:14)

And I'm Joe Weisenthal.

Tracy Alloway (0:15)

Joe, have you ever heard of something called the Tablet of A.

Nasser? I'm gonna mispronounce that because my ancient Mesopotamian isn't up to scratch, but the Tablet of A. Nasser.

Joe Weisenthal (0:27)

No, never.

Tracy Alloway (0:28)

This became like a big internet meme. There were lots of jokes about it, but it was basically this tablet, this old Mesopotamian tablet. I think it was like 4,000 years old with cuneiform written on it.

People sometimes talk about it as the world's oldest business complaint.

Joe Weisenthal (0:45)

You know, not only have I never heard of this tablet, I'm actually struggling to like figure out what the next thing you're gonna say is that connects it to this episode that's coming up.

Tracy Alloway (0:54)

This is the most random intro to one of our episodes ever.

Joe Weisenthal (0:57)

I like this one. I like where you're going.

Tracy Alloway (0:59)

I'm trying to bring the historic context, but okay, so written on this tablet was a business complaint against this guy, A. Nasser, who was a copper trader in ancient Mesopotamia, and his customer had written a complaint, basically saying, you promised me a certain amount and type of copper, you gave me lesser quality copper, and I am upset, and you have to do something about it.

Joe Weisenthal (1:21)

So this is, okay, now I get how this makes sense, and I guess this is like a phenomenon throughout history, that if you're buying actual physical stuff, there is a question of, you enter into a contract, did you actually get the stuff? Is the stuff that the person said that they were gonna give you, is it actually what it is? Is it real?

Tracy Alloway (1:38)

That's exactly it. And how do you check beforehand to see whether or not the stuff that you're going to be getting is the stuff that was promised to you? These are ancient, ancient problems. And the weird thing is, it seems like the commodities world hasn't actually progressed that much from uniform tablets written on stone to what we use today, which is mostly paperwork.

Joe Weisenthal (1:57)

I remember an episode we did with Dan Davies several years ago, and we talked about the salad oil scandal, the famous one, where the guy filled up those tanks filled with water and then put a thin layer of oil, and they came and they checked, and they're like, oh, these tanks are oil, and he was able to borrow against them. Warren Buffett made a bunch in the crash of all the entities that were associated with it. But this stuff always fascinates me because I think these are the stories where there's something different between just the lines we see on the chart, which are these abstracted version of commodities versus the actual handling of the real thing.

Tracy Alloway (2:30)

Right, there's the financialized commodity, the line that you see on an electronic screen, and then the actual commodity. The two are supposed to match or relate in one way or another, but they're definitely not the same thing. And recently, one of the reasons we wanted to do this episode is there have been a series of scandals in commodities land that have to do with collateral management. So the big one that springs to mind is LME discovering that it had a bunch of rocks instead of nickel backing some of its contracts. And this kind of was a major talking point in commodities world.

Joe Weisenthal (3:04)

Yeah, we recently did that interview with CME Chief Terry Duffy. And he seemed to acknowledge that there's like something about nickels specifically that makes it susceptible to this sort of deception. But we didn't really get into the details. But this is just so fascinating and that involves like heists and scams and deceptions and fraud. And as you say, it's throughout history. So I'd love to learn more about how this business works.

Tracy Alloway (3:25)

Yeah, why does the commodities world seem so sort of ripe for these types of scandals? I'm very pleased to say that we have truly the perfect guests. We are going to be speaking with multi-time Odd Lots guests at the moment, Mercury Group CEO, Anton Posner and Mercury Group COO, Margo Brock. Thank you so much for coming back on Odd Lots.

Margo Brock (3:46)

Thanks for having us.

Anton Posner (3:47)

Thank you, great to be here again.

Tracy Alloway (3:49)

So the last time we talked, I think we were talking about the barge business and what was going on in the Mississippi River. But walk us through your approach to collateral management because this is a space that you play in. I think you do some business for major players such as the big banks. But what exactly do you guys do in the field of collateral management?