Trading disruption

Katie Martin (0:06)

Pushkin.

Lausanne, Switzerland. It looks like a pretty place. A hilly city, Wikipedia informs me, on the shores of Lake Geneva. Why am I banging on about it? Well, aside from its beautiful views and classical architecture, it's also home or near home for a lot of the top executives and traders in the commodities industry. If it's oil or gas or really anything that comes out of the ground and then gets bought or sold for billions of dollars at a stroke, then it matters in this part of the world. Which is why the FT holds an annual Commodities Conference there, and that's underway as we speak with perfect timing, as we all try and figure out exactly how much to freak out about everyone's favorite stretch of water, the Strait of Hormuz, aka, if you listened last time, the Strait of the Muth. Now, listeners, let's find out how badly hardcore commodities traders are losing their cool about the slowly unfolding endless nightmare in the Middle East.

This is Unhedged, the markets and finance podcast from the Financial Times and Pushkin. I'm Katie Martin, a markets columnist at the FT in London, which has a tube strike on, which is very boring. And I'm joined by phone by Robert Armstrong, our man in Lausanne. It's a tough assignment, ladies and gents, but he is up for the task. Now, Rob, what I want to know is, what is the gilet game like out there? You know, like the little slim puffer jacket with no sleeves that you wear under a suit, and it's like Eurofinance bro uniform.

Robert Armstrong (1:46)

First of all, it is not gilet weather here. It is like 69 or 71 degrees and sunny and lovely.

And people are wearing those things anyway. The weather doesn't even matter. You'll still see gilets.

Katie Martin (2:01)

Right. Have you succumbed? I know that you have like a good kind of homing signal thing for like high end men's wear retailers.

Robert Armstrong (2:11)

I will never wear the puffer gilet.

It would burn my skin if one of those were to touch me. But let me say on the upside, this is a beautiful place. You look across Lake Geneva at the mountains to the south, and the air is fresh, and you sort of mentally feel the clanging of cowbells and people singing songs, and it's wonderful here. So there is like several hundred people, big crowd. And it's about half, I would say, people from the trading houses, but it's also miners, it's also representatives of big banks who lend to these guys. It's also the people who sell them the technology. It's the whole complex. And so there's people here who are involved in the industry that gives us copper, aluminum, the whole spectrum of stuff made about oil, food. Basically, if it's something people use every day and it has to go into a ship, there's somebody at the FT's Commodities Global Summit who trades it, produces it, procures it, ships it, packages it, etc.

I had one guy on one of the panels I led yesterday, who operates a rare earths mine in Nebraska. And so it's like, who knew? And I can't even pronounce the thing, this guy digs out of the ground in Nebraska, but you can't make an industrial magnet without it. And there's some of it in Nebraska and he's digging it out of the ground.

Katie Martin (3:39)

That's why commodities people are like interesting and fun, right? They do real things with real stuff. They're not just looking at numbers for a living. So how much is the commodities community, let's say, how much are they freaking out about what's going on in the Middle East?

Robert Armstrong (3:56)

Well, it's a little bit complicated in the following sense. One, the people at this conference, probably half of the people at this conference are commodities traders. So they're people as distinct from commodities desks and banks. These are big houses that use capital to buy and sell commodities and to make money on price differentials and so forth. Now A, these guys really know where the barrels go, how they get there, who needs the oil, all of that stuff, chapter and verse right down the way.

They know this is a very difficult situation for the world. That is point number one. Point number two, is they are making money hand over fist in this situation. Because literally this is their job, right? The job of a commodities trading house is when prices of a commodity are really different in point A and point B.

They make sure that the commodity can get from point A to point B, which is a job the world really needs done right now. Obviously, because one of the main places it used to come from, aka the Gulf, it's not coming from anymore. So there has to be a massive reshuffling of getting this stuff where it needs to be. And we're not just talking about oil, industrial chemicals, refined products, diesel, gasoline, everything's in the wrong place. These guys get it to the right place and take their scrape along the way. So they're going to have a good time.