By Jochen Staiger,
CEO of Swiss Resource Capital
Commodities and futures trading have a long history, dating back to the days before exchanges as a way to insure farmers and producers against unexpected losses. With the establishment of the Chicago Mercantile Exchange in 1898, futures trades became standardized; suddenly this was a secure market and a way to speculate on the prices of soft commodities like wheat or corn without owning or physically needing them. At first the circle of speculative investors was limited, but over time that changed. Today we see hedge funds and even pension funds investing and speculating in commodities like gold, silver, copper, pork bellies, and frozen orange juice. In addition, there are large-scale private investors who think they can outsmart the markets. Times are changing rapidly, and we are now undoubtedly in the early stage of a new commodity and raw materials boom.
On the one hand, the commodity industry itself has changed a lot due to unforeseen taxation, changing governments, customs, and, most important, a new era of e-mobility, which will continue to alter the world of commodities dramatically in the next 20 to 30 years. Take transportation. In the future we will all want to drive in an environmentally “clean” way and will want to feel good about it. That means we need more copper, lithium, cobalt, zinc, nickel, silver, and lead to produce those environmentally desirable cars. In addition, the value of uranium is once again rising, because by 2030 we will need to more than double the energy consumption of 2018 to fuel our mobility. Last but not least, gold remains the ultimate secure commodity in which to place one’s wealth. But because mines for all these commodities do not yet exist, a new bull market for them will start soon. We are about to create new bubbles and boom cycles because of that.
Throughout this book, starting with tulip mania and ending with the bitcoin craze, Torsten Dennin explains the different booms and busts in these markets. (Oddly enough, bitcoins are “mined” too, but they have eroded sharply in price as there is no real value behind them, nor are there any physical reserves in the ground.) The story is always the same; only the name of the bubble changes. Torsten explains the pattern, and it is wise to read this book very carefully. Investors need that historical information to better understand commodity markets. Perhaps they can learn something from the past and avoid making the same mistakes again. Also they will come to understand that commodity markets are always in danger of being manipulated, as they are sometimes very small and financial assets are often concentrated in a few hands that can move hundreds of billions.
Oil, tulips, silver, soybeans—markets can be moved by the “phantom of the opera,” and Torsten’s great contribution is to illuminate the hidden or unknown events affecting the commodity markets. Torsten is one of the few people in the sector who have been intensively involved with this topic since before the beginning of the commodity boom. For more than 16 years, he has dealt extensively with individual commodity markets and their heterogeneous behaviors in terms of demand, supply, and prices.
I have known Torsten Dennin for more than 10 years, and I see him as one of the few top experts in commodity markets. Through the varied episodes in this book, he draws the reader into the topic of commodities, speculation, booms, and busts in a light and entertaining fashion. With its lessons from historic market events, this book offers true enrichment for private and institutional investors who are involved with commodities.