Tin Men

This past weekend David Kocieniewski wrote a lengthy New York Times article on Goldman Sachs’ influence over 27 industrial warehouses that store aluminium. Slate’s Matthew Yglesias queried the alpha return drivers on Goldman Sachs’ decision.

 

My gut response on reading Kocieniewski’s piece was that it had something to do with trading: probably proprietary desk strategies that used swing trading or that manipulated spreads. I had experienced that in late 2011 during my first trades, and pieced the evidence together from regulatory filings and visits to Mitsubishi UFJ Bank in Tokyo, Japan. Yglesias later confirmed my instincts when he linked to Izabella Kaminska’s FT piece that explained the Goldman Sachs trade.

 

I learned a couple of things from this exchange. Three years of hard work means I am starting to slowly understand how financial markets really work. I saw from a series of past trades how similar dynamics could be repeated today. My gut instincts about the Goldman Sachs trade were correct. But I didn’t have the precise, conceptual understanding of the commodities markets and the relevant central bank regulatory loopholes — despite knowing what contango and backwardation were — to nail the Goldman Sachs commodities trade in the way that Kaminska did.

 

This is a humbling intellectual experience.