The Invisible Hands: Top Hedge Fund Traders on Bubbles, Crashes, and Real Money, Revised and Updated

Chapter 7

The Commodity Trader

Massive inflows into passive commodity investment vehicles, increased volatility, new markets and products, and important new players from the East lead us to “The Commodity Trader,” who says that given the volatility and cyclicality of financial markets in the last decade, real money managers will have to increasingly think and act like traders in order to thrive. All investors should pay close attention, as the Commodity Trader forms a rare breed of those able to post strong returns in both 2008 and 2009, a function of his ability to continually find good asymmetric bets.

Although the Commodity Trader remains a trader at his core, he constructs fundamental views for the entire range of commodity complexes, analyzing interest rate markets, currencies, and a host of other macroeconomic variables in the process. He remains above all a trade structure specialist. Where other commodity players might go long the front end contract in, say, wheat or crude, the Commodity Trader will decide where on those curves are the best places to express the trades, often constructing spread trades with a significant use of both derivative financial products and derivative commodity products (e.g., crack spreads).

I first met the Commodity Trader on a dreary winter day, when we sat by the fire in a hotel lobby to discuss plans for his new fund launch, a short time after he had left a major hedge fund. Polite and polished, he is a far cry from the rough-edged stereotype ...