He’s been called the “King of Oil.” He made hundreds of millions of dollars by foreseeing the surges in oil prices of the 1970s. When the oil market was dominated by a handful of large oil companies (the Seven Sisters), he took them on…and won.
He’s an entrepreneur, a billionaire, and at one point in time was one of the most controversial fugitives of the 20th century. Think what you will about Marc Rich, but no one can deny he has made a fortune by being right at the right time when it comes to geopolitics and commodity prices.
Now he’s making his view of the future available for everyone. And just like his trading ideas in the 60s and 70s, his expectations may go unnoticed by the majority, but they have a good chance at making a lot of money for those willing to listen now.
26-Year Silence Broken
Rich has been a controversial figure for decades. He was thrust onto the world stage in the early 80s when a young prosecutor, Rudy Giuliani, discovered Rich’s Switzerland-based trading company had traded oil with Iran during the hostage crisis and with apartheid South Africa.
Recently the highly secretive billionaire opened up to Daniel Ammann, an editor at the renowned Die Weltwoche. (Literally translates to The World Week – your editor’s German has been fading since we last lived in Europe, but the basics are still there).
In well-researched and generally impartial The King of Oil: The Secret Lives of Marc Rich, Ammann reveals the details behind many of Rich’s past dealings. For the first time, Rich and some of his closest colleagues tell their side of the story. Not from prosecutors, the mainstream media, and other detractors.
But we’re not here to debate the legality or morality of his past dealings. We want to see if one of the greatest commodity traders in history sees something the rest of the world might be missing. That’s the key here.
Seeing What Others Don’t
One of Rich’s formerly employees said, “He sees things before others even begin to think about them.”
The statement was true even from Rich’s earliest days as a trader.
Shortly after working his obligatory stint in the mailroom, Rich took a step back from the daily news and noise and looked at what was really going on in the world.
In the early 50s, most of the world simply saw turmoil. Rich, however, saw opportunity.
From 1949 to 1956, the world saw a lot. The Communist takeover China, the Korean War, Soviet armed responses to uprisings in East Germany and Hungary, and the Suez Crisis all happened in that short-span of seven years.
There was a lot of uncertainty, but there was opportunity for those, like Rich, who were willing and able to hunt it down.
The opportunity he spotted was in, of all things, mercury. At the time, mercury was used in thermometers, batteries, and detonators. Considering all that was going on in the world in the 50s, mercury supply and demand were very tightly aligned. It wouldn’t take much additional demand to cause mercury prices to soar.
The extra demand came from President Eisenhower’s rearmament effort. The program specifically called for a 50% increase in the U.S. strategic stockpile of mercury.
That was all Rich needed to see. He combed the world in search of mercury. He got to know most of the producers and the consumers during his search.
As a trader, he would eventually be the largest mercury trader in the world. He was able to match producers and consumers and skim a piece of the action for himself. As mercury prices rose and consumers became more desperate, Rich was able to carve out a bigger and bigger piece of the trade because he was the man who could get you mercury, whenever and wherever it was needed.
That’s what a trader does. And Rich did it magnificently.
That’s just one example of how Rich saw what so few others were able to see though. He would go onto make a true fortune in the 70s oil bull market by securing supply contracts at a fixed price shortly before oil prices soared.
For decades Rich was consistently right on his commodity forecasts. More importantly, he was right at the right time. There’s no reason to expect this time to be any different.
Marc Rich on the Future of Oil
That’s why I was interested to pick up a copy of the book heading into the “10’s.”
Right now the world looks much as it did in the early 70s. Great uncertainty, high unemployment, international conflict, surging government intervention in the economy…it’s all there.
And with each passing day it looks like the results will be the same too. Economic stagnation and eventually rampant inflation and high energy and commodity prices.
So when I came to the end of the book to the Q&A session, one question really stuck out:
Daniel Ammann: Where is the price of oil going?
Marc Rich: Up and down, but up in the long term. Without any doubt.
It’s not too often you hear conviction like that anywhere in the financial world – without any doubt. Especially coming from someone with the knowledge, foresight, and track record of Rich.
And when we take a step back and look at the world as a whole, we can see what Rich sees. There’s an Iranian disaster waiting to happen, renewed threats of terrorism, ongoing direct U.S. involvement in the Middle East.
There’s a lot to worry about. And when the investors and traders get worried, they buy oil.
Keeping it Simple
That’s why as we head into the New Year, I look forward to renewing our focus on the opportunities created throughout the world. Whether it’s mercury in Spain, tin in Bolivia, or absurdly cheap natural gas in Indonesia, we’ll be there.
The world “needed” a bubble and central banks around the world have dutifully responded. And it looks like the commodities are going to get caught up in all the excitement again. And Rich’s oil expectations will likely be proven correct once again.
With each passing day, it looks more and more like the “recovery” is quickly becoming a self-fulfilling prophecy. The latest manufacturing activity data from China and the U.S. are stronger than they’ve been in years. Today’s market action was a clear signal the market sees more good times ahead and the commodities . Oil hit $81 a barrel and “Dr. Copper” at a 16-month high sees clear skies ahead.
But just like Rich’s most successful commodity trades, we’ll keep it simple. We’ll keep in the back of our minds the “mirage recovery” all fueled by cheap money. We won’t forget that. Because when most of the market forgets that, we’ll know to start looking for it all to come unglued…again.
That’s why the best advice is to continue to buy until the markets simply stop going up. And if you believe the “King of Oil” is right about long-term oil prices, as I do, oil will definitely be one of the places to buy into.
Chief Investment Strategist, Q1 Publishing