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Revenue At Goldman’s Commodity Desk Soars To Highest In A Decade, Setting Up Partners For Massive Bonuses

Revenue At Goldman’s Commodity Desk Soars To Highest In A Decade, Setting Up Partners For Massive Bonuses

It wasn’t that long ago that many wondered if Goldman’s commodity desk – once among the most powerful and profitable on Wall Street…

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Revenue At Goldman's Commodity Desk Soars To Highest In A Decade, Setting Up Partners For Massive Bonuses

It wasn't that long ago that many wondered if Goldman's commodity desk - once among the most powerful and profitable on Wall Street - would be quietly shut down as a result of sliding profits. Indeed, as we reported at the time, after a 75% plunge in commodity revenue at the vampire squid, which hit an all time low of less than $300 million in the year that saw the longest stretch of single-digit VIX prints on record, the future for Goldman's commodity team was bleak.

So fast forward to today when we once again get a reminder of Goldman's striking ability to reinvent (and reinvigorate) itself, with Bloomberg reporting today that revenue at Goldman's commodity desk shot past $2.2 billion in the final months of 2021, "topping a windfall it generated in 2020 for its strongest performance in a decade" and adding credence to the revival of the trading desk which a decade ago regularly generated more than $3 billion in revenue.

As Bloomberg details, Goldman’s energy traders have thrived on the wild ride of the post-covid era: "profiting in the months after outbreaks began as oil prices turned negative for the first time ever, and then benefiting again from power grid failures in the U.S. and the frenzied moves in European markets at the end of last year."

The miraculous rebound means that Ed Emerson, the head of the desk who stuck around as peers and supportive bosses left before its turnaround, will be among the highest-paid partners at Goldman with a year end-bonus that could be in the tens of millions in a year of record profits for Goldman when some of the firm’s top performers will surpass $30 million, more than what the bank's CEO has earned in recent years.

To be sure, Goldman's favorable view of commodities is hardly a surprise: the bank's in-house analyst Jeff Currie has been pounding the table with his view that dislocations around the world will create a commodities “supercycle” that lasts a decade (he rose to fame after predicting the China-driven boom of the 2000s and that decade’s surge in oil prices above $100 a barrel). Just this morning he published another note predicting that commodities are set for another year of outperformance.

Whether he is right or not remains to be seen, but Currie's contagious commodities euphoria underscores a key shift on Wall Street: after years of malaise, commodities are once again drawing interest and investment as prices surge (especially when covered in a nice, fake ESG wrapper).

To be sure the commodities unit had played starring roles in Goldman’s ups and downs for decades, ever since as Bloomberg reminds us, a broker in that business - J. Aron & Co. - enlisted the investment bank’s help to sell itself at the start of the 1980s. Goldman, spotting an opportunity to expand, offered to be the buyer, a transaction which paved the way for a group of commodities executives who would eventually run trading, investment management, human resources and even the whole company, with Lloyd Blankfein and Gary Cohn rising to CEO and president and running the bank for decades.

Indeed, it was Blankfein’s support for the commodities business that helped spare it from being dismantled during the industry’s long slump in the past decade. Here Bloomberg reports that as Blankfein prepared to hand off his CEO title in 2018, he unsuccessfully tried to persuade Isabelle Ealet to delay her exit as co-head of trading until the commodities desk, which she previously ran.

And while other veterans of the group also headed for the exits as well, with Goldman's commodity co-chiefs departing within a matter of months, Ed Emerson, 45, found himself holding the top seat alone in 2019, right before the market’s turn.

The Argentina-born, polo-playing Brit is described by colleagues as protective of his staff but also unerringly commercial -- a compliment in some Wall Street circles that emphasizes a focus on profits over niceties. In internal discussions, he’s known to relentlessly argue his views and sometimes butt heads with bosses.

As Bloomberg reports, Emerson rose up through oil trading during an era of spectacular profits in the 2000s, a time when Goldman’s name commanded undisputed respect in those markets.

His fate of Goldman's commodity desk was far less certain under Blankfein's successor, David Solomon who is a product of Goldman's dealmaking tradition not its trading group. When the veteran dealmaker took over from Blankfein in 2018, the team of colleagues David Solomon elevated sweated over the capital allocated to commodities, the paltry revenue it was generating and the miserable return on equity that might antagonize shareholders.

It got so scary that several months in, Goldman's then new President John Waldron tried to reassure the commodities group that the firm wasn’t getting out of the business. Meanwhile, Emerson and senior executives campaigned to keep the core of its operations intact, making the case that its best years came in moments of tumult. Part of the idea was that if activity resumed, Goldman could be better positioned than rivals to capitalize. He was right, and while the ax never swung, the business instead found ways to cut costs and expand electronification, using a service dubbed e-Aron in an ode to the group’s roots.

By 2019, the desk was on steadier footing. And then came Covid-19 when the bank thrived amid swings in oil and precious metals, especially with so many of its competitors lacking talent and depth in their own trading groups to satisfy frentic customers. Then last year, Goldman navigated turmoil in gas and power trading, capitalizing on price spikes in Europe that hurt many big energy consumers.

And as Goldman's commodity group enjoyed a renaissance, the bank's shares soared 45% last year, their best annual performance since their post-crisis rebound in 2009 as the bank and its investment banks saw their earnings soar in the past two years, driven by flurries of investor trading and corporate dealmaking.

Looking ahead, many expect a far more muted environment for Wall Street, but even if markets normalize and revenue from commodities shrinks anew, the Goldman commodity team has once again cemented itself as an integral part of the bank's trading arm. Whether that means that oil will surpass $100/barrell as the bank's clients follow Goldman's research analysts' bullish forecasts, remains to be seen.

Tyler Durden Thu, 01/13/2022 - 15:10

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Luongo: We Are All Djokovic, Now!

Luongo: We Are All Djokovic, Now!

Authored by Tom Luongo via Gold, Goats, ‘n Guns blog,

When I’ve talked in the past about the patchwork tyranny post COVID-9/11, I had more mundane things in mind than the fate of a major tennis star.

Novak.

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Luongo: We Are All Djokovic, Now!

Authored by Tom Luongo via Gold, Goats, 'n Guns blog,

When I’ve talked in the past about the patchwork tyranny post COVID-9/11, I had more mundane things in mind than the fate of a major tennis star.

Novak Djokovic was deported from Australia on Sunday after his appeal to reinstate his visa failed. And it failed not for health reasons but for political ones.

To me, the kinds of terrible rules put in place for ‘public safety’ always conjure up images of casual oppression. Endless videos of pathetic public servants intimidating priests in churches or police arresting pub owners for serving willing patrons.

But it goes far deeper than that. It’s impossible to even conceive of the ways petty bureaucrats and middle managers around the world have destroyed the lives of ordinary people simply trying to get through the day because of a flu.

Since the beginning of the COVID-19 insanity Australia has been the poster child for this kind of thoughtless crime against common decency.

Australian Immigration Minister Alex Hawke’s decision to revoke Djokovic’s visa was made for political reasons. He didn’t try to hide it. If anything, he was proud of this decision.

Hawke said he accepted Djokovic’s recent Covid-19 infection meant he was a “negligible risk to those around him”, but that he was “perceived by some as a talisman of a community of anti-vaccine sentiment”.

“I consider that Mr Djokovic’s ongoing presence in Australia may lead to an increase in anti-vaccination sentiment generated in the Australian community, potentially leading to an increase in civil unrest of the kind previously experienced in Australia with rallies and protests which may themselves be a source of community transmission.

“Mr Djokovic is … a person of influence and status.

“Having regard to … Mr Djokovic’s conduct after receiving a positive Covid-19 result, his publicly stated views, as well as his unvaccinated status, I consider that his ongoing presence in Australia may encourage other people to disregard or act inconsistently with public health advice and policies in Australia.”

These are the words of the committed totalitarian. He hides it behind his public responsibilities, in this case the health status of an entire nation. If he’s not being controlled by outside forces (yeah, right) then he’s been infected with that dangerous solipsism which comes with this much raw power.

That corruption cannot be avoided.

But Hawke’s decision stems from Australia’s backing themselves into the corner over COVID-9/11 policy. They cannot be seen as backing down for anyone, especially someone like Djokovic.

To do so, as Hawke points out, would invite questioning the policy. And their policy is sacrosanct.

However, having admitted that Djokovic posed almost no threat of spreading COVID-9/11 the only thing at stake was the Australian government’s power.

This type of decision reveals 1) how deeply unpopular the COVID-9/11 rules are in Australia and 2) how weak the Aussie government’s hold over its people really is.

They could have weathered this if they had just quietly let Djokovic into the country to compete. They could have spun it had they wanted to.

They chose escalating the standoff to make an example of him to the unvaxxed population. There is no hope. You will submit. If we can humiliate Djokovic, just imagine what we can do to you.

And they revealed just how desperate they are.

Bureaucrats like Hawke have no sense of the politics of their decisions. They are order-takers, not order-makers. He was ordered to do this. When this standoff started it was during the height of the big push to drive fear over the Omicron variant of COVID-9/11.

That rollout failed spectacularly.

Omicron has flared up and out so quickly this affair now looks like the most insane application of government paranoia this side of Pyongyang.

Those that started this standoff created the mess and didn’t have the sense to clean it up.

Because they insist on building trailer parks in the face of a Cat-5 hurricane of public anger.

They hoped to send the message that no one can escape the jab. The Davos agenda of health passes and total technocratic control is inevitable. It’s the EU variant of the virus which Hawke’s immigration policies couldn’t stop coming to Australia.

What they wound up with is a whole lotta people shaking their heads.

But, don’t think for a second Australia is done sending messages to the untermenschen. Now, after he’s been deported, barred from competing and earning his living, Djokovic is liable for all the court costs associated with this decision.

Those costs are estimated to be $500,000.

The three judge panel that upheld the lower court ruling avoided any responsibility in the matter, neatly throwing the decision right back on Minister Hawke. Prime Minister Scott Morrison, clearly one of the people pushing this disaster behind the scenes, also left Hawke out to dry.

Next up for Djokovic will a standoff with France over the French Open. France and Davos will hound him until he submits because they think he cares more about his 21st Grand Slam title than he does his own health. It guess they didn’t get his message during the Australian affair.

But their message is very clear. We are in charge. We can make whatever rules we deem necessary. If you challenge them not only will we deny your challenge on arbitrary grounds but we’ll bankrupt you in the process.

And here I thought we in the post-enlightenment West could petition our governments over unjust laws. I thought this was the first world and not some tin pot dictatorship of thin-lipped, fat-headed midwits?

Only the most insane people are cheering this decision today. They are a part of the 29% of Democrats in the US who believe the unvaxxed should have their children taken from them. Sadly, there are still too many in the thrall of the COVID-9/11 mind virus.

But, if you didn’t get the message before the persecution of Novak Djokovic, I hope you get it now. And I hope he continues to be an example for the rest of us.

*  *  *

Join my Patreon if you got the message

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Tyler Durden Mon, 01/17/2022 - 20:30

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VIDEO — Eric Nuttall: Oil in Multi-year Bull Market, Supply Crisis Coming

Eric Nuttall: Oil in Multi-year Bull Market, Supply Crisis Coming

youtu.be

Supply and demand fundamentals show oil is in a multi-year bull market with a supply crisis in the works.That’s according to Eric Nuttall, partner and senior portfolio manager…

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Eric Nuttall: Oil in Multi-year Bull Market, Supply Crisis Coming youtu.be

Supply and demand fundamentals show oil is in a multi-year bull market with a supply crisis in the works.

That's according to Eric Nuttall, partner and senior portfolio manager at Ninepoint Partners. He manages the firm's Ninepoint Energy Fund, which he said was the best-performing energy fund of 2021.

"The risk/reward for me in the sector is incredible," he told the Investing News Network in an interview. "My biggest challenge is everything looks good — large caps look good, small caps look good. Oil looks good, natural gas looks good. Services look good, offshore drilling looks good — everything looks good."


Nuttall said supply-side factors are key for oil right now, and explained that there are three main baskets to keep in mind: US shale, the Organization of the Petroleum Exporting Countries (OPEC) and the rest of the world.

Looking at 2022, he said US shale is no longer experiencing hypergrowth, meaning that production will grow, but will no longer exceed global demand growth. Meanwhile, OPEC is getting close to using up its spare capacity.

"By the end of this year I believe we will exhaust OPEC's spare capacity, and that will be the most bullish catalyst for oil in easily the last decade," Nuttall said during the conversation.

The "rest of the world" category includes major oil producers like Shell (NYSE:RDS.A,LSE:RDSB) and BP (NYSE:BP,LSE:BP), which Nuttall said have invested insufficiently in new production since 2014, and as a result will effectively post no growth until the end of the decade.

In terms of what that means for prices, Nuttall said it's tough to give a 2022 forecast due to variables like COVID-19, but he thinks oil will be "well in excess" of US$80 per barrel this year, with a shot at making it to US$100. Looking out further, he sees a new all-time high of US$140 to US$150 in the cards for oil.

"I feel very confident that we're in a multi-year bull market for oil. Energy stocks, despite the run, still in my opinion represent a generational opportunity due solely to energy ignorance — people frankly are clueless in terms of how oil is used and how long it's going to take to displace," he explained.

"We will all be consuming oil for the rest of our lifetimes, and yet that fear of peak demand is leading to a reality of peak supply. The writing is on the wall: We're heading towards an oil supply crisis."

Don't forget to follow us @INN_Resource for real-time updates!

Securities Disclosure: I, Charlotte McLeod, hold no direct investment interest in any company mentioned in this article.

Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.

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Graphite Outlook 2022: Demand from Battery Segment to Remain High

Click here to read the previous graphite outlook. Graphite is an essential raw material used in electric vehicle (EV) batteries, and as sales of EVs grow, market watchers believe demand for the metal will surge. Despite discussions about battery chemistry

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Click here to read the previous graphite outlook.

Graphite is an essential raw material used in electric vehicle (EV) batteries, and as sales of EVs grow, market watchers believe demand for the metal will surge.

Despite discussions about battery chemistry changes, many experts think graphite will remain a dominant element in EV batteries for at least the next decade. Both synthetic graphite and natural graphite, in the form of the intermediate product spherical graphite, are used in the anodes of lithium-ion batteries.

Here the Investing News Network (INN) looks at the key trends in the graphite market in 2021 and what the graphite outlook is for 2022.


Graphite trends 2021: Shipping and power cost challenges


After a tumultuous 2020 in which supply chains were put to the test as economies shut down due to the coronavirus pandemic, graphite kicked off 2021 on a bright note.

In early 2021, prices for natural flake graphite were slightly higher than expected as a result of unexpectedly strict environmental investigations and closures in China, Suzanne Shaw of Wood Mackenzie told INN back in July.

“There was also considerable shipping disruption early on in the year with containers and vessels not where they should be as routes reopened post-COVID,” she said. “Limited availability was prioritized for higher-value cargos, with lower-value raw materials flows disrupted. This situation subsided through Q2.”

Pricing was relatively flat during the first six months of 2021, according to Benchmark Mineral Intelligence data.

“Prices for +100 mesh flake concentrate, across all purities, have moved upward by around 5 to 10 percent year-to-date, while pricing for all other grades has moved less than 5 percent so far this year due to continued structural oversupply in the graphite market,” Miller told INN at the end of H1. “Moreover, the global shipping situation at the moment is hindering upward price pressure.”

Prices took a turn in August, jumping on the back of the energy crisis, which hit producers and disrupted output. Battery grades were particularly hit by rising power costs as both the manufacture of synthetic graphite and the processing of spherical graphite from natural flake are known for their high levels of energy consumption.

In terms of supply, Chinese production was expected to ramp up to meet rising domestic battery demand, as there is still a lot of overcapacity in China.

“However, the overall trend is that China is showing less appetite on the raw material side and investing in higher-value downstream industries rather than exploration/mining across most mineral sectors,” Shaw said at the end of H1. “It will continue to increase its own imports of flake graphite.”

Meanwhile, on the synthetic graphite front, the market could be driven into a deficit as a result of increasing demand from the lithium-ion battery and downstream EV sectors worldwide, Roskill, which was acquired by Wood Mackenzie, reported back in August.

“From a performance perspective, EV automakers prefer synthetic graphite, citing its superior fast charge turnaround and battery longevity,” a November Fastmarkets report reads. “Synthetic graphite, however, is costly, power intensive and environmentally unfriendly, with supply centered in China at odds with North American and European automakers’ desire for more localized supply.”

Graphite outlook 2022: What’s ahead


At the end of last year, analysts were expecting demand from the battery segment to continue to grow on the back of increased EV sales, with growth opportunities for both synthetic and natural graphite.

According to Benchmark Mineral Intelligence data, demand for natural graphite from the battery segment amounted to 400,000 tonnes in 2021, with that number expected to scale up to 3 million tonnes by 2030. Meanwhile, demand for synthetic graphite reached about 300,000 tonnes in 2021 and it’s expected to increase to 1.5 million tonnes by 2030.

“We do expect recycling to plug some of these gaps, but this isn't really likely to reach the necessary scale until post 2030,” Miller said in a December webinar. “So at the moment, the focus is really on synthesizing and mining this material as quickly as possible to meet the demand that we might see into the future.”

By volume, graphite is one of the most important elements in any electric vehicle battery ― there is between 50 and 100 kilograms of graphite, whether synthetic or natural, present within each vehicle.

“We can really see the sector growing progressively to around 15 times the demand we see today by 2030, outpacing moderate growth and demand from industrial applications,” Miller said.

That said, it's important to note that only certain types of natural graphite supply are relevant to and able to be qualified for the lithium-ion supply chain.

“This is really the biggest challenge in using natural graphite as a battery input,” Miller said. “This has the potential to exclude further capacity from projects in development.”

The expert explained that if all planned supply reached the market, it would have the potential to balance out demand up to 2029 to 2030, but with these limitations on which material can be qualified, the story takes a different direction.

“The primary limitation here is the mesh size inputs for the battery supply chain must be fine to medium flake,” Miller said, adding that consistency and high purity, somewhere around 94 to 95 percent carbon, is also key. “Flake graphite for the lithium ion supply chain must have low levels of impurity in order to avoid compromising the quality and longevity of the end product.”

According to Benchmark Mineral Intelligence, today, synthetic graphite anodes make up the majority of market share and approximately 57 percent of the anode market.

“Going forward, we do expect this to shift in the direction of natural graphite anodes to around a 50-50 balance for a multitude of reasons,” Miller said. His reasons include tight graphitization capacity, higher costs for synthetic graphite anode material and also the environmental shortcomings of the synthetic graphite supply chain at the moment.

Graphitization is the process of producing synthetic graphite from carbon-rich, oil-derived feedstock raw materials, and this process is energy intensive.

“In China, graphitization capacity has been mainly located in Inner Mongolia, a province which has some of the lowest energy costs in the country and where other high-energy metal producers, such as ferro-chrome smelters, are based,” Fastmarket reports. “But Inner Mongolia was the first in the firing line when the 2021 energy crisis unfolded.”

This resulted in reduced production and unpredictable cost increases for synthetic graphite, and the reason why many battery manufacturers in China could turn to natural graphite instead.

Looking ahead at how overall demand for graphite will perform, Benchmark Mineral Intelligence expects the battery segment to challenge industrial applications as the leading end-market for graphite demand. Over the next decade, anode demand will grow at an average of 27 percent compound annual growth rate (CAGR).

“Unlike some of the other critical mineral markets, there is still time for both the natural and synthetic graphite market deficits to be redressed — so long as adequate funding is provided for junior miners in the near term,” Miller said.

Commenting on price performance, Fastmarkets maintains the view that both flake and spherical graphite prices will trend stable to higher in the near term.

“The only potential reprieve we see for graphite prices would be if the power constraints diminish EV lithium-ion battery production, and in turn reduce demand for graphite anodes sufficiently to stem the upward pressure on graphite prices,” analysts said.

Another key trend for graphite investors to watch in the new year is how western automakers keep up with China, which has become the dominant player in all steps of the anode supply chain.

Interestingly, before 2021 came to an end, US-based Tesla (NASDAQ:TSLA) made a move to secure graphite supply from top graphite producer Syrah Resources (ASX:SYR).

The ASX-listed company will process graphite from its Balama mine in Mozambique in its Louisiana plant, and will supply the EV maker with anode graphite material for an initial four year period. Tesla also has an option to offtake additional volume subject to Syrah expanding its capacity beyond 10,000 tonnes per year.

Don’t forget to follow us @INN_Resource for real-time updates!

Securities Disclosure: I, Priscila Barrera, hold no direct investment interest in any company mentioned in this article.

Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.

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