After 30 odd years in this business, everything becomes cyclic. I have a sense of deja vu reading the headlines this last couple of days and while everything seems similar, it’s actually quite different this time. Of course, as confidence in banks plummets along with their stock prices, we see another round of Government and central bank intervention at Credit Suisse etc. And, as one industry pundit said in an Investing.com article – “All hell’s breaking loose in oil and it has everything to do with the U.S. banking crisis that’s now going global,” said John Kilduff, partner at New York-based energy hedge fund Again Capital. “There is something after all more potent than Chinese demand for oil — liquidity.” This of course has resulted in a rush to traditional safe havens like precious metals and is impacting demand forecasts for things like Oil and so on thus impacting their prices negatively. I’m sure credit solution vendors are seeing a rush on inbound inquiries as everyone focuses in on exposure to certain counterparties and on liquidity.
Like I said, it does seem a bit like here we go again… except it isn’t. This event is taking place in a very different environment in some respects. Today, we are seeing a politically-motivated abhorrence of all things fossil fuels, an energy transition to renewables that is fraught with risks around supply at times of peak demand, a geopoliticial environment where commodity trade transactions are impacted in everything from what is being traded, to who and in what currency. It is, as we have said several times, the perfect storm of change. For me anyway, this compounds the risk in the markets. There is so much going on and so many areas of tightness, risk potential and error, that it is more than ever difficult to gauge. I do think this will be a good time for risk analytics and anything to do with risk assessment and even more so, for those with stress testing and simulation capabilities. – It ought to be anyway! It also seems to be a good time for CTRM in general by virtue of the need to be organised, up to date and aware. Managing and balancing portfolios is key at times like this – not just the commodity portfolio but the broader view including FX, liquidity and more.
My crystal ball is a tad cloudy because there are too many actors involved and way too much political intrigue. By that, I mean that there is a power shift battle going on between various regions and nations that cannot do anything but interact with normal market behaviour. And reading geopolitics isnt necessarily our forte.
Despite that, for many vendors in the space, times can and probably will be good.