Financial History Issue 131 (Fall 2019) - Page 36

BOOK REVIEW  BY JAMES P. PROUT From Tulips to Bitcoins: A History of Fortunes Made and Lost in Commodity Markets By Torsten Dennin River Grove Books, 2019 317 pages with glossary, notes and references $19.95 There is a long path between the farm field and the grocery, between the iron mine and the auto showroom, between the oil rig and the gas tank. Are consumers turning off to orange juice? Does the world have enough lithium to meet the rapid growth in battery production? What will e-mobility do to markets for fossil fuels? How will the growing Chinese appetite for meat affect animal feedstock demand? And so on. Welcome to the multi-trillion dollar global commodities markets. For centuries, commodity market play- ers have sought to make money by spot- ting imbalances or inefficiencies on the path between production and consump- tion. Not enough wheat, too much cot- ton, new discoveries of gold, shortages in rare earth materials. Most times the bets on commodity pricing play a positive role. They act to “correct” over- or under- supply. Like any market, however, there are times when things get out of hand. A certain madness takes over. Or someone tries to manipulate the prices. Or lie about new supply. And the commodities mar- kets are particularly fascinating because they deal in actual goods—not inventions like stocks or bonds—but stuff like rice, wheat, cotton, pork bellies and soy beans. Into this mix comes From Tulips to Bit- coins: A History of Fortunes Made and Lost in Commodity Markets, by Dr. Torsten Dennin, a business professor and com- modities fund executive. It is a very broad treatment of the commodities markets, with each chapter dealing in a how a particular commodity market moved at a point in time, and who was responsible for it. There are stops and sidebars in each chapter, giv- ing additional background on the commod- ity or the personalities. While there were commodity markets in ancient times, Dennin begins his com- modities tour in 1637. Holland was rich, stable and sophisticated. Tulips became a measure of a person’s wealth and status. But there weren’t enough tulips to meet demand, and thus was born a mania. Mid- dlemen, seeking to grab the future market, began valuing bulbs, and investors raced to get into the market as prices skyrock- eted. At one point, three bulbs would get you a decent townhouse in Amsterdam. In the end, someone was left with a large supply of bulbs nobody wanted. We then move to Japan in 1750, where Homma Munehisa, a rice trader using his- torical pricing data, essentially becomes the market for rice. Over several trading days, he buys all he can. When news hits of a poor rice harvest, prices skyrocket and Munehisa makes a fortune. His knowledge of market data would be his edge. But as we learn later, superior data alone is not always enough. In the 19th century, consumer markets open up and industrialization speeds. Com- modity demand broadens. The markets for wheat, oil, gold, etc. all go national, and 34    FINANCIAL HISTORY  |  Fall 2019  | then global. And where money changes hands, financial markets are not far away. Exchanges—The Chicago Board of Trade, The New York Mercantile Exchange, The Baltic Exchange, etc.—are established deal- ing in futures for crops, metals, oil and distillates, and maritime freight. As these exchanges grow, the commod- ities trading business opens up. One need not own a pound or gallon or warehouse of anything in order to bet big. We meet the Hunt Brothers (silver), Yasuo Hamanaka (copper), Brian Hunter (natural gas) and a host of other characters who placed market moving wagers on commodity pricing. Sometimes they get it right, other times they don’t, causing huge losses for their financial backers. We are reminded that natural disasters—droughts, floods, hurricanes, tornados, etc.—can upend the best pricing data. Dr. Dennin’s book is a good introduc- tion to the history of commodities. The writing is conversational, with plenty of colorful factoids. (Rare earth minerals aren’t that rare! Contango is not a Latin dance step!) The organization and presen- tation could have been improved. There is a precis at the open of every chapter, then highlights and then key takeaways. No need, when the chapters are just pages long. Also, some of the stories could have used more depth. Commodities markets are always look- ing for the next big thing or swing. The book’s last and longest chapter is on crypto-currencies. The value of bitcoins and other “new” cyber-currencies have seesawed since their introduction. Billions have already been made and lost. Are they a real thing, with real value? Or will some- one be left with a big supply of 21st century tulip bulbs? Read Dr. Dennin’s book to find out more.  James P. Prout is a lawyer with over 30 years of capital market experience. He now is a consultant to some of the world’s biggest corporations. He can be reached at