The Secret Broker: Will iron ore come back to the table soon? Pig’s arse!
The Secret Broker
The Secret Broker
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After 35 years of stockbroking for some of the biggest houses and investors in Australia and the UK, the Secret Broker is regaling Stockhead readers with his colourful war stories — from the trading floor to the dealer’s desk.
Well, iron ore was grabbing most of the headlines this week, together with the Chinese property developer Evergrande, now in debt to the tune of only U$300 billion.
Unable to pay your interest on that size of debt is very ‘grande’ indeed, and this dose of reality sent a shiver down the spine of the iron ore traders.
I’ve never met an iron ore trader but in London, we used to have a weekly lunch at a very expensive teppanyaki restaurant. There were eight of us seated around a teppanyaki grill, with our own dedicated chef, cooking some of the freshest produce in the world.
There would be traders from Goldman Sachs, Merrill Lynch, Morgan Stanley and of course Cazanove, who were brokers to The Queen of England.
They would trade in gold, silver, zinc, copper, oil and diamonds.
One chap would even trade in peppercorns and turn over 10 tonnes of the little black seeds a week… but no one would ever trade iron ore or coal.
In 1989, they were both considered too boring to mention, let alone make a price in them.
Remember when the butcher would throw in a couple of lamb shanks for the dog with your steak for free, as they were plentiful and cheap?
Well, that’s how iron ore and coal were perceived at the time in “the City”.
So, our weekly Japanese lunch would involve lively discussions on everyone’s views on what they were trading, which way they were heading and which futures trading house had troubling clients – aka the ones who were unable to meet their margin calls.
We would all take turns to put the lunch on the ‘good old expense account’ and I was mainly there to give them a view on which Canadian or Australian to punt on.
At one time, Canadian diamond stocks were running very hot and my commissions would more than cover off the cost of lunch, which at the time was around £1,200. The little Aussie Battler was then around A$2.50 to the £1.
Very expensive, very fresh and very professionally cooked. None of that throwing rice at you nonsense or making you catch an egg in the bowl.
One day, as we all sat down, a different chef appeared. He was about 6 foot 5 tall, with very pale skin and bright red hair. We were all shocked.
When he started to ask us how we liked our fillet beef cooked, we were struck by a very broad Scottish accent.
Turns out that ‘our Jock’ had been trained up by the owner, as a favour to Jock’s father, who supplied the restaurant with the finest array of single malts that side of the border.
Over the next year or so, we all grew fond of Jock, with his mop of bright red hair protruding out under his tall white chef’s hat. Together with his broad un-Japanese Scottish accent, his tip jar overflowed with £10 notes.
The food was good, the specs were running hot, Chelsea were top of the league. Life was good.
But then one day we arrived as usual, and no Jock. His replacement, a 4 foot 9 chef with a much more Japanese look about him, handed one of us an envelope. In it was a note from Jock.
It just said: “US$1m contract. Over 3 years. In Japan, Thank you lads.”
And that was it.
He had become such a novelty, that he was headhunted and left us for the greener sushi-filled pastures of Japan.
After this, lunches were never the same and we all slowly drifted apart. Within three months, the lunches were no more.
Fast forward to 2021 and what happened to our lunch is happening to the iron ore market. The fun times and the over-exuberance have come to an end.
It was only this year that the iron ore price reached a high of U$200 a tonne plus and then plummeted to below U$100 a tonne, before recovering. Slightly.
The three major Australian iron ore stocks were pregnant with record dividends and things were looking good, before the Evergrande story came along and ruined the party.
On the 26th of July, RIO closed at A$133.21 and yesterday they closed at A$98.86. The iron ore pin up child, FMG, reached $25.58 on the 12th of July and closed yesterday at $15.53, a fall of over A$10.00 a share. BHP had reached a high of A$53.53 and closed yesterday at A$38.38.
This means that after taking out FMG’s dividend, the good doctor’s wealth is down a whopping A$7bn in just over three months.
Turn off the lights, pack away the plates and glasses as this iron-led party is well and truly finished.
Over our teppanyaki lunches, the latest hot commodity would be discussed and as one fell away a month later, another one would emerge. We would move on to discussing what shares to buy to leverage ourselves up.
Recently, over here in Oz, it’s been lithium and then uranium as the latest fashion item to wear in your portfolio and be paraded to all of your Twitter admirers.
Who knows what commodity will be the next one down the catwalk and what listed ASX company designers will be making up the rear?
I do know it will not be iron ore in the next few fashion seasons. But I can count on my Twitter feed to let me know when the fashion changes and the portfolio spring cleaning will begin.
Maybe it’s gold’s turn to frock up?
Footnote: I was saddened to hear the news yesterday that John Elliot had passed away. We crossed swords a couple of times, which was always fun, so tonight I shall lift a glass and say ‘Pigs Arse’ in his honour and down a pint of Fosters.
Feel free to contact him with your best stock tips and ideas.