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Case Studies
Analysing Sumitomo
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I received my first lessons in commodity trading from my father when I was still a teenager, well preceeding my years at Cargill. My father had the unfortunate privilege of taking delivery of a carload of eggs because he owned the nearby egg futures. On that occasion be said to me, 'Marl, always be careful trading in the nearby contract, you may have to eat it for breakfast. " Some market participants could use my fatber's good advice. Today, we will look at a case that contains this mistake, the case of Mr. Hamanaka at Sumitomo.
The obvious problems
The important things to know
Ten Points
How to lose $1.8 billion
- Price movement flat
- Financing costs
- Basis movement
- Gamma risk
- Structure without detection
The reported problems
Eight important problems
The hidden problems and clues
- Systems of incentives
- Market and company structures
- Total leverage
- Limits
- Liquidity
- Policies and procedures
Interrelationships and the big picture
Finding a focus
- Shock, denial, defensiveness and finger pointing
- Complexity
- Hindsight bias - Separating fact and myth
Constraints to a final solution
- Five immediate steps to take
- Long term implications
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Case Studies
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