Trader Jack -The Story of Jack Miner (The Story of Jack Miner Series) (18 page)

Brazil, which generally accounted for about a third of worldwide coffee production, tended to be behind the major price fluctuations. The big price surges came when frosts or droughts damaged the Brazilian coffee crop. Anyone who could understand and predict weather changes in Brazil could make a fortune in the coffee market.

I made a decision. I would use the Manson method for timing purchases and sales. But I would not act on a buy signal unless I was virtually sure that there would be a poor Brazilian crop.

Other than my brief run with gold, I knew absolutely nothing about speculating in the commodities market. When I arrived at work on Monday, I asked Ruffish to explain.

'The share market is kids' stuff compared with commodities,' he said.

'I'm a kid, Ruff, try me.'

'I don't want the fund to go that route. Why commodities?'

'Coffee's looking interesting.'

'The Aquarium fund has already lost money. If you go into commodities, we could lose the lot.'

'Please Ruff. I won't put everything in coffee. Only a small amount.'

'All right then. A maximum of $100,000 in commodities, OK!'

'Thanks Ruff. I won't let you down.'

'You better not. I'll be watching you closely.'

Ruffish spent an hour showing me the risky aspects of commodity trading. Millions can be made or lost in a day, let alone a week. As a speculator, I could either buy coffee futures or options. I'm not going to explain the details on how the market works, but a single coffee futures contract is equivalent to 37,500 pounds of coffee. That's as much as 17 metric tons or 250 of the bags of coffee that they store in the warehouses. At the latest price of 60 cents a pound, the value of a contract was $22,500. To buy this contract, I had to deposit 'margin' of $2,250 or ten per cent of the value of the contract, with the broker. If the price of coffee fell by ten per cent, I would lose my deposit. If the price rose by only ten per cent, I would double my money.

Most speculators trade in and out of the commodity markets every day. I had no intention of playing that game. I was going to follow the Manson method and play for much larger winnings. I reckoned that coffee could recover to a fair price for producers. That price was above $3 a pound. If coffee rose to $3, the value of a coffee contract would surge to $112,500. The profit on that small $2250 deposit would be $110,250! Mind boggling, but true! I printed off prices from the firm's database and ran off charts going back thirty years. Slowly and carefully I calculated the key levels of my aquarium. I concluded that coffee, which had bottomed around 45 cents a pound about a year ago, was at the beginnings of a bull market. It would surprise everyone.

As a loser in the markets during the past six months, I had lost confidence. I had to be certain that I was right. I asked Ruffish for advice. He told me not to rush into the market.

'You're due some leave, why don't you go to Brazil for a holiday?' he said. 'Maybe you'll find out something there.'

'What about New York or Chicago? I could learn more about commodities?'

'Good idea!'

I was surprised. Never thought that he would agree: 'Will that be work or holiday?'

Ruff smiled ruefully: 'OK, two days extra in New York. Then back to London. But it's going to be work. Right! I'll contact Blaby & Co in New York. We do a lot of business with them. They owe us. One of their guys can show you the commodity exchange and you can also learn about Wall Street.'

Maffie walked in: 'What's going on?'

'Jack's off to Rio, then New York. He likes coffee. Wants to do some research on it.'

'Good stuff. My friend Sergio Vieira can take him to some coffee farms. Afterwards some good futures and options trading courses in New York. That's where it's all happening.'

Maffie phoned Sergio and arranged a lightening tour. Fly to Rio de Janeiro. Visit some coffee farms and then have a good time in the city. Then the New York Mercantile Exchange and observe first-hand, trading in coffee, gold, oil and other commodities.

*   *   *

I flew into Rio at night and my taxi was caught in a traffic jam on the way to the hotel overlooking Ipanema beach. Exhausted after the long economy class flight, I went straight up to the room and crashed out. The phone rang before dawn. It was Sergio Vieira, my guide and interpreter. Half asleep, I packed my bags and rushed downstairs to meet him.

Sergio, slight, with an olive coloured face, shook my hand warmly.

'Want a cigarette?' he asked.

'No thanks.'

'It's a long journey. Takes about six hours. We're going to Sul de Minas in southern Minas Gerais. You'll visit lots of coffee plantations there.'

'Thanks for your time.'

We climbed into Sergio's four wheeler and still tired from the flight and jet lag, I slept most of the way. At last, after a few stops, we arrived in Minas Gerais, north west of Rio. Thousands of green coffee trees were on a plateau and within a few days we visited several farms. It was early May and the Brazilian autumn air was chilly.

'You should come here in September and October, when it's spring. The trees are covered with beautiful white flowers,' said Sergio.

I noticed a long line of people in one of the villages. A truck arrived. They clamoured on to the back, pushing and shoving each other. The unlucky ones were left behind.

'They begin to harvest the coffee in May and continue during the winter,' said Sergio. 'They're desperate for work, despite a daily wage that is less than the price of a cup of coffee in London.'

'That's awful. How do they manage to live?'

'Who knows? They scrape by. The whole family works and they pool their money.'

The farms that I visited were small. Young and old men, women and children were picking red coffee cherries from the trees. Other workers soaked and dried the cherries and then extracted the green coffee beans. Mothers and kids worked alongside each other.

'Shouldn't they be at school?' I asked.

'Food and shelter is more important here than literacy and numeracy,' said Sergio, who spoke good English. 'Life's hard. Power and water are erratic. Roads are bad. These people rely on good crops and coffee prices. But crops are unpredictable and prices are ridiculously low.'

'I thought that the Fairtrade Foundation and other charities help these people.'

'They are doing their best, but Fairtrade has to spread its money and influence. Besides coffee farmers, the Foundation must help cocoa, cotton and other commodity producers.'

'Doesn't Fairtrade get them higher prices?'

'Yes. But even though some coffee companies pay premiums for Fairtrade coffee, prices are still ludicrously low.'

On the final day in Minas Gerais, Sergio took me to his uncle Fulvio, who worked on a small co-operative coffee farm. He lived in a tiny hut with a stone floor. The old man was wearing a dirty cream shirt with a frayed collar and torn trousers. Fulvio was small but upright, with taut, powerful arms. He had deep creases on his face and looked as if he was about eighty. I nearly fell over when Sergio told me that he had just turned sixty five.

Fulvio, through Sergio, the interpreter, explained in great detail what was happening to the coffee crop. There was a drought last September, at the start of the Brazilian spring. It rained late October, but the rain came too late.

'Our coffee trees normally have beautiful white flowers,' said Fulvio through his interpreter Sergio.

'But the spring drought damaged them. There were fewer flowers. The ones that managed to bloom were shrunken and small.'

'What have the flowers got to do with the crop?' I asked.

'Coffee cherries grow from each flower. So the crop was smaller this year.'

Fulvio was worried about erratic climate changes. Despite the drought, autumn was much colder than normal.

'It reminds me of the terrible frost we had in the mid-seventies,' said Fulvio. 'At that time the autumn air was also cool. No one believed there would be a frost, but it happened and it was bad!'

'If the crop has already been harvested, how can a frost hurt it?' I asked.

'Frost damages coffee trees. When that happens, the harvest in the following year is poor,' replied Fulvio.

We drank Fulvio's mild coffee and talked for a long while about the dangers of droughts and frosts. A combination would be lethal for the Brazilian crop. It was catch twenty two for the poor peasant farmers. Yes, prices would rise, but poor harvests meant less work. Prices had to increase and remain high to encourage the planting of more coffee trees. Only then would their living standards improve.

'If your uncle is right, how come coffee prices haven't gone through the roof?' I asked Sergio on the way back to Rio.

'Prices jumped last October when Brazilian producers predicted that the crop would be lower,' said Sergio. 'But since then the market has gone to sleep. People think that there are sufficient bags of coffee in our warehouses.'

'Didn't Fulvio forecast a bad winter and frost?'

'The summer was so hot that no one believes that there can be a cold winter. But my uncle has a second sense about these things. The crucial months are June and July.'

'I suppose everyone thinks that global warming and droughts are the danger,' I said.

'Yes, they don't believe that a bad frost is possible. Everyone talks about hot weather, but this is the coldest spring for some years.'

'What happens if there's a frost?'

'We'll have to sell from our warehouses, but I'm not sure about the quality of the coffee. The bags have been there a long time.'

'So you think there will be a shortage?'

Sergio shrugged his shoulders: 'We'll have to wait and see. One thing's certain. Either way the farm workers lose. If the crop is OK, prices will remain low and they will struggle. If the price rises because of a bad crop, they won't have work.'

'Keep me informed, Sergio. I'll speak to my boss. I'm sure our company can help.'

When we arrived in Rio, fun was not on my mind. I could have had a great time. Walking around that evening, I noticed that the girls were gorgeous. I loved Latin American music and the dancing in the streets, but I was disciplined and the next morning concentrated on the coffee market. I sat at the table in my room, connected my laptop and searched for charts on the net. Coffee prices seemed ready to run. Should I spend all the $100,000 at once, or should I wait? It was Friday. I would place some orders today and buy more coffee later.

My four star hotel room was paradise compared to how people lived on the farms. The balcony of my room had a good sea view and looked down towards Ipanema Beach. Instead of sunny sandy beaches and the deep blue sea on posters and postcards, the sea looked as grey as the water in Yorkshire. For Brazil it was gloomy, overcast and wintry. Not a good time to be there on holiday. No time to lose. Morning Rio time, was afternoon in London. I phoned Ruffish. He had left for the weekend. Luckily Maffie, who was looking after my fund, was still there.

'Hi Jack, enjoying the sun? It's pouring here,' complained Maffie.

'It's cold here too.'

'In May? I was sunbathing in Rio last year!'

'Maffie, can you check the price of coffee futures in New York?'

'What's up Jack?'

'Haven't got time to explain.'

'62 cents. The price is up a cent today.'

'Can you buy ten contracts of coffee? The margin should be around $23,000. Don't tell the broker that I'm in Brazil. If he asks where I am, say that I'm sick or something.'

'Of course, I won't tell them that you're in Brazil, dummy. Give me the number of your hotel. I'll phone you in five minutes.'

'Sure. The room number is 404. If you can't get through, try my mobile.'

I went on to the balcony of my room and observed the beach. A mist had come down from the mountain. The beach and streets below were hardly visible. I paced up and down from the balcony into the room and back again. If this cold spell lasted, it would only be a matter of time before coffee spurted. The phone rang.

'Bought ten contracts at 62 cents,' said Maffie. 'Now forget about it and enjoy yourself.'

I slammed my fist into the palm of my hand: 'Yes! See you next week Maff. Thanks a million.'

I was on my way. With only a $23,250 margin deposit, Aquarium Fund had bought coffee futures equivalent to 375,000 pounds of coffee, worth $232,500.

I was so excited that I decided to go for a run and a swim, even though the weather was grim. For the first time since my gold share trading, I felt that I had read the market right. I had the weekend to enjoy Rio. Despite being on my own, I didn't feel at all lonely. Was in a good mood and happy with my own company. I toured the city and went up the cable car to Sugar Loaf Mountain. From there I could see the giant statue of Christ the Redeemer and the city and the beach below. Favelas, the crammed shanty towns, were a world apart from Ipanema with its fancy shops, apartments, restaurants and magnificent girls.

Made me think. It was awful when Dad couldn't make ends meet. The times we had to eat leftovers from the shop. Hardly ever went to a restaurant. Had to buy my clothes from the local Oxfam charity shop and market stalls. But compared to the poverty on the farms and in the favelas, we were well off. We had more than enough fish, chips and bread from the shop, had a roof over our heads, free National Health Service and I could get a reasonable education.

Later on I wandered through Rio's Botanical Gardens and saw some magnificent electric blue Morphos and other butterflies. There were some amazing postcards and I posted some to Stan and Leila Slimcop, Martha, Ivor Ensworth, Gill Derby and the guys in the office. Unfortunately, time was running out. There was no time for a trip to the rainforest. Sunday was the best day. The concierge managed to get me into Maracana Football Stadium. Two of the best football clubs in the world. Huge crowd. Awesome atmosphere! The score Vasco 2, Botafogo, 1.

*   *   *

That Sunday evening I flew to the Big Apple and arrived at John F Kennedy airport in the early hours of the morning. Blaby & Co had arranged a room for me at the Princeton Club. I was fast asleep in the taxi when I arrived there, but managed to steal a few more hours of sleep in my tiny room, before the wake-up call. It was such a rush for my meeting, that I hardly noticed the decor of the club that catered for Princeton University alumni. The club had wooden panelling and a foyer that was dark and dingy. Instead of having breakfast there, I ran out into the street into West 43rd Street. It was between fifth and sixth avenues, only a few blocks away from Broadway and not too far from Central Park. Ruff was right. Princeton Club was an inexpensive prestigious base in a good area.