Kelly - The secret club that runs the world : inside the fraternity of commodity traders

T hree and a half years ago, a colleague at CNBC turned me on to an interesting topic: natural gas hedging. There was a large driller in Oklahoma City called Chesapeake Energy that had made billions of dollars by buying and selling contracts betting on future prices of gas, he explainedperhaps even more money at times than it had made selling actual gas. Chesapeakes chief executive, Aubrey McClendon, liked to brag about his companys trading prowess, and some investors were becoming antsy about whether he was focused enough on his underlying business.

I flew out to Oklahoma to meet with McClendon, who was unapologetic about his gas trading activities. If gas prices go to zero in 2011, its great for customers, it doesnt bother us, it hurts our competitors, he told me in a televised interview. So once we get hedged, we kind of want lower gas prices.

His sanguineness about potential price declines in his companys central product, which was then trading at unusually low levels, amazed me, and it struck many of CNBCs viewers as strange too. Over time, an investigation by Reuters revealed that McClendon was such an avid trader that hed operated a hedge fund outside of Chesapeake Energy that handled contracts connected to some of the same products the company produced. Amid this and other revelations of apparent conflicts of interest, he announced his retirement in 2013.

Meanwhile, Id become hooked on the topic of commodity trading. Id met a crude-oil trader at a New Yorkarea hedge fund whose withering take on his own businesswhich he felt was dominated by irrational penchants for risk and a bunch of grown men with emotional issueshad made me want to learn more. Id traveled to Nebraska to interview a corn farmer whose Tweets about crop yields and planting conditions were being watched by brokers on the Chicago Mercantile Exchange, showing both the interconnectedness of the physical farming business to its futures counterpart and the hunger with which traders searched for clues. And Id covered the initial public offering of Glencore International, the $60 billion Swiss commodity-trading colossus founded by the longtime American fugitive Marc Rich, which made huge markets in everything from crude oil to cobalt and yet was completely unknown to the public.

As far as I could tell, commodity-contract trading was a black box. It was a business that was both massive and impactful, affecting the day-to-day prices of raw materials like crude oil and wheat, and, in turn, influencing the cost of everything from iPhones to coffee. But the whole market was scantly covered by the media and poorly understood in general. At home, successful commodity hedge-fund traders might be profiled in the newspaper, but how they bet on markets and what motivated them to make such bold moves rarely was. Overseas, commodity giants like Glencore and its counterparts were a complete mysteryeven though they dominated the markets for important products universally used.

I wanted answers. Who were these guys, and how did they work? What impact did they have on the price of physical commodities? And who was monitoring them?

This book tells you what I found.