Time to Dance

The recent decision by Credit Suisse to exit their commodities business, marks the latest in a long line of Commercial and Investment Banks that have made the conscious decision to exit their respective commodity businesses. This decision reminds us of previous exoduses in the past, such as in the late 90’s when Merrill Lynch left the business, only to re-enter in the early part of the 2000’s. As Chuck Prince astutely remarked in response to the frothiness of the credit markets in 2007,” as long as the music is playing you’ve got to get up and dance”. Well, faced with additional capital requirements and a myriad of Dodd-Frank related regulations, the decision by banks to not dance is probably the proper response. However, if one believes (as we do) that there is no better contra-indicator of value (outside of Central Bankers) than the behavior of Bankers, than this decision clearly indicates that the commodity area is ripe for outsized returns.