Broker, Trader, Lawyer, Spy - Eamon Javers [97]
On Monday morning, right on schedule, the USDA put out its report. The first sentence of this press release was all most traders needed to know: “Despite the recent flooding in the Midwest, U.S. farmers expect to harvest nearly 79 million acres of corn,” said the USDA release.5 Prices began to fall. The government report meant that corn futures were overvalued, and traders rushed to dump them as fast as possible. Ultimately, corn futures dropped nearly $2 in value. But Verma’s hedge fund clients were well positioned to profit from the fall. They didn’t tell Verma exactly how much they earned—“These guys are very cagey,” he says—but such a sharp price collapse could have been worth millions to a trader who made a big enough bet on it.
It turns out that Iowa is not the best place to use satellite technology, despite Lanworth’s success there in 2008. After all, the state is readily accessible, and the USDA already does a rigorous job of reporting what’s going on there. Satellite technology comes in most handy to measure crops overseas, where supply affects global prices but governments don’t do as good a job reporting the details as the USDA does. “In India, the question always is, How correct are the government estimates?” says Verma. “Are there political pressures that make them say one thing and do another?”
With a satellite, it doesn’t matter what kind of pressure the local bureaucrats are under. Verma says Lanworth makes some of its most valuable predictions on crop yields in India, China, Kazakhstan, and Russia.
And the company is moving on to other sectors. Verma is looking at ways to help the insurance industry. He’s held several meetings with investment banks hoping to use satellite surveillance to spy on Chinese factories. With a good enough picture, Verma says, his team could count the number of trucks going into or out of any factory in China, and get a good sense of that facility’s production rates. Those rates will affect the costs of products in the United States and the stock prices of any number of companies around the world. Verma predicts that Lanworth will be selling such analyses soon.
IN MANY CASES though, companies aren’t spying into foreign countries, or even looking at competitors. They’re spying on themselves. Take Wal-Mart, the world’s largest retailer. This company hired GeoEye’s predecessor several years ago to take satellite pictures of its stores. Wal-Mart knew where its best-performing stores were, but it wanted to know why they were doing so well. What made these stores so profitable?
The satellite company took pictures of the locations and analyzed the images.
GeoEye recruits many of its employees from the military and intelligence agencies. Walking down the halls at any time, you can bump into veterans who were trained in the military in battle damage assessment (BDA). The same skills they used to decipher images of blown-up Iraqi military hardware can be used to interpret pictures of Wal-Mart’s parking lots.
The satellite analysts looked to see what it was about the placement of the stores in their communities that made them successful. What were the housing demographics? How close was the nearest high school? What were the road patterns? They dug deeper. Did the parking lots have room for trailers, where RV owners could plug in and charge up their vehicles? Did the doors face north, south, east, or west? How many entrances did the parking lot have? Were there islands with trees in the parking lots, or were the lots just large expanses of asphalt?
From the detailed analysis, Wal-Mart was able to create templates of success: a list of all the things that successful stores had in common, such as the neighborhoods where they were located and the configurations of their parking lots. And then the company could make sure that all its new locations had as many of those features as possible
For all its sophistication,