Posted on 05/23/2008 9:32:18 PM PDT by gleeaikin
What you know about trading I could put under my fingernail chum. Stop getting so high and mighty. Chances are I was trading yen, soybeans, oil, bonds and gold when you were in diapers.
Very well said. And brief too.
Thank you.
You still don't know sod-all about game theory, or you would never have made that silly comment.
30-year bonds didn't have a futures mkt until 1977. Yen didn't have a futures mkt until 1974.
Chances are? No, the chances are very distinctly NOT.
Regarding the link “Berserker Funds in Commodities”, meat of the nut is the following quote:
“The CFTC has granted Wall Street banks an exemption from speculative position limits when these banks hedge over the counter swaps transactions. This has effectively opened a loophole for unlimited speculation. When Index Speculators enter into commodity swaps, which 85-90% of them do, they face no speculative position limits.”
Since the Senate is raking the oil companies over the coals, for something outside their control, the Senators need to be informed of the above as well as other information on this thread. This can be done by calling 202-CA4-3121, and asking the operator for Sen Lehey (sp?), and Sen Specter, and asking for their staff person(s) who is actually dealing with the hearings. Have at it FReepers!! Leaving for a meeting now, will be back around 6 pm.
And I'm sure you had many losing trades since. Why else would you come on here and play the "expert".
And your definition of zero sum is just that: YOUR definition.
Your hubris is uncalled for and unwelcomed around here.
I remember you now, you are the same guy who was telling everyone how bad inflation was and claiming you had a flattening trade on - notes/bonds. LOL
Every trader has losing trades. And the sun rises in the East, too. Tape at eleven.
''My'' definition, forsooth? Hardly. Try these sources:
... wherein the definition of a zero-sum game is given as follows:
''DEFINITION: Zero-Sum game If we add up the wins and losses in a game, treating losses as negatives, and we find that the sum is zero for each set of strategies chosen, then the game is a "zero-sum game."
In less formal terms, a zero-sum game is a game in which one player's winnings equal the other player's losses. Do notice that the definition requires a zero sum for every set of strategies. If there is even one strategy set for which the sum differs from zero, then the game is not zero sum.''
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From a founder of the Vanguard fund family:
...wherein the following passage appears:
''Why do costs matter? Consider the analogy of the stock market as a casino, in which the investor-gamblers swap stocks with one another, a casino in which, inevitably, all investors as a group share the stock market’s returns, no more, no less. But only until the rakes of the croupiers descend.
Then, what was inevitably a zero-sum game—a fruitless search by investors to beat the market before costs—becomes a negative-sum game after the costs of investing are deducted. Beating the market, by definition, is then a loser’s game. Gross market return, minus intermediation costs, equals net investor return—clearly, a highly complex arithmetic formula.''
Or try, NegativeSum 2, which also discusses several studies of traders' results, and states baldly that:
''Trading is a negative-sum game''.
======
Hubris, eh? Got a mirror?
Ta-ta...rant at thin air if you like.
Matter of fact, if you'll do the same, I'll be happy to post my daily mark-to-market results, right here, and have my brokerage certify the figures.
Whatsamatter, boy, cat got your tongue?
Right. You and I are going to post our trading results on a public board. Be my guest. As for me, no thanks. I’m laughing all the way to the bank. And I don’t believe you for one minute.
Hurts to be in that position, huh? If you don't like my "attacks" then stop provoking them. I didn't start this ball game you know. In the futures market every contract has an off setting buyer and seller and a date in the future when that transfer has to take place. In the stock market one can buy a company on the day it has one store and sell it years later when the company has 100 stores. And the original transaction can be when the stock is first issued by the company.
So I'm glad that you can find a bunch of definitions for zero sum. I can find a bunch of definitions for lots of things.
Yawn.
You referred to instruments to purchase oil on the futures market. I heard an article that was proposing that if you buy a barrel of oil the market should require the contract to be financed completely at the transaction and there by slow the speculative market.
I presumed an experienced trader could explain what part of that is a bad idea. It seems the consensus of some of the posters was that the only people who should buy oil is the end user of that oil. From my ignorant position I would presume that the only level of a futures buy that is totally backed in cash is the end user of the commodity that takes physical possesion.
Yeah, whatever you say. Now go away and quit hijacking threads.
“It seems the consensus of some of the posters was that the only people who should buy oil is the end user of that oil.”
Since I am the person who started that issue on this thread, let me clarify my layman’s sense of that expression. By end user I mean those who might want to stabilize their future costs by buying futures of products they are likely to need. This could be oil futures for refineries; lumber for home builders, or stores like Home Depot; rice, wheat, or corn for grocery chains, cereal manufacturers, livestock producers, or ethanol producers.
What I don’t consider an end user is pension funds, university endowments, or foundations who are taking advantage of the very large lots that have been created for mass purchases. The one I saw for oil was over $4 million per unit. In my admittedly inexperienced view, this just seems wrong. It is damaging most of the population of the world.
I think it would be far better if these folks were investing in the stock market, which would help the development and expansion of businesses. Is the loss of these funds part of the liquidity crisis that people are talking about? Of course, turning over massive funds to a hedge fund manager is a lot easier than actually learning what you should do with your organizations money. I don’t think the proliferation of ignorance on the part of people with economic power is a good thing for our country.
Breaking news: I just heard on CNN that substantial profit taking has caused oil to drop from its $135 peak. This follows 5 days of steady increases. I think I will go look at oil and see what the new price is. Be back soon.
I was trying to find a nice chart of this past week to show the movement of oil. No such luck. While it hit a high of $135 this past week, it closed around $132. I don’t know if this rates as bailing out or not. below are some interesting links I came across while searching. They both speak to the risks and possible self correcting mechanisms in the current situation. Let the buyer beware.
http://www.gracecheng.com/commodities/2008/05/22/is-recent-oil-spike-an-irrational-exuberance/
http://www.latimes.com/business/la-fi-petruno24-2008may24,1,6762856.column
Futures contracts are just that, contracts. Futures ''margin'' (a misnomer, but so commonplace these days that arguing about it is pointless), is nothing more nor less than a performance bond that both parties to the contract, the buyer and seller, put up to signify that they will honour the terms of the contract, and additionally be responsible for any trading losses they might incur before the contract is settled, at some known date in the future.
To require 100% financing of gross contract value would be, well, A) weird, B) very destructive. Why?
First, name me a place or a contract on this planet that requires a 100% performance bond, excepting possibly only the case of a bailbondsman and a multiple felon who has skipped bail before. Right. You can't. Any market or endeavour that required such a bond would very soon -- like 2 days -- have exactly zero participants.
Now, even given that, you might say, ''Well, hell, chase all the specs out of the mkt, why not?''. To which I would say, quite provably, that by doing so you would wreck that particular or any given mkt.
Just because the corn farmer wants to sell his corn in October at 5.74/bushel on some particular date doesn't for a second imply that a miller or cattle feeder necessarily wants to buy corn on the date that the farmer wants to sell, never mind the price for the moment.
So, who buys the farmer's corn in the interim, before millers, feeders, and whomever else decide they want the farmer's corn at the price the farmer wants to sell it for?
Those nasty old speculators, that's who.
Among other things, the participation of specs in the corn mkt allows the farmer to lock in a price for his corn in April or May or whenever, AT THE TIME he happens to plant it.
The farmer knows his corn will be ready to deliver, certainly by December, and so -- if he is so inclined, some farmers STILL are not so inclined -- can sell December corn futures against the physical corn that he intends to deliver when harvested, AT the time he plants it, thus locking in a price for whatever portion of his intended crop that he desires. In short, he removes some significant part of his risk that the price of corn might fall a lot before he can deliver it.
Who assumes the farmer's risk here? The speculators, ''specs'' for short. They do so for a wide variety of reasons, most notably the attempt to make a profit.
Similarly, the miller, the baker, the corn syrup producer, and the cattle feeder, at any given time of the year, know that they WILL require corn in hand in the future in order to go about their normal husinesses. If sensible, they lock in their costs of corn by buying some amount of futures contracts and, most likely, accepting delivery of the goods when the contract comes due.
However, just as with the farmer, there is no guarantee whatever that our milling and cattle feeding friends will be able to buy corn from the farmer on any given date, and the price is/will be unknown previously when they do buy the corn.
And guess who takes up the slack here, too. The speculator, for exactly the same reasons that he or she buys the farmer's corn for December delivery. He or she wants to try to make a profit.
The specs, in short, grease the wheels of the mktplace. They narrow the bid/ask spread in a mkt from some width quite possibly of NO use to the farmer or the cattle feeder, right down to pennies per bushel, or, usually, less, especially in the so-called ''front-months'' of the mkt, the nearest expiration months of the contract.
Hey, go right ahead and shoo all the specs away. No problem here. Just be prepared to pay quite a bit higher prices for any commodity, because, after you've done so, the producer of corn (or cotton, or crude, or coffee, or cocoa, or cattle...get the idea?) as well as the user of any of these goods, will have increased risk in his/her/whoever's business operation, and WILL lay off the excess cost on the end user...who, guess what, is you and I.
The argument for 100% cash backing of futures delivery has another flaw, too, thoroughly obvious to everyone but statists. It locks up a whole bunch of capital that might/could/would be used for other purposes -- and guess who benefits. The farmer or crude producer? Nope. The end user? Not a chance.
Only the middleman, the person/company with whom/which the farmer or the end user depoits his capital.
Besides which, how do you (or anyone) propose to ask/tell the farmer that, in ADDITION to offering his goods for sale in future, he must put up 100% of the present value of his crop? You're kidding, right? Good move if you want to bankrupt farmers.
This process works NO differently in crude than in corn, except that, for the moment, some huge players have found out how to game their mkt(s).
Hope this little essay has been of some use to you, and FReegards!
The market will cost in anything that is a short cut to high profits. The only place commodities can be restricted or disallowed as a legitimate business transaction is in a socialistic economical regime. As I obliquely referred to in a previous post the end result of this is a recipe for having non market conditions determine the availability of a product.
I really am disappointed that the guardians of this country have created a situation that gas prices have escalated to this point, however, this is not nearly as catastrophic of a situation where there is no gas to buy.
That is a great explanation. I was driving to work one day last week and heard an interview where a congressman was suggesting that fully funding the oil market would chill the price. I had an instinct that that was a bad idea but I wasn’t exactly sure what the market repercussions would be. I work in material procurement for a commercial contractor. I am very aware of a performance bond. I did not recognize a future contract as a similar arrangement.
I too appreciate the detailed explanation which I will study in some detail later.
An interesting point made in one of the two links I provided a few Comments previously is that since driving up the price of food and fuel impacts so many of our other businesses it can have grave stock market repercussions. The link points out that institutional investors may be working against their own interests if their commodity portfolios damage the value of their stock portfolios. Ah, the joys of the free market!!
What is your take on what happened to Bunker Hunt? Did the commodity market change the rules to prohibit taking actual possession of silver when the contract came due? Did they change the rules to make it harder to go long and easier to go short on silver? Did the powers that be in the commodity market chose winners and losers?
Any bull mkt, esp a supercharged one such as silver in 1979-80, must have a continuous stream of new buyers in order to keep rising. Trading ''for liquidation only'' is just that; no new (long side) positions were allowed. Oops.
In plain English, Hunt and the boys were abso-freakin-lutely screwed by this order. Not that they didn't deserve it, mind you -- they'd broken I-have-no-idea-how-many various laws and exchange rules. The ''liquidation only'' order was the definitive nail in their coffins, though.
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