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Senior Contributor
Posts: 1,329
Registered: ‎05-03-2010
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OptionEye......Oct 24th

Good morning.

 

One week away from Halloween and I feel like everyone already is wearing a scary mask.

 

Mark Spitznagel, author of The Dao of Capital, is predicting a 40% decline in stocks sometime in the next 12-18 months. Zero percent interest rates, artificial FED intervention and an appetite for risk are the reasons that he thinks things are way, way over priced. Now that is a scary Halloween costume.

 

In other news, ags overnight were fairly stable and quiet. Again, I am at a loss for works as to why these volumes are so poor. Soybeans are down 1, corn and wheat are unchanged.

 

Earnings still coming in 'OK'. Still seems to be a decline in top line revenues which is going to be the key driver going forward. Today we get Initial Jobless Claims and Trade Balance which will help give some clarity. The 'no taper' talk is now pushed out to next March. I am on record as saying it isn't until next Sept but I may offer another new shocking idea. With the appointment of Janet Yellen to the FED post, we are hearing chatter that if things don't pick up we could actually see more accommodation. Wow. There you go. I actually said it.

 

The stock market is better this morning. Dow up about 60. Oil is up .39 cents to $97.25 and gold is higher as well, up $6.60 to $1340.01.

 

The 'truth serum' 10 year yield is 2.49% giving me no comfort that we are getting better any time soon. That yield will go below 2.00% soon.

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Veteran Advisor
Posts: 819
Registered: ‎05-20-2010

Re: OptionEye......Oct 24th

Scott:   The CME crowd seems to forget that when you exploit your customer base some of them will stop being stupid and stop playing the game.

 

1. Making the customer eat the brokerage losses when segregated funds were stolen, the CME's most important function was to insure against counter-party risk. They are harvesting the seeds they have sown.

 

2. Since CME no longer assures customer funds are safe, many are taking the counter-party risk themselves and doing OTC products. FC Stone is pushing hard on these tools. Rabobank will let you lock rates for 15 years with an OTC swap. Cargill's trading pit in Minneapolis probably sees more commercial volume than the CME most days. I know they get 5x my volume at the CME most years.

 

3. You gents might not think this matters, but allowing HFT (high frequency trading) platforms preferential access to the trading platforms, and allowing them access to data, and non-existent fees, that we are not able to obtain is bs.  Well, I can tell a rigged table if I watch long enough. The allgorhythms they use to assign fills also really screw folks who are out in front of things. No need for algo in a fair world, first order in gets filled first, but that is not the way it works.

 

4. This doesn't even address the unlimited spec position limits which has completely disconnected the cash price from the futures. If it is not connected, why would the hedge work. It won't. Thus OTC products proliferate.

 

5. And, of course, the CFTC failing to do anything, to anyone, who manipulates anything doesn't add much confidence. :-)  Kind of like the gov insurance mandate, no one is held accountable for anything. Thus, why would good business-people use the products.

 

6. Finally, allowing the USDA reports to be issued during live trading, really screws the producer and end-user. We do not have a room full of computers that gets the data to us in milliseconds. Knowing that the game is rigged usually gets fewer people into the game.

 

Just my views as a producer and CME customer that they could care less about. I even forgot to mention the fees are always increasing for products whose value is decreasing. Might be old school price elasticity.

Esteemed Advisor
Posts: 11,249
Registered: ‎05-13-2010
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Re: OptionEye......Oct 24th

Schizophrenic bond yields, above 3% too hot and below 2% too cold, LoL.  Oh, they`ll "print" until it doesn`t work, in the meantime pay off debt with cheaper dollars...Merry Christmas everybody!

Frequent Contributor
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Registered: ‎07-13-2010
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Re: OptionEye......Oct 24th

Time Guy you hit the nail squarely on the head with a 10# sledge and drove the point home.

Advisor
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Registered: ‎05-14-2010
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Re: OptionEye......Oct 24th

However as far as OTC products go I'm not certain of the role of F.C. Stone's accumulator contracts in the VeraSun debacle but I'm not 100% comfortable that there isn't counterparty risk in OTC products.

 

There really isn't a satisfactory substitute for a well regulated, clearing house backed futures market with an efficient delivery mechnism for convergence.

 

There is also an equality issue there (a dirty word in financial circles). Maybe it is just representative of where we are but if risk management products are only available to people who meet certain balance sheet requirements as countreparties then one more nail in the coffin for the smaller producer.

 

Or not, I guess, if the counterparties blow up some of their bigger competitors.

Advisor
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Registered: ‎05-14-2010
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Re: OptionEye......Oct 24th

Hi Scott,

 

A question for you. A couple of days ago I was trying to buy some bean oil puts. It's a remarkably thin market (how did that come to be?) but anyway, the bid ask was like .12 or something ridicuous, with nothing traded.

 

I put my order in right in the middle and it filled instantly, leaving me figuring I surely could have done better. 

 

Any tricks you can share as far as divining bettre ordr placement in those kinds of situations?

Veteran Advisor
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Registered: ‎07-19-2010
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Re: OptionEye......Oct 24th

Great post time - as you might expect, I totally agree. The CME is no longer a system that works for farmers. As I said most of the summer, we farmers get thrown the bones as far as information. What meat is left on them is tainted with lies and false information all in an attempt to get produces to sell below the market. No accountability for anything, and this is the mechanism that we use to establish the price of most of ours retail goods in the world. Now that's scary in my book.

Jen
Veteran Advisor
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Registered: ‎07-19-2010
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Re: OptionEye......Oct 24th

Not retail goods - real goods - commodities.

Jen
Veteran Contributor
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Re: OptionEye......Oct 24th

So the answer to the CME not working for the farmer ------ give your orders to Cargill and FC Stone ???

 

Wow I don't think that is very smart.

Veteran Advisor
Posts: 1,416
Registered: ‎07-19-2010
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Re: OptionEye......Oct 24th

Kstater - well, yes, see that's the problem all on it's own.  There really is nothing else, short of the "bin, lock, go on vacation" scenerio for farmers.  And I think that's the approach a lot of farmers with bin space are taking.  Why sell now, when the cure for low prices - low prices - is at hand?  And, given a large (planned) soybean crop next year, corn prices will eventually rise.  At least that is the plan, and the hope.  We'll see...

 

Jen