Bitch-Slapping Statists For Fun & Profit Based On The Non-Aggression Principle
HomePortalGalleryRegisterLog in


 If You Can't Take the Heat, Get Out of the Futures Market

View previous topic View next topic Go down 


Female Location : Ether-Sphere
Job/hobbies : Irrationality Exterminator
Humor : Über Serious

If You Can't Take the Heat, Get Out of the Futures Market Vide
PostSubject: If You Can't Take the Heat, Get Out of the Futures Market   If You Can't Take the Heat, Get Out of the Futures Market Icon_minitimeWed Oct 05, 2022 8:29 pm

This has been a tough year for traders; let's step back and look at commodities, oil, the dollar and gold -- and see what could 'normalize' the bond market.

If You Can't Take the Heat, Get Out of the Futures Market F64276e6-3e9a-11ed-8195-4d9b58b44c62

Being a futures broker is nothing like the depiction of the industry in "Trading Places," that 1983 film starring Eddie Murphy and Dan Aykroyd. Most brokers, and brokerage industry employees, aren't wearing fancy suits or arriving to work in limos. We aren't enjoying chef-prepared meals at a fancy oak dining table while we casually go over the day's market movements.

In fact, it is an industry full of grunt work, grit, and gut checks. Many of us eat two meals a day at our desks while scrambling to try to help clients avoid catastrophe; it is far from glamorous. The commodity brokerage industry delivers the highest of highs and the lowest of lows; you can't get to the former without suffering through the latter.

For me, 2022 has felt a lot like a repeat of the financial crisis. The era created wealth for those who play outside of the probabilities, but proved to be painfully dire for those who operate in favor of the odds. Although the equity market, thus far, has managed to avoid the same fate as the 2008/2009 bear, the intense volatility and despair in peripheral assets such as currencies and Treasuries have been far more challenging.

During the financial crisis, the culprit was credit default swaps and bank leverage. This time around, the leverage risk in the system was introduced by the Fed (keeping rates too low for too long and the purchase of mortgage-backed securities beyond reason) and politicians (too much stimulus). The credit default swaps of 2022 are exchange-traded funds, in my opinion. Leveraged ETFs, and those backed by commodity futures, have added an element of volatility that was unfathomable before the retail trading boom and the creation of products to cater to the demographic of new traders. Leveraged and commodity ETFs are packaged products sold to retail traders to mimic leveraged products (such as futures contracts) or to mimic a particular commodity. In both cases, they require constant rebalancing and dealing with retail trader cash inflows and outflows that the futures markets aren't always capable of absorbing in a civilized manner. This process is further exacerbated by algorithmic trading that piles into trends pushing them further and farther than would otherwise be the case. Of course, humans themselves are erratic and have been known to cause unnecessary volatility as they react emotionally to price changes, but the 2022 volatility is different from the 2008/2009 volatility. This is the new normal, and we'll need to adapt.

Let's take a look at some of the key markets that have contributed to the chaos we are seeing in markets today.
Commodity Prices

The commodity boom and bust of 2021/2022 started with copper, lumber, and natural gas. These were the stories that inflation hawks were pointing out. Each of these commodities rallied sharply in 2021 causing disruptions in manufacturing and home building (copper and lumber) and increasing input costs for households, farmers, and service businesses (natural gas). The world watched in awe as prices of these commodities, and eventually others, skyrocketed, but they aren't garnering the same amount of fanfare as they dribble lower. Inflation at the consumer level is still elevated but the primary contributors to that inflation are trading as if the narrative is one of deflation. This could be a sign that the Fed and the nature of commodity markets (high prices cure high prices) are working as planned

Back to top Go down

If You Can't Take the Heat, Get Out of the Futures Market

View previous topic View next topic Back to top 
Page 1 of 1

Permissions in this forum:You cannot reply to topics in this forum
 :: Anarcho-Capitalist Categorical Imperatives :: AnCaps' Laissez-faire Free Trade Zone-