Tag Archives: movies

Benefits to Trade

What’s your favorite business movie?

Fair Use. Source: Wikipedia

One of the best is “Trading Places,” a modern take on Mark Twain’s Prince and the Pauper starring Dan Ackroyd and Eddie Murphy. It tells the story of a privileged commodities broker and a homeless street hustler who are thrown together when they are made the unwitting subjects of an elaborate bet. Apart from a minor role by now-Senator Al Franken, it also includes a fairly accurate description of the commodities business, with scenes from the open-outcry pits at the New York Mercantile Exchange, formerly located in the World Trade Center.

The Nymex floor used to house precious metals, cotton and sugar, petroleum futures, and – the subject of this movie – frozen concentrated orange juice. Contrary to the story, “FCOJ” was never a major contract. That would have been gold and crude oil. But the movie’s plot-line – involving secret crop reports, the US Department of Agriculture, and circus animals – made for some entertaining scenes, including ones with the Minnesota Senator.

The open outcry system isn’t around anymore. Most futures pits closed in 2015 – a result of computerized screen-trading. Electronic systems were faster and less expensive. They started replacing the open outcry system in the early 00’s. Options trading, which is more complex, still took place in the commodities pits, but that was replaced by automated exchanges late last year. The main reason big stock exchanges still have physical trading floors now is marketing – offering listing firms (and others) an opportunity to “ring the bell” to begin trading on a special day. Open outcry trading now serves mainly as a backup for when computer systems go down.

Source: CME, WSJ

Commodities used to be the other side of the tracks – where someone with ambition and hustle could make it without having to go to college. They also provided a great backdrop for a funny movie. Now, graduate degrees in math, physics, or computer science seem to be necessary. The quantitative, scientific approach to trading has reduced costs and increased market efficiency. But I wonder what we have lost?

Douglas R. Tengdin, CFA

Rebels Without a Cause

In 1955 James Dean starred in a movie about a troubled teen from a troubled family who gets provoked into a game of “chicken” with a local bully. Is that what’s happening in Washington?

Congress is deadlocked. The government shutdown and impending debt limit are disrupting peoples’ lives and potentially the global economy. We’ve discussed before how political dysfunction in Washington could derail our modest economic expansion. Laws currently on the books need to be reauthorized or expanded periodically, but by not doing this, Democrats and Republicans are both playing “chicken” with the economy.

In the movie, James Dean and a local bully drive stolen cars towards a cliff. The first one to jump before out is deemed “chicken” and loses face with the local gang. Tragically, the bully’s leather jacket gets caught in the car door and he goes over the edge. Could Congress and the President similarly have something unexpectedly go wrong that would send our economy over a cliff?

At one point Dean turns to his bickering parents and yells, “You’re tearing me apart!” That’s about how I feel about this crisis. Just get it done.

Douglas R. Tengdin, CFA

Chief Investment Officer