Back To The Futures

Professor Irwin's Book is Worth a Read

I follow Professor Scott Irwin on Twitter. I figure, he is an ag professor at Illinois, one of the best ag schools in the entire world, so he must be a good follow. He is. He tweets out all kinds of data on crops which are interesting to me. I don’t trade right now, but I still like to keep my feet in the water. His crop data is also interesting for other reasons because you might be able to pick up or get ahead of trends.

I was born at night, but not last night. I know who to listen to and whom to ignore.

Scott wrote a book. It’s called, “Back to the Futures”. I picked it up and it is an easy read. If you don’t know, I traded on the CME floor in the Eurodollars and Hogs. I traded some other stuff too from time to time but that’s where I spent 99% of my time from 1986-2013. I was on the CME board that fundamentally changed the exchange.

Hence, that’s how I knew SBF was a fraud and I notice none of the really super smart credentialed VC’s in Cali have admitted they missed it. Irwin touches on SBF in his book and I laughed out loud.

I knew almost all of the players that he mentions in his book from the business side, but I knew very few of the academics. I am following some on Twitter now. The only one I knew was Fred Arditti who was one of the nicest most thoughtful people you’d ever want to meet. When I was elected to the CME Board, Fred sat me down and talked at length about a variety of topics which got me up to speed. He’s passed away a long time ago but they still give an innovation award there in his name.

Scott talks about his childhood and I recognize it. There were a lot of people on the floors of Chicago that grew up on a farm, or near them. I know the breed well. He relates some of his experiences to the trading pit.

Speaking of the pits, there are some chapters that are excellent at giving you some of the backstory about how things happen there.

Books like this probably won’t help you be a better trader. However, to the people who are unfamiliar with the way markets work, it’s a nice read. Scott gives you the academic blackboard chops that people might need to understand what is really going on in the marketplace.

For me, it brought back a scary memory. I remember in 2007/08 when my friend Louis Schwartz told me about the horror stories in the wheat pit. Louis was a hog spread broker but he knew everyone everywhere. I miss Louis. Guys were being carried out of there. Entire careers and fortunes were being lost. You will have to read the book to find out why, but I never knew that before.

It did give me pause because, in 2007-2008, I stepped up the positions I was holding, and boy, if it had gone the way of the wheat pit I would have been selling pencils on the street. It was bad enough in October of 2008 being short a boatload of hogs with double that in spreads watching the blowhards in Washington DC debate bank bailouts. There was no way out for me.

As a lifelong speculator, I enjoyed reading this book. We get a bad rap. I remember when oil was at $145 and Barney Frank was visiting us and wanted to regulate the piss out of it. He wanted strict positon limits and all this other stuff. We calmly explained to him that if he got his way, the price signals would be worse and all the trading would go underground. He relented but I don’t think he truly understood.

Dodd-Frank is evidence of that.

One short story about the pits. I had a very close friend named John Bailey. John was a massive Eurodollar spread trader. He had decided to retire, and return to his home state of Arkansas. He’d closed all his positions, and he was out.

I wondered what would happen the day he left. Who’d take all that size he used to swallow up? I got my answer that day on the opening bell. The answer is everyone.

Markets are not rigid, unless the government or some other outside entity regulates them so they can’t move. Instead, they are more like water. They fill gaps.

That’s why when I hear things about food deserts and the like, it goes in one ear and out the other. If someone could make a profit by putting a business there, there would be a business there.

Futures markets are the same. The communicate future prices to players in the industry and they make decisions accordingly. That’s why when our corrupt President Joe Biden signs and Executive Order killing fossil fuel production the price rises and is stubbornly high. That is, even though current production might be high and there might be fuel in storage. The market doesn’t worry about yesterday, or even today, it prices in tomorrow.