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| I am not a DTN subscriber. Just wondered if the guy that wrote this story knows who pays the majority of his salary.
Darin Newsom DTN Senior Analyst
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Fri Nov 18, 2011 11:04 AM CST
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As those who are frequent readers of this column know, my favorite holiday is Thanksgiving. Maybe it's because the most American of holidays suffers from middle-child syndrome coming after the fun-loving Halloween and swallowed up by the increasingly clingy and needy Christmas season. This year, though, I feel it necessary to point out a major flaw with the upcoming holiday.
Enough already with rebroadcasts of the movies "E.T." and "The Sound of Music" and with news (and we use the term loosely) stories about the MF Global bankruptcy's effect on commodity markets. (DTN illustration by Nick Scalise)
Maybe it is because we are anticipating the normal, seasonal tryptophan coma to have begun this time next week, but we seem to be numbing our minds with countless retellings of the same story. How many of you have grown up with the movies "E.T." or older still "The Sound of Music" airing every Thanksgiving Day for those not wanting to kill brain cells watching hours of football? After a while you realize change would be nice. If E.T. was not left behind and his comrades vaporized the earth, that might be interesting. Maria having the voice of Fran Drescher's "The Nanny" would certainly have changed the arc of the film.
In regard to the MF Global debacle, a message to world editors and reporters: Enough already. We get it. MF Global screwed up and, like most businesses that go under, took a lot of innocent people down with it. The problem is, like with the above-mentioned movies, the stories are all retelling the same pieces of information over and over again. For example, and this is actually a piece from the New York Times that came out Thursday, Nov. 17 (almost three weeks after the company's collapse), "MF Global Said to Use Customer's Cash Improperly."
Really? Do you think so?
This little nugget of news first appeared shortly after word of the company's collapse emerged on Oct. 31. Yet, and this is just one example, there are obviously those who believe that reporting on no news is better than looking for new news. This kind of logic makes the term "new(s)" look rather silly.
Before the hate mail comes pouring in, let me say that I understand the importance of the MF Global situation. By that I mean that while the collapse of a major brokerage firm has had serious consequences for some of its customers, the big picture shows that the marketplace in general has swallowed up the vacated positions and moved on without skipping a beat. Think of it this way: A sick wild boar wanders into the Amazon River loaded with piranha. By the time the flurry and fury of flapping fins and gnashing teeth is over, there is nothing left of the boar but bones floating downstream as the river rolls on unnoticing.
To put it bluntly, the market is simply too big to care and has proven once again that in this type of marketplace, no single company is "too big to fail." Over the last couple of weeks DTN has joined the cacophony of media outlets talking about the story, allowing me the opportunity to play MythBuster (from another favorite television program of mine) to some of the overhyped screaming coming from some news organizations touting the end of the market-world as we know it.
"Total open interest in commodities has fallen since the collapse of MFG." OK, I didn't look at each and every commodity, but did put together a study looking at the two most-talked-about sectors: energies and grains. Using the DTN ProphetX total open interest study on daily charts shows total volume in corn INCREASING 15%, soybeans up 13%, and Chicago wheat up 66% from October 31 through November 15. During that same time, total volume in heating oil INCREASED 33%, RBOB gasoline up 26%, while crude oil volume nearly doubled with a jump of 95%. Myth busted.
"OK, volume may be up but only as a result of liquidation by funds (large investment money)." I first looked at total open interest, again using the DTN ProphetX study of the same name. From October 31 through November 16 (yes, I did the comparison the following day) corn total open interest INCREASED 8%, soybeans up about 0.5%, while Chicago wheat did decrease about 5%. In the energy complex, crude oil increased about 0.5%, heating oil up 1.5%, and RBOB gasoline up about 6.5%. Myth busted again.
"Hold on, it was liquidation by large noncommercial traders that may have been offset by commercial action." Fine, let's look at the noncommercial numbers: According to the CFTC study on DTN ProphetX (pulled directly from the weekly government reports), the noncommercial long futures position in corn has INCREASED about 2.5% since the week of October 25 while the same group decreased its long futures position in crude oil by almost 2%. While not 100% conclusive, an equally plausible explanation was rolling from one market to the other by investment money. This would seem to be confirmed by delving into the CFTC segregated report that showed the managed-money long futures position over that time increasing 9.6% in corn while decreasing less than 1% in crude oil. Final myth busted.
Like tired Hollywood classics, it would seem time to bring the hand-wringing over the MF Global situation to an end. We've seen the story play out many times over the years, all ending the same way. I remember facing a similar situation as an introducing broker back in 1990 when the large trading company Stotler and Company went belly up. The market moved on. In late 2008 and early 2009 an investment company went down in flames almost every week. And the market continued on. It's time for something new to feed Watson, our favorite trading computer. Maybe there's something going on in Europe this holiday besides singing "Do, Re, Mi" in the Alps. | |
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