Trading Places – November 2019

Click here to see Trading Places on Amazon.

It’s that time of the year again! Friends ask me what holiday movie to watch that is funny AND a total spoof on old Wall Street traders.

Okay, no one asks me that question even though I have the perfect answer.
The movie is “Trading Places”. 

Eddie Murphy (as Billy Ray Valentine) and Dan Aykroyd  ( as Louis Winthorpe) bring comedic life to the world of commodity trading. The Duke Brothers have an orange juice monopoly.

Billy Ray and Louis devise a way to take them down.

Trading Places is a satirical look at the financial markets and the “old boys club” of commodity traders in the 1980’s.

The movie takes place during the holidays with high spirited hijinks. It is R rated, so careful if you have young children who want to become commodity traders. Maybe not the BEST example.

There is one scene that takes place in “the pit” when trading was done through “open outcry”.

Today the pits are gone as is the open outcry system. Now traders can cry in private.

What I like about commodities as an investment is that commodities are real, tangible things. 

What I don’t like about commodities is the price volatility. Think of all the things that can impact the price of a commodity.

The weather is a big one and so unpredictable. I wonder, are there successful weather people who are also commodity traders?

How will global climate change impact commodity prices?

Physical  commodities need the global infrastructure to get from one place to another.

Shipping ( as in a ship) is involved. Storage facilities . Refineries. Orange juice squeezers.

What could go wrong?

Commodity traders use “futures contracts” , rarely taking delivery of the actual commodity.

Buying individual futures contracts is not the way to go for most individuals. 

You could end up taking physical delivery of a commodity unintentionally. All that corn is not going to fit in your cupboard. 

The best way for individuals to invest in commodities is to use an index fund.

Commodities are an asset class distinct from stocks and bonds so there is some diversification benefit.

Here is the however: however, you don’t need much in your portfolio. 

A sprinkle here or a dusting there is enough.


The most widely traded commodity futures are:
Energy:

• WTI Crude Oil
• Natural Gas
• Brent Crude Oil
• Low Sulphur Gas Oil
• RBOB Gasoline
• ULS Diesel

Grains:

• Corn
• Soybeans
• Soybean Meal
• Wheat
• Soybean Oil
• HRW Wheat

Industrial Metals:

• Copper
• Aluminum
• Zinc
• Nickel

Precious Metals:

• Gold
• Silver

Softs:

• Sugar
• Coffee
• Cotton
• Orange Juice

Livestock:

• Live Cattle
• Lean Hogs

Information on the trading pits:

https://en.m.wikipedia.org/wiki/Open_outcry

https://www.chicagobusiness.com/static/section/trading-pits.html    

This website is for informational purposes only and does not constitute an offer to sell, a solicitation to buy, or a recommendation for any security, nor does it constitute an offer to provide investment advisory or other services by The Modest Economist LLC.