The summer of 1987 I took a job on the floor of the Chicago Mercantile Exchange running tickets from the order desk to the trading pits. What was my first day on the floor I was pretty exited and showed up a 1/2 an hour early and was waiting out front to meet up with a friend from training, for the next 30 minutes I watched a fester of exotic cars roll in and 30 something year olds getting out of limos going to “work”, looked like a pretty solid life to a 19 year old from Upstate New York. Although I was “runner” (which essentially is the lowest form of life on the trading floor) I was proud to be wearing my runner’s jackets as I walked down the hall towards the trading floor, I can remember waiting on the floor before trading started and how quiet it was. The bell rang and it was immediate organized chaos, even though I had no positions on, barley knew where the different trading pits were to run tickets to I could feel my heart pounding harder in my chest as the noise and energy ramped up, that year I dropped out of college and have been in the industry since.
I was fortunate enough to be on the floor the day of the 1987 stock market crash and I can still remember the faces of traders immediately knowing who were the heroes and zeros of the day. The hustle was nothing like I’d had ever seen in my brief life or since, at one time I was regularly taking sell orders of what would be worth over $100,000,000 in 2019 USD to the pit. (Now that was efficiency trusting a 19 year old with less than 3 months experience with $100M+ sell orders). With the exception of locals (those who traded just for themselves in the pit) I don’t think too many tears have been shed from the loss of trading pits and open outcry order execution.
CME in the 1980’s orders took several minutes to fill.
Going into the next bear market it will be the first time in history where order execution can be done online in nano seconds by anyone, anyplace nearly 24 hours a day. Daily price limits (circuit breakers) start kicking in with a 5.00% market decline the market reopens and expanded to 7%, reopens then 13% then 20% if hit the market shuts down for the day, it’s going to be interesting to see how aggressive the selling engages the momentum that engages in the S&P with current order execution capability, contact value of $142,500 with margin requirements currently at $6,300 (0.044%). You also have to keep in mind there are no restrictions on shorting Stock Index Futures and they can be leveraged up to 22.50 to 1 to hold and overnight position and 50 to 1 for intra-day, total open interest today just in the E-mini (positions held overnight) is 2,582,403 contracts with a total value of $367,922,427,500, daily volume now exceeds open interest coming in at 2,750,321 contracts, total value $391,920,742,500. the E-mini is just 1 of dozens of Global Stock Indices traded in 2019 (I trade 9) all have the same available leverage as the S&P.
Orders in 2019 take nano seconds not minutes
Things are a bit different these days I live on a little Island 800 miles southeast of Palm Beach in the Caribbean but still look forward to Sunday night when the markets open and I see the prices changing on my screens, I still get that same feeling in my chest as my first day as a runner on the floor.
Unlike any other bear market in you can trade in nano seconds from anywhere, the Island I live on is ironically called Beef Island, but I’m no bull, after 32 years in this business I don’t care if I’m trading seal manure as long as Nanook the Eskimo can make a market and I’m on the right side of it.
I don’t profess to have all the answers nor ground breaking academic theories to share here on Seeking Alpha, what I do have is many a “character builder” as a professional trader under my belt and survived more than a decade of financial shock therapy that eventually conditioned me to be a successful trader enabling a lifestyle which I am very grateful for.
I’m not looking to manage manage more money (all my clients are are QEPs with the risk tolerance of Satan) nor am I suitable to manage retail accounts nor licensed to do so, I don’t sell a newsletter or holy grail trading system, my objective here on SA is to get a some camaraderie going to share ideas that will enable us to better capture what may be the best trading opportunity in our lifetimes.
I’d like the primary objective of our group to be protecting our wealth and enhance it as defined by it’s buying power, not it’s value in relation to other currencies of countries that are or will be playing the debt monetization game.
I believe it would be enjoyable & productive to have an annual meeting down here and share our trading adventures and strategies that will continue to preserve and enhance our wealth, any guest speaker would have to be approved by our majority to avoid having to be pitched investments that would ultimately have no benefit to our group.
Not a bad place if you can put up with a few bugs, zero corporate and personal income tax, no sales tax, no traffic and police who don’t need to carry guns, adding insult to injury real estate prices are a fraction of what they are in New York, Chicago and L.A.
During the next several years hiding out in Treasuries is off the table, they no longer qualify as a “flight to quality safe haven”, real rates of return are gone, yields are at historic lows, instrument and currency risk is at record highs U.S. fiscal credibility in the sewer.
This will be the first bear market history where the U.S.’s credit rating isn’t AAA but AA+ stable with rumors of additional downgrades on the horizon if the U.S. makes the decision to fire up the “Quantitative Easing” printing press in the event they can’t sell the 6+ trillion in new issues the Federal Government needs to through 2023 to the Free market at non competitive rates.
After the bear market engages I believe a inflationary recession will engage as the U.S. monetizes their debt through “Quantitative Easing”. The resulting dollar devaluation will fuel a price recovery in stocks, the S&P will see a new high but what will those dollars be worth? Will gold be above $2,500?
Will Median home prices above 700K?
Will it cost us $80,000 a year to send our kids to college? Tuition cost increases alone are reason for me to question the integrity of the inflation numbers being released.
I believe it’s all going to depend on the amount of new issues the Treasury can’t sell on the open market at non competitive rates and how much money they’ll need to create though “Quantitative Easing” to bridge the gap of what the free market buys and the amount of new issues they’ll need sell to satiate their spending needs.