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Strategies & Market Trends : Anthony @ Equity Investigations, Dear Anthony, -- Ignore unavailable to you. Want to Upgrade?

To: Caroline who wrote (1122)	12/19/1998 10:03:00 PM
From: RockyBalboa	Read Replies (1) \| Respond to of 122087

Caroline, good point. The more I got to know about futures traders (also in my company) the more I am convinced they trade "commodities" with an optional name. Sometimes it is the SP500, then the US Treasury, another time the CRB Index (right now ...) or any of the raw materials or livestock. In summer, till September the German Bund was highly favored by traders and hedge funds due to the massive short squeeze in sight there. A trader outlined it like that: "If that was true what we do here, we will see a housing boom in Germany next summer because of the low interest rates". That was the time when they pushed the 10-year yields far beyond 4% from 5+, they sit today beyond 4%, due to the rate cuts. Fact was that the open interest was the fivefold amount of all of the deliverable underlying with few days to the expiry. They all said: the banks, all big future sellers MUST buy back and roll over, they can't deliver the underlying (though usually the underlying is never delivered, the contracts are closed out instead of). The implied repo (when calculated on the next contract expiry) went 8%-ish for a few days. And the deliverables were some 30 points ahead of the nondelivarable debt. The banks balance sheet managers were bleeding all the time. The traders weren't interested in fundamentals like: the yield curve is too flat, there is no risk premium between 3-months and 10-years yields, in a rational world noone would buy 10-year bonds. They yahoo'd it. Most traders, (though rather successful ones) aren't to have for a discussion and they give a sh** to the economists presenting analyses. They seemingly only trust their own stomachs. I wished I had such a guy trading internuts the last 2 months. <g> In reality, there were factors for future pricing like: short-term interest (between today and the declaration date), availability of the underlying, convenience yield ("nice-to have") of the underlying, and storage costs, in some cases. So heating oil has some convenience yield (you need it in winter, not summer), gold futures traded on the london metal exchange had some implied yield of 0.5% to 1.5% , and sure there are storage costs in livestock futures embedded. What the trader was unable to tell you is that there are wiz' kids out, who take weather prognosis, harvest estimates, slaughter numbers and much more to point out the direction of the price of the underlying. Maybe you ask the right people next time. Broker-dealers are more interested in making you trade, and earn the comissions. C.