🗞️The Wrap: Flood

What’s this inflation you speak of? Free houses, free oil and cheap onions. We’re looking at market inefficiencies and anomalies. On that note, a reminder to understand what you’re trading; the case of $USO.

5 Stocks Reaching 52 Week Highs

  • Moderna (MRNA) +42.1% in the last week
  • Nordic American Tankers (NAT) +32.3%
  • Exelixis (EXEL) +31.7%
  • CNX Resources (CNX) +31.1%
  • Teekay Tankers (TNK) +26.5%

Slippery Slope

Well then. Anyone willing to let me store oil in their backyard? Everyone knows about the price shock oil went through on Monday, trading as low as -$37 a barrel. As May futures rolled over and traders were looking at how they would deal with a mandatory delivery of oil, they started paying people to take it off their hands. A product of low liquidity from low demand.

The biggest lesson is in understanding what you’re trading. All the traders looking to make infinite returns once oil returned to $20 on Tuesday were left disappointed and with a lighter wallet.

Let’s be explicit: $USO does not follow the spot price of oil. Understand this before trading. $USO is based on futures prices. Why is this a problem? Contango. Read this article from CNBC for a great explanation, better than I could provide.

Oh, we also told you oil could go to zero.

Onions

Talking of futures going haywire, this story is a real tear jerker if you pardon the pun. The great collapse of the onion market. In the 1950s, two traders cornered the market for onions. At the time, onions were the most traded product on the Chicago Mercantile Exchange (over 20% of volume). Vince Kosuga owned a farm in New York providing onions to Campbell’s Soup and the Army. In 1955 they bought enough onions and onion futures to control 98% of the market. Once the contracts expired, 14 tonnes of onions were delivered to their address. With threats to flood the market and crash the price, other onion producers were forced to buy their inventory.

At the end of the day, Kosuga took a short position as the price tanked. Much like oil, onions began trading at less than the cost of the bag they were stored in.

The swathes of bankruptcy led to the Onion Futures Act, and what was once the most heavily traded CME derivative, is still banned from trading.

Similar stories exist in the silver market and of course George Soros’ war with the BoE.

Dorothy and Toto

Oil’s not the only thing at zero. Why not diversify your stock portfolio with a bit of property, free of charge. Marquette in Kansas is giving away homes to prospective families. As you can tell by their website, it’s a very hip, ultra modern destination. It’s a sad turn of events and Marquette is not alone. Communities from Minnesota to Nebraska are offering free land to anyone who can improve the local economy.

In the age of urbanisation and increasing brain drain, many smaller communities are shrinking as it’s “New York or no way!” for the eager youth of the country. It’s a global problem. Italian towns have been doing it for a while. As have Japanese towns.

Any chance of a free block on Bondi or Bond Street though? Asking for a friend.

Top 5 Gainers

  • Energous Corp (WATT) +175.7% in the last week
  • Antero Resources (AR) +65.9%
  • Antero Midstream (AM) +56.5%
  • Southwestern Energy (SWN) +38.9%
  • Scorpio Tankers (STNG) +34.7%

Top 5 Fallers

  • Macerich (MAC) -31.5% in the last week
  • Hertz Global (HTZ) -29.1%
  • Cantel Medical (CMD) -25.3%
  • Site Centers (STC) -23.9%
  • Kite Realty Group (KRG) -22.9%

What We’re Reading | Trading Bases

Wall Street Trader turned gambler? Many hope to make the opposite career progression. After getting hit by an ambulance and losing his job, Joe Peta was forced to fill his time in new ways.

This is the story of how he returned 41% by modelling and betting on baseball. To be clear, this is no endorsement of gambling from us. I am including it for two very simple reasons.

The way Joe breaks down how he formed his model is insightful. He goes through the step by step process he used to model a whole baseball season. Did you realise that the home team has won almost exactly 54% of games every year over the last century? A great look at how data can influence decisions.

Secondly, his risk management section. The amount of capital to allocate to each bet can be applied to trading; never let one loser blow up your year!

It’s also riddled with stories from his time on the street. Get it on kindle here.

Trader Teaser

Warren Buffett lives at the reverse of my house number. The difference between our house numbers ends in two. What are the lowest possible numbers of our house?

Best Buy | TVIX +45%

An old friend. It wouldn’t be long before we saw volatility return to the end of The Wrap. With the VIX up 20% in the last couple of days on the back of the oil crash, TVIX followed and this trader pre-empted the moves perfectly.

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