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Tips, Scandals and Rabbit Ears

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Jerry Welch, Commodity Insite!
Call me at 406 -682 -5010
Ennis, Montana 59729

Follow me on twitter@commodityinsite

Below is a chapter from, "Back To The Futures" a not so seriously look at the Big Four; stock, bond, currency and commodity futures markets of the 1980s. The chapter is entitled, "Tips, Scandals and Rabbit Ears." Hope you find it of interest.


Tips, Scandals, and Rabbit Ears

The stock market wasnt the only thing to reach all time highs in 1987. So did the number of scandals exposed on Wall Street. Every time I read about Boesky or Levine or anyone else getting busted for insider trading, I was reminded of this story.

As much as I would like to take total credit for the story in this article, I cannot. The basic idea came from a book written by Edwin Lefevre called Reminiscences Of A Stock Operator. The book is a classic. If you have not read it, I suggest you do so.

On March 26, 1987, I wrote this: The scandals on Wall Street continue to grow in size and scope. A scorecard is needed to keep track of the people and the brokerage houses that have been accused of violating U.S. security laws. Arrests are being made for such things as laundering money, mail fraud, kickbacks, and profiting from information not available to the public. It is a sordid affair.

The futures industry, and the commodity markets in particular, have been untouched by this nationwide scandal. The reason for this is simple: insider information is nearly non-existent where the commodity markets are concerned. All pertinent market information is released to the public at the same time by the USDA or some other governmental agency. A particular report may turn out to be a surprise, but everyone is surprised at the same time.

Whenever I hear of some errant soul being arrested for insider trading or giving out market tips to family and friends, I am reminded of a story I heard many years ago. The story concerns three commodity traders.

Bill was a floor trader at the Chicago Mercantile Exchange. He traded his own account and executed orders for the public. Bill had the good fortune to meet a man named Joel one night at a cocktail party. Joel owned several packing houses, feedlots, and a small brokerage company. Joel was very well connected in the meat complex and he was considered smart money.

The next day, Bill immediately called his best friend, Sam. All I know for sure, said Bill, is that Joel wasnt drunk. He said Fridays Cattle-On-Feed report was going to be very bullish. He also told me to load up on the cattle because they were headed higher.

Bill and Sam each purchased cattle futures contracts the day of the report. They were both heavily committed in the market, anticipating a bullish surprise. There was a surprise, but it wasnt bullish. Cattle prices opened lower and quickly fell the limit. But they remembered what Joel told them, and they bought more futures contracts.

Bill and Sam reasoned that if cattle were a bargain yesterday before the report, they must be an even greater bargain now that prices were limit down.

The following day, cattle prices opened sharply lower again and once more dropped limit down. Faced with mounting losses, Bill and Sam decided to liquidate their holdings. They were stunned not only over their market losses, but over the fact that Joels tip was 100% wrong.

Several months passed before Bill ran into Joel again. Joel immediately apologized for the bad tip he had given. Im really sorry about that cattle trade, he said. I hope you didnt lose a lot of money on it. I lost a little, but it could have been worse. Id like to make it up to you. Next week is a Cattle Inventory Report, and my sources say that it will be bullish. Very bullish. Im buying as many cattle contracts as I can the day before the report. This trade will be more than make up for your last loss.

Bill called Sam the next day and told him of the conversation with Joel. This trade is a cinch and I feel good about it, stated Bill. Weve got a chance to make up the losses we took on our last tip.

Once again, Bill and Sam loaded up on cattle futures, comfortable with the knowledge that this time, they would make a killing. The report was bullish, just as Joel said. However, the report was not as bullish as many were anticipating, and therefore, quite disappointing. The result was that cattle prices fell limit down for two days.

Bill and Sam liquidated their cattle positions as best as they could and took another huge loss. When I run into Joel again, "I think Ill punch his lights out", Bill moaned. "Im so mad and sick over this mess I could scream."

"It was our own fault," said Sam. "We were really stupid for trading off that tip." Sam was so furious that he began writing a letter to Joel. It was a masterpiece of vituperation. When the letter was finished, he showed it to Bill. That should show Joel just what we think of him, Sam said. "Lets send it to him right now."

"Hold on Sam. Lets now get too anxious here." cautioned Bill. "Whats the matter?" said Sam.

"I dont think we should send it", responded Bill. "Are you kidding? This will let him know just what we think of him. Isn't that what we want?"pleaded Sam.

After a pause, Bill looked at Sam, and in all seriousness, said, "Oh, sure, it will make him mad all right. But if we send that telegram, hell never give us another tip."

Tip takers are addicts of sorts. They need and crave the highs that such information brings. They have what I call, rabbit ears. They hear everything. But they usually hear what they want to hear.


Drop me a line at Or, call me at 406 682 5010

the time now is 10:22 and looking across the board at grains and livestock.......I like what I see!

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About the author

Jerry Welch has been in the futures industry since the late 1970's and is a true veteran of the markets. He has been quoted often in Wall Street Journal and is author of Commodity Insite, one of the longest commodity futures newspaper columns in history. His weekly column has been published each week since the mid 1980's and is one of the most recognized names in the world of commodities.

Mr. Welch is also known widely as a, "so so" flyfisherman.  

His column is published by the Illinois Agri News in La Salle, Illinois, Cattle Today, in Fayette, Alabama as well as Consensus, in Kansas City, Kansas.

He can be contacted at 406.682.5010 for a view of his, "twice a day" market column that includes price forecasts and trading suggestions.

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