"When misguided public opinion honors what is despicable and despises what is honorable, punishes virtue and rewards vice, encourages what is harmful and discourages what is useful, applauds falsehood and smothers truth under indifference or insult, a nation turns its back on progress and can be restored only by the terrible lessons of catastrophe." … Frederic Bastiat

Evil talks about tolerance only when it’s weak. When it gains the upper hand, its vanity always requires the destruction of the good and the innocent, because the example of good and innocent lives is an ongoing witness against it. So it always has been. So it always will be. And America has no special immunity to becoming an enemy of its own founding beliefs about human freedom, human dignity, the limited power of the state, and the sovereignty of God. – Archbishop Chaput


Friday, May 2, 2014

CME Fines Ontario Teachers' Pension Board over Hog Futures Trading

That is the headline that came down a Dow Jones wire story this afternoon. It seems that the good teachers pension board had too many piggies in its portfolio. In other words, they exceeded exchange position limits.

CME fined the Board $15,000 and ordered them to return the nearly $18,000 profit they made in lean hogs back in March 2013 according to the story.

Hey, I wonder if some of that $18,000 happens to be my money?

How do I get a refund?

Seriously however, I do wonder what these exchanges do with that money that they collect, not as a fine, but rather as profits. The teachers' board had to take it out of someone else's pockets to earn it as this is a zero sum game.

I think I will fill out an application and see if that works! Then again, the report does not say whether they made those profits from being on the short side or on the long side. I will have to go back and see where I was positioned back then. I know I was in that market at the time. What would be a bummer would be if I happened to be on the same side as they were. Then what? do all of us traders who are positioned likewise have to hand over our earnings to the CME?

Obviously I am kidding here but it does go to show that these position limits are a big deal. I am of the view that if the exchanges really want to tame some of these broken markets, that instead of fooling around with raising price limits, they should instead deal with position limits and REDUCE them, not increase them like they have been more prone to doing.


  1. When in doubt, make some bacon! <('@')>

  2. Thanks for taking the time to give us your market views on many different subjects.

  3. OTPP is one of the biggest wealth funds in the world; bigger than the banks. So they probably went over limit unwittingly due to their sheer size.

    With OTPP being fined, it begs the question, why isn't a bank ever fined for their excessive position in the COMEX?

    The most obvious explanation is corruption.

  4. What in the word is a teachers pension fund doing in the most speculative of markets? That pension money is supposed to be invested securely and conservatively.
    If they promised more yield than what is available in the current zero rate market, them admit it instead of risking peoples pensions. Doesn't matter how big you are.

    I smell a breach of fiduciary responsibility here.

    1. Disagree. It is about asset allocation and risk management techniques.
      OTPP boasts a record of consistently large gains for many years.

      If OTPP invested like you suggest, then instead of it being fully funded, it'd be hugely underfunded like almost every major pension fund in the US now, at risk of default to its members.

      Every large fund needs to have a component of managed futures and other alternative assets. Sitting in 0% CDs or 1.6% long bonds while true inflation is double-digits and life expectancy is soaring is a recipe for failure.

    2. I obviously disagree. But am not advocating CDs except for the smallest portion of short term liquidity. For them more likely a mix of stocks and bonds even some higher yield ones.

      The risks of the futures market are too high for people's pensions - don't loose the money!

      A past history of high gains is nice but not a predictor of future performance. See that warning all the time in prospectus'.

      They will stay high gainers until they stumble then look out. Participation in the futures market is evidence of hubris at the least.

    3. I understand your point. But as an experienced futures trader (and investor), I feel I can assure you that futures trading is actually low risk if you exercise sound risk management techniques. In fact, I think risk mgmt is the #1 factor to success in futures, which few realize given that most ppl who try futures lose their money.

      As for the case of this pension fund, it is unclear whether they were trading to make money or simply to hedge, which would be a conservative strategy. What is clear is that in this example, the position was peanuts for them.


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