The Economic And Philosophical Quandary Of Trump’s Chaos Traders
Is this an efficient allocation of capital?
Long ago, I had this friend, his name was Jerry. He was from Chicago, and he had a friend who had a seat on the Chicago Mercantile Exchange (CME). He told me this story about his friend, we can call him Mark. Mark would go to the exchange, sit there for a couple of hours, and make one trade. And in one trade, he’d make $200,000. Just like that. For him, that was a days’ work.
That story was from the late 80s, so according to this inflation calculator, that $200,000 is now worth about $442,000. So this guy had a seat on an exchange, and could essentially place bets based his knowledge and experience (wherever he got it) and made the CME his personal ATM. That was his deal.
So what inspires me to tell you that story now? I just happened upon this article in Vanity Fair the other day, “THERE IS DEFINITE HANKY-PANKY GOING ON”: THE FANTASTICALLY PROFITABLE MYSTERY OF THE TRUMP CHAOS TRADES. The subtitle leads on with, “The president’s talk can move markets — and it’s made some futures traders billions. Did they know what he was going to say before he said it?”
I would not be surprised if those traders knew what was going to happen in advance. Inside that article, I learned of trades on futures contracts that made the buyer hundreds of millions of dollars in one trade. You know, if I wanted to finance my campaign for president without using my own money, that’s one way I might do it. And thanks to a long series of Supreme Court decisions that allow anonymous money in SuperPAC organizations, who needs to know, right?
BTW, the trades in that Vanity Fair article? They were on the Chicago Mercantile Exchange. That means this kind of stuff has been going on for a long, long time.
While it would be easy to damn the kind of people who built and used such a system to accumulate wealth (someone else already did that), I think it’s worth examining two aspects of this system with a couple of questions.
First, is this an efficient way to allocate capital and resources? Those trades generated $180m, $192m, $82m and one for $1.5B in profits, each. Where does the money go? Amongst other wealthy traders. And that contract, the e-mini, is a futures contract for real commodities. Once you buy a contract, you’re basically buying the right to sell a product at an agreed-upon price at some point in the near future.
But just to get a seat on the CME, you’d have to pony up $410,000 for a seat on the exchange. At least, according to the CME, that was the last sale price of a seat. And once you have that seat, you can start trading. If you know what you’re doing, you can make real money on that exchange. Or you can lose a few $1500 shirts in a few minutes.
Since I’m not an economist, I don’t know for sure if this is an efficient allocation of resources. But I’d have to say that those trades don’t seem very efficient to me. That kind of money can send a lot of kids to college, run fiber to thousands of homes for internet access, or feed hundreds of thousands of hungry people. But that’s just me.
Then there is a philosophical side of me that looks at it this way: I’ve just made $180 in one afternoon. I think I’ll go to Disneyland. Seriously? That kind of experience would load me up with enough adrenaline for the rest of my life. There is nothing else that I could do to get any higher.
Do I want to do that again? Sure. Sign me up. When can I do that again? Um, before my next hearing at the Federal Trade Commission? Or with the Internal Revenue Service? Oh, wait. Trump’s in charge, so I’ll be out of the country by then traveling the world on my yacht.
In terms of the human need for industry (I’m thinking Maslow here), the sense that all humans need to contribute to their clan, their group, that kind of achievement, of earning so much money on just one trade, that is just so difficult to imagine. There is no true sense of proportion. There is no way to say, “I earned this” when you put the amount of money next to the effort involved. How can anyone say, “I made $180 million in just a couple hours at the CME”, with a straight face?
So just what do you do with your life when making $180 million or more on a few trades a year is routine? I have to wonder about that. In a few hours you’ve made more money than most people can dare to dream of, what else is there left to achieve?
At least Elon Musk is doing something useful with his wealth. Bill Gates is trying to do something with his wealth. And Bono from U2 travels the world doing charity work. But those Trump Chaos traders…I wonder what they’re doing with their newfound time and dosh.
I know, this is totally out of the sphere of my influence. But my jaw just dropped when I read that article and those trades, and the suspicious circumstances for each trade. All of the trades made money on the news or some Trump tweet.
Someone had advance knowledge of future events or they would not have made those trades. That’s what I find so interesting. That’s like shorting American Airlines stock on September 10th, 2001, knowing what will happen next. That doesn’t seem like a very efficient way to allocate capital and resources, does it?
Oh, well. I guess I’ll just keep my day job, raise my kids as best as I can, and keep writing articles. Maybe I’ll take in a movie when everyone else is asleep in my house. But from time to time, I might wonder about the kind of people who trade on the news like that, knowing what will happen tomorrow.