THE TERRORISM FUTURES MARKET; PEOPLE PRAISING IT DON'T KNOW ANYTHING ABOUT FUTURES.

Libertarians without a clue, Dynamists with philosophy but no smarts, and Objectivists with no objectives are just full of it.

Virginia Postrel and the rest of the PNWI (Pretend New Wave Intellects) actually think this was a good idea. They are so full of it their eyes are brown. In THEORY, and only in their half baked free enterprise theoretical brains, the money attracted would pinpoint what really was in store. Like futures contracts predict the future prices of soybeans and hogs.

Total bullshit. The future prices of farm products are all "weather bets". PERIOD. Weather causes more or less farm product. Sometimes there is a total SURPRISE like a disease. When this happens market prices SOMETIMES explode. But just as often they fall like stones in water. That's because the disease makes the entire meat or crop undesirable; even the good meats or crops are tainted. Weather bad: prices rise; weather good they fall. As proof of this I direct you to beans: In May the FUTURES were at $6.40, today they are at $5.40. Futures do not predict prices.

Futures markets on metals depend on many things but always on industrial production and demand for same (gold and silver have huge industrial uses these days and silver is now an industrial metal).

Now we get to currencies and Index Futures. All currency bets are really "spread" plays; you are betting on the difference between one currency and another, or in the case of the dollar you are using a "basket" of world currencies. What does a currency market "predict"? Jack Shit. Currencies trend for years and they "predict" that sooner or later they will "turn". A word about energy futures, they are a hysteria index. People speculate on their fears. Oil hit $100 per barrel in Hong Kong back before Desert Storm in 1991. Check the cash prices in the Journal or IBD to see what today's prices are. You can bet there is an absolute ton of "stops" under this market because the players and hedgers know today's price is bogus, BUT IT IS NOT SHOWING IN THE FUTURES MARKETS. Current contract is just above $30 and November is just below; this is normal because oil always trades an inverted market (called contango by the Mensa jerks).

INDEX FUTURES: futures contracts on a stock index like Dow, S&P 500 and so on. These contracts never predict anything. Ever. They are usually a day trade (in and out the same day) or a hedge. A hedge is simply a position opposite holdings in another market; if you own (are long) Boing and IBM you might "sell" an index at a certain stop point based on a certain formula or buy puts or write calls. This activity has nothing to do with anything except stating that people can't dump the huge amounts of stock they own without collapsing the market.

The single market that does do a job of predicting the future is the Bond Markets (interest rate futures and options) because the volume is so huge banks participate. But even here genius Greenspan left everyone holding the bag with his comments, which he then withdrew. His sad performance (he is well into his senior moment phase) has caused interest rates to soar; they will drop over the next few weeks as the banks lick their wounds.

In all markets the exchanges take the "other side" of every trade, thus an imbalance of longs or shorts will always be covered by the exchanges. Sounds good but there can be no short without a long and vice versa. Somebody buys from somebody and somebody sells to somebody.

MARGIN CALLS: This means your position is so far into the toilet that you have to put up more money. If you do not you are liquidated by the Exchange. In reality you never "make" a margin call unless you are a moron. You let the exchange liquidate you. When we talk about the Terror Futures I may mention this.

So now we get to TERROR futures. First, understand that the main risk in any futures market is TIME. All contracts expire eventually. You buy (or sell) March corn or February bellies and these "bets" expire on a date certain. So let's say you buy (go long) a Terror Future for December in the month of August. There is no price, just an event. Because of the time you will have to put up huge margin. It goes without saying that there will be ten shorts for every long, meaning ten people will bet there will be no terror attack for every person that "goes long". In each and every month. The Exchange, in this case Uncle Sucker, will be paying off all the shorts with tax dollars because there are not enough longs to cover; the GOVERNMENT took the other side of the trade. But people aren't stupid, as the month of December gets to day fifteen the longs will sell, or maybe they will sell in November, or October. Maybe they will "roll over" to another month like January. As the months go by the shorts are making a killing because they are right every month. How are they paid? Well, knowing the government they will "adjust" the price downward for short players as to "encourage" long players. Are you going to tell me that this will predict a terror attack? This is bullshit. People are trying to make money, not do a good deed.

Now corruption. You are not allowed to be long and short the same contract in the same month in the United States. But people do it all the time by "spreading" in London or Hong Kong or somewhere; they do it here under different names or have another company do it for them. Why? It's called "arbitrage" a fancy word that means whenever there is a price discrepancy you take advantage of the "spread difference" (see below) that you know will change back. Once it changes you liquidate both sides of the trade. So the Terror Futures will open on other exchanges around the world and people will go long and short the same market for the same month because they want to make money, not because they think an attack is coming.

NOW OPTIONS. If you think you can trade any futures today without the options market you are drinking way too much of Postrel Dynamist wine. Options were invented by the guy who fixed the 1919 World Series, a math genius and crook by the name of Arnold Rothstein. He invented options on horses in races. Because of his terrible reputation U.S. options trading was not legal until 1984 (London options were a staple for a long time). Now options are huge all over the world. Other "Exchanges" would have options on Terror in a micro second. How would they work? Holy Shit, all these genius brains ought to be able to figure that out. What would the "strike price" for a Terror attack be for April? You got me. But you can bet a Rothstein out there will figure it out.

Notice I haven't mentioned "margin calls"? I know some government jerk off would figure a way to have them, but I don't know how.

This idea of Terror Futures Contracts should have been thought of. We want people to think "outside the box", but I will bet that nobody who knew futures markets was involved in putting this idea into motion.

Arbitrage or "spread trades": Say the historical difference between A and B for the months of December and March is always $5 +/- ten cents favoring B. Suddenly the price of B "spreads" (rises while A remains the same) to $6 over A. A spread trader will immediately bet that the price will return to it's normal difference; either B will drop, A will rise, or each will move so the historical difference will be restored. If you sell B and buy A one or both ends of the "spread" will make you money. These trades are among the most basic and common in the "futures" business. BTW nothing on the face of the earth can cost you more money than both "ends" of a spread going against you. Most times you can't get out and you have to offset. I was once stuck in a lock limit move on both ends of a cattle spread (feeders and live) for two days. I'm still sick. Very bad news.