Trading Day by Day - Winning the Zero-Sum Game of Futures’ by F.H
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The following is an extract from ‘Trading Day by Day - winning the zero-sum game of futures’ by F.H. ‘Chick’ Goslin. It details how Hillary Clinton turned $1,000 into $100,000 in nine months. It was around this time that news of Hillary Rodham Clinton's extraordinary success in trading cattle futures came out. She had opened a futures trading account in 1978 with $1000, and within nine months it had become almost exactly $100,000. Friends asked me what I thought about this. Was it possible? Likely? Legitimate? Did I believe it? My answer was the same to all who asked: It was definitely possible, but I would need to see how it was done in order to know whether it was legitimate or not. By that time in my career there had been numerous times when I had taken small amounts up to very large amounts in fairly short periods of time, both for clients and myself. Here are just a few examples: $1000 to $20,000 in less than a year (for a client); $3000 to $150,000 in about six months (for me); $5000 to $100,000 in less than six months (for a client); and $50,000 to $1.5 million in less than a year and a half (for me).Then, of course, there was the client I mentioned earlier who ran $10,000 up to almost $4 million in less than seven months (and then back to zero over the following two months). Therefore, I knew that Hillary Clinton could have legitimately run $1000 up to $100,000 in less than a year. The question was whether it had been done honestly. I watched Mrs. Clinton's famous White House press conference where she claimed the account and the profits generated in it were completely legitimate. Unfortunately, she did not give any details, so I still could not make an informed judgment. When doubts about her story persisted, the Chairman Emeritus of the Chicago Mercantile Exchange, Mr. Leo Melamed, was asked to travel to Washington to review the trading records of her account and then provide an expert assessment of its legitimacy. After examining these records, Mr. Melamed told the press, and through them the people of the United States, that his opinion was Mrs. Clinton "[...] did nothing wrong" and that "Hillary Clinton did not herself violate Chicago Mercantile Exchange rules" And further, that"[...] at times Mrs. Clinton's account had been thinly margined [...]" (all quotes from Escape to the Futures, Leo Melamed, John Wiley & Sons, 1996). However, he pointed out, this margin problem was not a customer violation and thus was primarily an issue between her and her broker. Around the same time, Mr. Jack Sandner, the Chairman of the Chicago Mercantile Exchange, told reporters that "it is very possible [to make $100,000 on a $1000 cash investment] if you are lucky enough to be in a market that has a precipitous trending move. And 1978 and 1979 was the biggest bull market in the history of the cattle market" {Washington Post, 3/30/94). In other words, he maintained that since Mrs. Clinton was trading a very strong, uptrending market, her tremendous profits were not overly unusual. Shortly thereafter I came across a newspaper article (Los Angeles Times, 5 April 1994) where my former acquaintance, Ira Brill, was quoted as saying he had been the floor broker who had filled Hillary Clinton's cattle orders. He stated that at that time he had been buying and selling cattle in six-hundred-contract lots for Hillary's broker (the Springdale, Arkansas, office of Refco & Co.). He further stated that these trades were not assigned to specific accounts until after the market closed. Upon reading Ira's words I recognized some clear warning signs and instantly became very suspicious about Mrs. Clinton's explanation, as well as the legitimacy of her profits. However, the press had stopped covering the story and I did not give it much more thought until I happened upon an issue of National Review with Hillary Clinton on the cover {National Review, 20 February 1995). Inside was a story by Caroline Baum and Victor Niederhoffer that provided extensive details about Hillary Clinton's commodity-trading profits. Unfortunately for Mrs. Clinton, these details were extremely damning. The National Review story confirmed Ira Brill's comments by stating:"One of Refco's Springdale brokers at the time has admitted under oath that the firm was buying and selling blocks of contracts and allocating them to customers after the market closed." Reading this reminded me of an incident my very first day at the Merc in the spring of 1970 when I observed one of our firm's order clerks come up from the floor and drop a big stack of orders on the desk of the firm's top producer. I then watched as "D.C." decided (after the day's results were known) which trades would go into which accounts. The fact that Mrs. Clinton's broker was routinely waiting until after the day's results were known before assigning trades to specific accounts is only part of the evidence her profits may have been achieved illegitimately. Even more incriminating is the pattern of trading in her account. As mentioned, Mr. Sandner implied her success was not exceptional since anyone trading with that particular strong uptrend in Cattle could have started with a little and made a lot, and many had. The problem with this argument is that (again quoting from the National Review article):"[...] most of her [Hillary Clinton's] trades, including her first two, her last two, and her single most profitable trade, were initiated from the short side [...]" Mrs. Clinton's story is she opened her Refco futures account to capitalize on an expected big up move in cattle prices (apparently doing so on the suggestion of Mr. James Blair, the general counsel of Tyson Foods, one of the major corporations in Arkansas at the time). Strangely, though, the very first trade in her account was to go short ten contracts of live cattle (a trade that produced about $5300 profits in one day). In fact, the account's trading records evidently show that a large part of Mrs. Clinton's cattle profits came from trading against her stated purpose in opening the account (as well as Mr. Sandner's supposedly relatively easy, big-money uptrend). According to the National Review article, thirty-three trades were made in the account.The vast majority were for small quantities of contracts in various markets. These trades evidently either lost or made only fairly small amounts. However, the trades that were for very large quantities of contracts "just happened" to turn out to be quite profitable, and instantly so. In other words, there were numerous small trades with a success ratio of around fifty percent, and then there were occasional huge (relative to the size of the account) trades with a success ratio of essentially one hundred percent. These exceptionally large-sized trades produced all, or virtually all, of the account's profits. Connect this pattern of trading (i.e., all the profits coming from occasional huge trades that showed instant big profits) to her broker's practice of delayed assignment of trades and any knowledgeable observer instantly would have a good "read" of what really happened in her account: Large trades that ended the day with big profits and were originally intended for another account were being placed in Hillary Clinton's account instead. Based on my experience, what happened here was that someone else trading with Mrs. Clinton's broker periodically would tell him something like the following: "Take fifty of those cattle we sold near the high's of the day and put them in Hillary's account instead of mine." Since the trades the office was doing were not assigned to specific accounts until after the close, this switch would have been easy to do. Then, within a few days, these big profit trades would be closed out. The net result of these trade manipulations: Without any real risk or effort, Hillary (and Bill) Clinton ended up a hundred thousand dollars richer. The records show that as soon as the total profits generated by this simple, but effective, trade manipulation reached just under $100,000, the account was closed. In his book Escape to the Futures, Mr. Melamed vigorously defends Mrs. Clinton in this affair. Part of this defense is, since overnight trades have intrinsic risk, and virtually all of her cattle trades were held overnight, this means profitable outcomes could not have been prearranged. Technically this is true, but it is really only a half-truth. The fact is, the big contract cattle trades in Mrs. Clinton's account had substantial profits at the close of their first day. In other words, the evidence indicates they came with large profits already built in; therefore, true risk was minimal. This was like someone being given an eighty or ninety yard head start in a hundred yard race and then claiming the race was an equal competition simply because there was some risk of losing. While technically true, in a case like this, the "risk" would be too minimal to prove the race a genuine contest. Hillary Clinton's cattle trades were no different. Plus, in Mrs. Clinton's case the big "head-start" cattle trades appear to have been put into her account repeatedly and so the net risk was, in reality, nonexistent. Every trader in the world would gladly take on this kind of so-called "risk." This little "trick" of moving trades from one account to another after the results are known is a familiar one to many people in the business.