If Hillary Clinton Made Money in Commodities, Why Can't You? Well,
Let's Count the Reasons . . .reprinted with permission of The Wall Street Journal
Looking for a way to make some money in a hurry? You could always hit the lottery, or go to Las Vegas and bet on red seven. Or you might play the commodity markets.
That's what Hillary Rodham Clinton did back in the late 1970s. Much of the money she and Bill used to buy a home and invest in securities and real estate came from commodity speculation, it was recently reported.
According to an account in the New York Times, Mrs. Clinton began trading live cattle futures in mid-October 1978, and generated profits of $100,000 over the next 12-months.
If Mrs. Clinton can do it, why not you? Well, for a start, you could easily lose your shirt. During any one year, three of every four individual investors who trade commodities lose money, says Charles K. Levitt, senior meat analyst at Alaron Trading Corp., a Chicago commodities broker.
And over the long run, an estimated 95% of individuals who speculate in commodities futures lose money, according to Bruce Babcock, editor of Commodity Traders Consumer Report, a Sacramento, Calif., newsletter.
Fierce Competition
The lousy odds come from the nature of commodities futures themselves and the fierce competition that the individual trader is up against. A futures contract is an obligation to buy or sell a specific quantity of a commodity - in Mrs. Clinton's case, live cattle - at a fixed price at a particular date in the future.
For example, when Mrs. Clinton bought cattle futures, each contract she bought called for the delivery of 40,000 pounds of live cattle, or one truck load. Obviously, she didn't do that; the delivery of even one contract would produce the raw material for a lifetime supply of Big Macs, one of President Clinton's fast-food favorites.
Chart in Print CopyRather than actually take delivery of the underlying commodity, most investors hope to make money by selling the contract at a higher price than they bought it.
The potential for huge profits - and devastating losses - comes from the fact that traders only have to put up a small percentage, usually between 5% and 10% of the contract's value to play the game. As the price of the underlying commodity rises or falls, the value of the contract surges or plunges, magnified by the leverage involved.
Small Beginning Stake Results In Big Profits
It wasn't reported how much money Mrs. Clinton started with. But Mr. Levitt, a pro who has been trading and studying cattle futures for 30 years, speculates that a beginning stake of $10,000 could have produced profits of $100,000 during the period she was in the market. (Note: It was later revealed that she started with just $1000)!
Small investors like Mrs. Clinton are competing against pros from giant agricultural and food companies trying to hedge their firms' food costs and price risks, as well as against institutional traders and investment banks. These pros have access to even the most arcane information about fundamentals that might affect prices.
So, if you plan to take a flier in commodities futures, you better know what you are doing. A spokesman for Mrs. Clinton was quoted as saying she "consulted with numerous people and she did her own research," including reading The Wall Street Journal. According to published accounts, she also had a very good adviser: James B. Blair, a friend who at the time was the primary outside attorney for Tyson Foods Inc. of Springdale, Ark., one of the nation's largest poultry companies.
Made Millions Trading Commodities and
Told Mrs. Clinton to Start Trading Cattle FuturesMr. Blair told reporters that he had made millions of dollars trading commodities for his account, and that he had advised Mrs. Clinton to get into cattle futures, because "I thought I knew what I was doing."
It also helps to be lucky. "My guess is that an awful lot of her success was luck," says Mr. Babcock, the Sacramento newsletter editor. "She happened to get into a good trending situation at the right time."
Mrs. Clinton did her trading during one of the great cattle bull markets. "It was relatively easy to make money in cattle futures," says Mr. Levitt. "You didn't have to do a lot of trading. All you had to do was hold your position."
Mrs. Clinton "was also lucky that she stopped," Mr. Babcock says. "If she had continued to trade cattle futures after October 1979, the chances are she wouldn't have done so well."
A clear trend, such as the big 1978-79 cattle rally, gives a trader "a statistical advantage," the same kind of thing you need in playing Black Jack in Las Vegas, Mr. Babcock explains. "If you play Black Jack, you must be a card counter. Otherwise, the longer you gamble, the more your lose."
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