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Harold Hamm Is The One That Failed

US oil prices turn negative for the first time in history ...
Folks have been saying water is more valuable than oil… it is now a reality.

The “free market” folks need to call the “socialists” in Chicago City Hall to learn about business disaster preparedness.  It is clear that the folks in city hall that occupy the public health offices are better at preparing for market forces than the “free market” capitalists.  I remember vividly my 7th grade civics teacher telling us about the gold standard and the supply demand curve. Very simple stuff and still relevant.  The price of anything, if there is enough of the stuff… will go negative.  It has been a law of basic economics for a long long time and is the first thing we generally learn as kids in school.  Those that want to study the dismal science then need to wait until we can take that high school econ elective Jr. year.  But at least we all start out with the same understanding of supply demand.  100 years of carbon industry hubris are at work here and what is preventing some pretty big players from seeing the very plain economic realities at play.

How is it that a group of public health officials in a (probably) windowless office knew enough to stockpile masks, ventilators, gowns, gloves and other PPE and a group of millionaire traders could not plan for the reality of negative commodity prices?  Pandemics have happened for all of history and will continue to occur in the future.  When the next one happens will all the big shots say ….’who saw this coming..?”  The City of Chicago Department of Public Health.  I think it can be boiled down to one thing.  When you are a public servant in charge of saving millions of lives, you need humility.  When you are a corporate executive in charge of saving millions of dollars, you need hubris.

There was an article in the WSJ claiming negative prices would tarnish the reputation of the CME.  I see exactly the opposite from the CME.  They saw that prices could indeed go negative on a physically settled contract.  You can’t store this stuff in an abandoned building.  Global storage facilities have never been built out at the same rate as production capacity.  It did not make economic sense.  We were using the stuff as fast as producers could pull it out of the ground.  Harold Hamm and others are now paying the price for that lack of storage build out.  

Here we are to today and Harold Hamm is having a hissy fit.  Poor little billionaire… Settle your trades and honor your contracts!!! THAT is what is at stake.  I am a former floor trader at the Chicago Board of Trade.  My mentor was a great bond futures local.  He told me “Robbie, don’t trade the crude complex, it’s manipulated.”  Until now I took that advice, I have been short crude since late Jan early Feb.  There is no more honorable way to do business and execute a trade than settlement of a uniform futures contract.  This will remain the case with Mr. Duffy running the CME… Mr. Hamm could not be more wrong when he claims that the system failed miserably.  The “system” failed, yes, but not the CME system.  It was the 100 year old oil industry paradigm that failed and the parabolic hubris of these last 100 years is now crashing down all around us. 

If Mr. Hamm had the foresight to see we were going to run out of storage, he could have built more storage and charged people to take the oil off their hands and store it for them.   Mr. Hamm would then collect/settle a “negative price” to cover his cost of construction and carry.  Would he have agreed to a force majeure if on the other side of the trade.  This is the kind of creative destruction that free market guys like to talk about.  Mr. Hamm, do you have change for a paradigm?

For the foreseeable future the price of the physically settled WTI futures contract will experience negative price shocks on a rolling monthly basis until storage frees up or someone builds more and then charges the price necessary to cover the costs of construction.  If Mr. Hamm needs a place to store his oil, he should start building tanks.  

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What Is Your “One Thing”

You are good at something.  If you are lucky, you know what this something is.  If you are even luckier, you have figured out a way to make money and support yourself doing what you are good at and maybe even love.  This is easier said than done… but then again, not really.  Let’s say you are really good at putting your fist in your mouth or maybe you would be a great magician for kids birthday parties.  My mom is really good at needlepoint stitching, she could start craft seminars at senior living homes and not only find it financially rewarding, but also experience personal fulfillment.  I just pulled these two examples out of my ass and there are probably better analogies to make.  For example, if you are a good writer, then you should be a blogger – seems over-used nowadays.  For myself, I have known for a very long time what I wanted to do but there was a delta that took me several years to learn how to bridge.  I will make a long story short.  I have wanted to be a commodities trader ever since I was in the 6th grade.  I know that this sounds silly, but it is indeed true.  My best friend’s dad was a local in the U.S. Treasury Bond futures pit during the 80’s.  He brought me and my friend to the trading floor for a field trip, and from the moment I stepped on that floor I was hooked.  The energy immediately sucked me in and a day has hardly ever passed when I did not make an effort to look up the prices of futures contracts in the newspaper or online.  What has prevented me from being able to be successful at this for long stretches of time was my mental health and lack of emotional discipline.

For the last several years, having realized what was lacking from my traders tool kit, my “one thing” has been improving my mental health and emotional discipline.  First and most importantly, I need to say thank you to my wife.  I would never have been able to focus on my mental health without my wife’s 100% love and support in every way.  Now as things become more high def and I can see what I need to do to accomplish my goal, it is time to execute trades with the emotional skill and improved mental health I have acquired for myself.  Now I have every tool in the tool box I believe I need.  I stay open to learning new things all the time.  But there is one story I tell myself day in and day out that gets me to a place where I can regain my focus on my one thing, if I am taken off course.  

I heard a story a long time ago which I have held onto as a guide for my life to discover my one thing.  Many years ago a single mother and her son had been in a terrible car accident.  As a result of the accident, the boy had his left arm amputated at the age of 3.  There is no other group of people I admire more than single mothers.  They simply are the greatest heros out there… day in and day out.  Over the years the accident had created a very strong bond between mother and son.  Shared adversity creates solidarity.  This mom was always a great example of how to roll with the punches life throws at us.  As a result, the boy never saw himself as a victim… he understood that this was his life and accepted the fact he only had one arm, plain and simple.  

As a result of the example this mom set for her son, when he got older, like most active healthy little boys, he wanted to play a sport.  Needless to say, this made mom nervous.  She did not want to expose her son to the cruelty the world shows those of us with disabilities.  She just knew there would be other parents and kids who would not be kind to her son.  Being a smart as fuck mom, she saw this as an opportunity to teach her son how to handle the douche bags of the world.

It took some time but after a couple weeks of discussion and thought between mother and son, the boy decided that he was going to start karate.  Of the five sports they were considering, this was the mom’s least favorite option.  However, being the confident woman she was, she supported her son 100% and kept her fears to herself.  

When they went to the dojo for the first time, the instructor was very excited to have this young boy joining the group.  He actually looked a little like Mr Myagi from Karate Kid.  After that first day of karate practice, the boy was a bit discouraged.  He shared with his mom that the instructor was only going to teach him one move.  Not two…. nothing.  Only one move, day in day out, over the next six months.  Three days per week and more during the summer, this young boy practiced and perfected the one move his teacher had given him.  After six months, the boy had become the best in the class at this one move and had one every sparring match he fought.  This had an amazing impact on both the boy’s confidence as well as the mom.  It was at the six month mark that the teacher wanted to enter the boy into a regional karate tournament.  While the boy had indeed beaten all of his classmates sparring, mom was still very apprehensive about letting her son enter such a high profile event.  She of course knew she could not say no.

The tournament came, on the edge of the mat before his first match, the teacher reminded the boy that he indeed was the best at his one move that he had ever seen.  All the boy needed to do was execute his move like he had learned, and to TRUST this was all he needed.  The mental gymnastics this requires is way above the paygrade of most young boys this age though this young man was able to master his mind and move forward.  

The boy won the first match… and then the second.  This phenomenal young boy made it all the way to the championship round.  Never before had a kid with no left arm made it this far in the tournament.  The tournament venue was packed with spectators.  Everyone stuck around to see this boy with one arm in the championship round.  Needless to say the mother and son had never been more nervous.  The teacher reminded the boy that he was the best at his move and to stay focused and block anything else out of his mind.  The boy of course went into the ring and executed his move flawlessly… AND WON THE WHOLE FUCKING TOURNAMENT!!!  After the noise had died down and the boy accepted his trophy, he asked his instructor how he could have been so confident and trusting that he would win the tournament.  The answer was a total surprise to both the mother and son. He explained in detail how the only way to counter the move that the boy had learned, was to GRAB HIS LEFT ARM!!!  The boy understood the concept immediately, and the mom started to cry and hug the instructor.  Finding your one thing and becoming the best, is the only way to enjoy success on every level.  It will open up not only financial opportunities in business, but have hugely positive effects on relationships as well as physical health.  Staying focused on that one thing will clear away the noise of everything else distracting me.  My path has become clearer as I continue to focus on my one thing.  Day in and day out I practice my process and trust that those around me will do the same.  Finding that one thing may feel like an impossible task, and that you would never be able to make a career out of it seems just plain outlandish.  Nonsense, don’t listen to the maddening crowd, know your heart and get to that one move where if you execute perfectly, will make you unbeatable in every way.  DIDO