A long strange trip

December 16, 2017 12:26 PM
Industry insights from a 28-year trading industry veteran.

Annual year in review issues always produce some surprises. There are moments or events that came early in the year that we have forgotten about (see “31 Moments & Minds that Made the Markets”). Many of 2017’s moments surround reaction to the 2016 election, which still has us reeling as a nation. The 2016 election was expected to be disruptive to markets, but equity markets crashed and recovered all in one night. What analysts predicted would likely happen over months in case of a surprise Trump victory, happened all at once, so we weren’t sure what would come next.

The year 2017 was full of anomalies. Political issues and geopolitical crises have been extreme and came at us at an accelerated pace; however, the overall market theme was the lack of volatility. How could this be? Norms were falling one by one that in the past would lead to market disruptions, but the market has just chugged along higher.

It seems that we have been waiting for a major market correction ever since the market regained the ground lost from the 2008 credit crisis. The massive bull run following that crisis occurred amid tepid growth and was attributed to extremely low interest rates and not real economic growth. But the low interest rates were real. Ironically, it appeared to be the lack of faith in the bull market that kept it afloat—there wasn’t the necessary irrational exuberance.

With more solid reasons — roll backs in regulations and promised tax cuts — for a bullish outlook the market soared, and subsequently held out potential for a serious correction. Still it hasn’t come.

With all this irony, it was a great time for MODERN TRADER to talk with Scott Adams, the creator of the sardonic Dilbert cartoon (see “Winning Big League with Scott Adams”). Adams is not just a master of office-place satire, but was one of the few who saw well in advance how the election was playing out, and why.

While the volatile events of 2017 didn’t lead to greater market volatility—outside of bitcoin—futures brokers are not complaining. In our annual futures broker rankings (see “Top 30 Futures Brokers of 2017”) leading FCMs are happy interest rates have come off of the floor and the regulatory environment is moderating. They appear confident in the current market environment. They have adapted to the new world and have created the efficiencies needed to thrive in the current environment.

Brokers are also preparing for the possibility of an exciting new asset class: Derivatives on cryptocurrencies. While there is a fair amount of trepidation as well as excitement for these products, it has been a long time since there has been this type of buzz over a new product, or class of products.

The most legitimate question over bitcoin futures has to do with the lack of confidence in the underlying market. We have seen new futures contracts based on an established underlying cash market fail. Before you can have faith in bitcoin futures, you need to have faith in bitcoin.   

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