Commodity Insight: This year is like a box of chocolates

The largest grossing film of 1994 was “Forrest Gump,” starring Tom Hanks. The film cost $55 million and made $678 million at the box office.

The film won the Academy Award for Best Picture and Best Actor for Hanks. And the line uttered by the Hanks’ character is now considered one of the all-time great quotes from any movie:

“My momma always said, ‘Life was like a box of chocolates. You never know what you’re gonna get.’”

Lately, and more often than not, I have been saying the year 2020 is like a box of chocolates. Allow me to touch on just a few of the scenarios that have surfaced this wild and crazy year when it comes to markets of all kinds.

The year is relatively young, and from one week to the next, you never know what you’re gonna get.

Earlier in the year, Russia and Saudi Arabia got into a price war, causing crude oil to collapse from $61 a barrel in January to minus-$37 a barrel in April.

Coronavirus became a pandemic, causing an enormous amount of pain, suffering and deaths across the globe, crippling every economy in the world.

Last month’s Employment Report for the United States was the worst in history with the highest jobless level since the Great Depression of the 1930s. Yet, it was just announced, U.S. grocery prices rose to a new 46-year high, led by meat and eggs.

There are so many mind-twisting and head-spinning scenarios going on it is impossible to forecast what will unfold. But here is a story that fits the times.

It involves a man trying to “bottom pick” in the crude oil market. The following information comes from MarketWatch.com with a glaring headline, “He started the day with $77,000 — by midnight, he owed $9 million.”

The article begins by stating, “That’s Syed Shah, a 30-year-old day trader in Toronto whose ill-fated attempt to dip his toe into the oil pits was covered in a recent story by Bloomberg News.

“On April 20, Shah started with about $77,000 in his account. He put $2,400 toward buying crude, first at $3.30 a barrel, and then more at 50 cents. From there, it got interesting. Ultimately, as the historic plunge in oil prices took hold, he was able to load up on futures at a penny each.”

Before going further, let me say this about any market that appears cheap. There is a reason a market is cheap. It is cheap because it belongs there.

The same can be said for the stock of Berkshire Hathaway, founded and run by Warren Buffett, one of the richest men in the world. Stock in Buffett’s company sold this week for $257,172 per share, which is pricey. The reason that particular stock is pricey is because it belongs there.

Anyway, back to Shah. According to Market Watch, Shah thought that he was buying crude at a penny a barrel.

“In reality, crude was already trading at negative-$3.70 a barrel — not at one cent — but the minus sign wasn’t recognized due to a glitch in the Interactive Brokers Group’s software. By the end of the day, Shah got the message: His $77,000 had turned into a $9-million debt.”

However, the billionaire chairman and founder of Interactive Brokers took the blame for the computer issue that affected Mr. Shah and others.

The chairman said, “It’s a $113-million mistake on our part,” adding that traders will be made whole. “We will rebate from our own funds to our customers who were locked in with long positions during the time the price was negative any losses they suffered below zero.”

I tip my hat to the chairman. Shah came out of the day with zero funds in his account, which was the good news. The bad news was he could have owed the firm $9 million.

There are many lessons to be learned from Shah. First, never add to a losing position. Second, understand that there are reasons a market is where it is at any particular time.

Jesse Livermore, a legendary speculator, once said, “Nothing is too cheap it can’t be sold, nor too high to be bought.” But the big lesson to be learned regarding Shah is that this year “is like a box of chocolates — you never know what you’re gonna get.”

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