Contango and Pre-Rolling Jibber Jabber

Posted on July 26, 2010 by stacyherbert| 39 Comments

Stacy Summary: Another lesson in rigged markets, this time with commodity ETFs, contango and pre-rolling. Dumb money, of course, usually hopes it is the other money that is dumber.  But the house always wins.

Contango isn’t the only reason commodity ETFs make lousy buy-and-hold investments. Professional futures traders exploit the ETFs’ monthly rolls to make easy profits at the little guy’s expense. Unlike ETF managers, the professionals don’t trade at set times. They can buy the next month ahead of the big programmed rolls to drive up the price, or sell before the ETF, pushing down the price investors get paid for expiring futures. The strategy is called pre-rolling.

“I make a living off the dumb money,” says Emil van Essen, founder of an eponymous commodity trading company in Chicago. Van Essen developed software that predicts and profits from pre-rolling. “These index funds get eaten alive by people like me,” he says.

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39 Responses to Contango and Pre-Rolling Jibber Jabber

  2. Bloke | July 27, 2010 at 12:19 am |

    Hi guys

    I think you (luckily for me) linked to the wrong story, that lnk goes to The Elderly Media Mogul and the Bisexual Rockers! Awesome read, Who says romance is dead?

  3. The Dork of Cork | July 27, 2010 at 12:29 am |

    did somone mention dumb money?

  4. Danny | July 27, 2010 at 12:30 am |

    Thats 2 Triple AAA Keiser Reports in a row. Halliujah!

  5. Mother Earth | July 27, 2010 at 1:13 am |

    Here’s another one..You destroy medicine because -eventually- they will go out of date (in this case the swine flu vaccines). This should be well recieved to increase revenue in the perishable goods industry.

    Reminds me of a dutch comic that ordered a full table dinner in a restaurant and when it was served asked the waiter to just stuff it into the toilet, because that’s where it would end up anyway!

  6. Mother Earth | July 27, 2010 at 1:23 am |

    @GGees

    Medvedev made the same point about the russian holocaust in an interview some months back. Beware of anybody charging the minds of russians with resentment against germans. The truth is usually only revealed with some purpose in mind..

  7. Chris | July 27, 2010 at 1:25 am |

    Stacy, Change that link quick before I read more inane stuff about this Viacom Redstone guy!!!

  9. Mother Earth | July 27, 2010 at 1:32 am |

    A new loophole for the new (religiously dumbed down) America : Blame God!

    http://azstarnet.com/news/local/article_5bc41260-e1ee-57fb-8f68-fe716e9f5bad.html

  10. Mother Earth | July 27, 2010 at 1:40 am |

    ETFs that expire are ‘Lousy buy and hold’ investments.

    Isn’t that Extramegadoubleplusduhsquaredfreakin obvious?

    Tells you how little these ‘funds’ actually do. What else besides calling themselves a ‘fund’?

  11. dan valley | July 27, 2010 at 2:28 am |

    jim rickards sayz…

    Something different in my new interview with Eric King http://bit.ly/cWke71. We do comparative economic history of Rome & U.S. Not pretty

    Technical name for cash positions is: precautionary hoarding due to regime uncertainty. Regime means rules, not leaders

    Important technical paper from Fed on shadow banking http://bit.ly/9DesTN. Has collapsed by $5 Trillion. This Depression has far to go

    My new blog post, “The Myth of August.” http://bit.ly/aZyUR0. Something to ponder before you head out for vacation

  12. Metoo | July 27, 2010 at 2:34 am |

    So the senators wanted The Scottish Justice Minister to come to the USA so they could grand stand for their Fox News appearance no doubt, turns out two of them have had donations from BP as did Obama and Hairy Clinton.

    All documents have been released by the Scottish Government and have been since the decision to release Megrahi. Turns out the only documents not released were documents From Westminster and the USA

    One tory peer sent a letter stressing that muchos trade relied on the Scottish Justice Ministers decision and urged him to consider compassionate release, and the documents from the US indicating as much also.

    Its all gone very quiet over here

    Somewhere the US constitution lost its bearings from its basis on the declaration of Arbroath.

    Sure Scotland is not without its numpties mainly the Scottish Labour party who lie and twist everything, not Labour of old, I like to think of the Scottish Labour Party as the Scottish Vichy Labour Party

    http://www.reuters.com/article/idUSN2627178220090627

    http://www.independent.co.uk/news/world/americas/bp-to-start-drilling-off-libyan-coast-2035002.html

    Senator Robert Menendez, who is chairing this week’s Senate investigation into BP’s involvement in the release of the Lockerbie bomber, received $2,000 from the oil giant’s staff committee.

    In the donation cycle ending this year, two of the other senators from New York and New Jersey, where many of the bombing victims came from, and who are pressing for an investigation into the bomber’s release, Kirsten Gillibrand and Charles Schumer, received $750 and $250 each in donations.

    The donations don’t come from the company itself but from their Political Action Committee, groups of individuals within BP who wish to donate to a particular politician or party.

    A number of major oil companies that now have drilling interests in Libya: Amerada Hess, Marathon Oil, Royal Dutch Shell, Occidental Petroleum and ConocoPhillips have made donations to the US Democrats.

    In 2010 employees from ConocoPhillips are registered as having made donations to House Democrats of $36,500, Senate Democrats of $17,000. Marathon Oil staff gave House Democrats $28,500, Senate Democrats $22,500.Occidental Petroleum workers made donations to House Democrats of $43,000, and Senate Democrats $14,000. Royal Dutch Shell staff gave Barack Obama $117,946, and Hillary Clinton $20,348.
    source
    http://munguinsrepublic.blogspot.com/2010/07/who-else-is-on-bp-merry-go-round.html

  13. Happy Dick | July 27, 2010 at 2:35 am |

    Big mouths sink ships. Dumb fuck. His future may have been shorted.

  14. Coby | July 27, 2010 at 3:06 am |

    Guess this shows how commodities can also be manipulated.

  15. WL | July 27, 2010 at 3:10 am |

    Anyone know a good sources for 1oz gold maples in Canada… Lowest premiums

  17. MacGruber | July 27, 2010 at 4:11 am |

    ^ Proof that there’s a sucker born every minute.

  18. Youri Carma | July 27, 2010 at 5:23 am |

    @GGees

    Just discovered a very strange movie genre originating from Israel just after the war.

    STALAGS – film by Ari Libsker http://stalags.com/

    Holocaust and Pornography in Israel \ Documentary \ Israel 2007
    Stalags(in Deutsch: “POW camp”) were pocket books whose stories revealed lusty female SS officers sexually abusing camp prisoners. During the 1960s, parallel to the Eichmann trial, sales of this pornographic literature broke all records in Israel as hundreds of thousands of copies were sold at kiosks.

    The popularity of the Stalags only declined after a much-reported trial, in which their authors were accused of distributing anti-Semitic pornography. The film examines this notorious phenomenon, exposing the creators of this literary genre for the first time. Moreover it posits that pornographic aspects appears in canonic Holocaust literature and continue to be spreaded as part of the representation of the Holocaust in Israel, in schools, books and trips to Auschwitz.

    Director Ari Libsker, born in an orthodox kibbutz in the north of Israel, is a financial journalist and documentary filmmaker. Behind him are the works “Circumcision”(Israel 2004) and “The Home Poem” (Israel 2006).

    http://www.haaretz.com/culture/arts-leisure/fictitious-memory-1.211005

    http://www.nytimes.com/2007/09/06/world/middleeast/06stalags.html?_r=2

  21. Chris | July 27, 2010 at 5:56 am |

    One other thing you need to worry about if you try to invest in ETF’s is “decay”. Some ETF’s try to match the **DAILY** percentage price fluctuations of a certain index. While they may do this perfectly well, they don’t match the long term fluctuations, esp. if they are one of those multiplicative ETFs (x2, or x2 inverse). To see this, try the following calculation: $100.00 goes up 10%, then down 10%, how much are you left with? What about the reverse? $100.00 goes down 10% then up 10%?

    You see, either way you lose, and the house wins….(not to mention transaction costs)

  22. Youri Carma | July 27, 2010 at 6:05 am |

    - Only 35% of Democratic voters believe the stimulus “helped keep unemployment from getting worse”.

    - Only 45% of Democrats believe it has improved roads and bridges in their area.

    - A majority of Americans believe the administration’s priorities have been skewed towards companies and the wealthy.

    - 53% said Washington’s economic policies have helped large banks “a great deal” and 31% felt the wealthy had benefited similarly.

    - Only 7% believing Mr Obama had helped the poor and 2% that he had helped the middle classes “a great deal”.

    - Polls also showed a widening “enthusiasm gap” between motivated Republicans and indifferent Democrats.

    - Obama faces possibilities of defection within his party.

  23. SAO | July 27, 2010 at 6:07 am |

    @GGees

    About the brave man speaking. I agree.

  24. Youri Carma | July 27, 2010 at 7:35 am |

    Max was right.

    They’re replacing the pinky up posh talkin Brit Hayward with a Diddely Doo Yankee Doodle Bob “Pump More Corexit!” from Mississippi.

    Bob ‘Dish Soap’ Dudley To Replace ‘Fantastic’ Tony Hayward At BP Helm http://wonkroom.thinkprogress.org/2010/07/26/meet-bob-dudley/

  25. philippa | July 27, 2010 at 7:59 am |

    they are using Wikileaks to attack Pakistan. Use New york times to wipe your ass

  26. philippa | July 27, 2010 at 8:03 am |

    @metoo scotts are the best !! sexy accent – no underwear under kilt – they rock – so do the irish ;)

  27. ronron | July 27, 2010 at 8:55 am |

    anybody ter?

  29. Mother Earth | July 27, 2010 at 9:10 am |

    So when is gold going to continue its ascent?

  30. ronron | July 27, 2010 at 9:11 am |

    wrong link. fuck it. check out warren pollack.

  31. Redzebra | July 27, 2010 at 9:11 am |

    great article Stacy.

  33. Mongo | July 27, 2010 at 9:17 am |

    @Stacy, Having Ambrose Evans-Pritchard on Keiser Report would make my day!

    Take care

  34. Youri Carma | July 27, 2010 at 9:19 am |

    @Mother Earth

    Today Gold Spot Up!

  35. Youri Carma | July 27, 2010 at 9:22 am |

    Bullion bullish but beware bears http://www.stuff.co.nz/business/3959544/Bullion-bullish-but-beware-bears

    “In the meantime, the supply of gold is tightening. A combination of reduced supply and the large set-up costs associated with setting up new mines is helping to set a new floor under the price of the precious metal,” Butler said.

    OM Financial senior dealer Kevin Morgan said the price “could be comfortably above US$2000 an ounce within 18 months”, but saw a possible dip to US$1050 in the next two months.

    “I would view that as a buying opportunity,” Morgan said, but cautioned anyone investing in gold to remember that it is priced in US dollars and subject to currency fluctuations.

  36. nama rama | July 27, 2010 at 9:47 am |

    ronron:

    Is this a buying chance?

    Got a redundancy cheque friday..

  37. stacyherbert | July 27, 2010 at 10:00 am |

    @Mongo – re AEP, he doesn’t do television

  38. Youri Carma | July 27, 2010 at 10:46 am |

    7/26/2010 Webbot Clif High with George Noory on Coast2Coast http://forum.prisonplanet.com/index.php?topic=176731.msg1072610#msg1072610

  39. ronron | July 27, 2010 at 8:58 pm |

    @namarama. buy silver with both hands. make sure you don”t use money you need to feed and house your family.