Writing in Vanity Fair earlier this week, former Goldman Sachs employee William Cohan penned an explosively titled article - “The Fantastically Profitable Mystery of the Trump Chaos Trades” - that raises the possibility traders were tipped off to what President Trump was about to tweet ahead of time and bought massive S&P 500 futures positions right before big market swings.
The president’s talk can move markets - and it’s made some futures traders billions. Did they know what he was going to say before he said it?
“There is definite hanky-panky going on, to the world’s financial markets’ detriment,” One longtime CME trader says, who has been watching with disgust says he’s never seen anything quite like these trades, not at least since al-Qaida cashed in before initiating the September 11 attacks.
“This is abysmal.”
Notably we did not run a comment on the article upon its release because of our initial skepticism of Cohan's version of events, and as Bloomberg reports, experts who examined the story said any implication that people traded on inside information fell short of being proven.
“Typically these stories focus on the times you’re right. No one writes about people buying a couple hundred million of e-minis and the market doesn’t do anything,” said Max Gokhman, the head of asset allocation for Pacific Life Fund Advisors.
“Volume spikes happen all the time.”
...attributing sinister intent to a handful of trades that quickly became money-makers ignores how common such large trades are in the futures market, said industry pros. Given how often people move tens of thousands of futures contracts at once -- and how often people like President Donald Trump send stocks reeling -- someone looking for suspicious timing is guaranteed to find it.
Even CNBC got in the act, with the traders raising significant doubts about Cohan's version of events, and reminding the former Clinton-whispering author that massive kneejerk swings in futures have been happening for a decade and, the markets' reaction to a tweet or comment is entirely unpredictable.
Just as we saw a week ago when the US-China trade deal was finally agreed (or not as the case may be)...
Additionally, as Bloomberg reports, one trading expert, the chief executive officer of a major quantitative shop who asked not to be identified, said an analysis by his firm suggests no giant trades like the ones the article described appear to have happened.
The story says that in the last 10 minutes of trading on Aug. 23, someone bought 386,000 of the September S&P 500 contracts. That number is close to the total volume for September e-minis from 3:50 p.m. to 4 p.m. New York time, spread over thousands of trades -- unlikely to be the work of a single person.
And Michael O’Rourke, JonesTrading’s chief market strategist said “I don’t see where the dots are connected."
“Unless you have the trading records, which you don’t, you can’t tie one and one together to make two the way this story is laid out.”
And as a final nail in Cohan's conspiracy coffin, CME rules prohibit anyone from owning more than 60,000 e-minis at a time. Besides, such a trade would’ve been gargantuan: worth nearly $60 billion. That’s big enough to send the stock market sharply higher and probably trigger trading halts, according to the CEO. That didn’t happen.
Despite the widespread rejection (and even mockery among many market participants), Cohan, said “of course I’m standing by my reports,” which reflected the accounts of sources in Chicago trading pits, claiming he was not making allegations - which for anyone with any cognitive ability is clearly a lie.
“I don’t make any allegations, I don’t know what really happened. I was just being reportorial about what traders in the pit were seeing,” he said.
“Do I trust my sources? Absolutely. Are they vastly experienced? Absolutely. Does everybody see things differently? Probably. What I’m saying is ‘Hey, there are regulators whose job it is to see these things and investigate them.’”
However, shortly after the close on Friday night, the Chicago Mercantile Exchange issued a brief press release to clarify their findings on Cohan's "fantastical" story:
"CME Group regularly monitors its markets for suspicious activity.
As it relates to the Vanity Fair article published on October 17, 2019, regarding activities in the E-mini S&P 500 futures contract, the allegations about the trading activity are patently false.
These transactions were entered into by a significant number of diverse market participants."
But, if the purpose of Cohan's article was simply more of the same sycophantic anti-Trump suspicion-raising, he has achieved his goal - no matter how ridiculous the street, or regulators, think his 'story' is, as the politicians have already pounced on the farce. Former prosecutors Congressman Ted W. Lieu (D-Los Angeles County) and Congresswoman Kathleen Rice (D-NY) sent letters to the FBI, the Securities and Exchange Commission and the Commodity Futures Trading Commission calling for an investigation.
We write to urge you to investigate potentially unlawful behavior related to the trading of electronically traded futures contracts on the Chicago Mercantile Exchange in the last several months.
On October 16, Vanity Fair reported on numerous instances in which individuals or groups of individuals made millions, and in some cases billions, of dollars in profits by trading large numbers of Standard & Poor’s 500 (S&P) e-mini futures contracts immediately prior to major geopolitical events. In each of these instances, the e-mini contracts were traded within days, and often within hours, of the S&P rising or falling sharply. The trades preceded such events as the Saudi Aramco attack as well as announcements related to progress in talks between the United States and China over the trade war and the withdrawal of the extradition bill in Hong Kong. In one case occurring in August, the trader or traders made $1.5 billion when the S&P rose after President Trump lied about phone calls taking place between United States and Chinese officials.
While the aforementioned trades may be purely coincidental, their timing and scale raise serious suspicions about whether the traders received material nonpublic information that would affect the S&P and how they received such information. We urge you to swiftly investigate whether trading on insider information or any other fraudulent behavior occurred in relation to these trades.
Thank you for your attention to this matter. We look forward to your response.
* * *
Presumably, the CME's vehement rejection of Cohan's implications will be enough to dampen this narrative - but then again after two years of investigation and a collusion-less Mueller Report, some people just can't help themselves from repeating the same worn old narratives.
How long before #FrontrunGate is trending on Twitter?
Finally, as a gentle reminder to the doubters, The Obama White House told the world in 2014:
"If I were you, I wouldn't invest in Russian equities right now."
And of course no one will ever forget President Obama's advice to the investing world in 2009:
“What you’re now seeing is profit and earning ratios are starting to get to the point where buying stocks is a potentially good deal, if you’ve got a long-term perspective on it.”
Presumably he had his Series 7 and 63 all tucked away before he provided this sensitive risky information to the world.
We give the final word to JonesTrading’s O’Rourke:
“Millions of futures contracts trade a day, billions of dollars trade a day, so to make a connection, I feel like it’s very hard to do... To me the article just speaks more about the national sentiment about the office of the president.”
Cohan's fantasy article is a blueprint for how the resistance works: publish bull$shit sourced anonymously, launch a probe, expand probe in the hopes of finding some real dirt, rinse, repeat.