Think Fast!
You’ve got your hands full – of books, papers, dishes – and someone, with let’s say a tennis ball, says “Think Fast” as they pretend to toss the ball to you. You jump in response. This sophomoric gag gets a laugh from one side, a rebuke from the other. Sound familiar? This game was much more prevalent when our sons were much younger and they loved to “get me.”
Traders play this game too. A traders’ version of Think Fast happens when information is being released by a company and traders react by trading the daylights out of the stock. Trade first; think later -maybe – and move onto the next trade. It’s a trader’s game but one that long term investors can be impacted by if you let them “get you.”
Another version played lately is the release of oil from the US Strategic Petroleum Reserve (SPR). The current administration in Washington announced June 23rd that they were going to release 30 million barrels of “sweet crude” oil from our reserve to help ease the stress on oil supplies due to the Libyan crisis. The US, along with 27 other countries, will release 60 million barrels into the international market in hopes of replacing some of the estimated 140 million barrels of production lost by Libya due to their “conflict.”
Tapping our reserves has only happened 2 other times since this 727 million barrel reserve was created in 1973; 20 million barrels were tapped in 1992 during the Gulf War and 11 million barrels released in 2005, post Hurricane Katrina.
Is this a sophomoric political game of Think Fast that has campaign 2012 all over it as some suggest? Or, is this a well thought out long term strategic move that will help the US economy – by lowering the price of gas at the pumps, ramping up jobs, manufacturing, etc.?
Think Fast – Gotcha!
Betting on snowfalls
We’re a tough, hardy, wintery crowd here in Wisconsin. The most recent snow storm slowed us down for a day or two, but we’ve got winter figured out pretty well and are able to get out and enjoy the snow.
Heck, we even have a football team that doesn’t let snow, cold, ice or frozen tundra keep them from winning the XLV Super Bowl. (What a great game! Hats off to the Steelers)
This winter many US cities, towns and entire states have broken long standing records for ice, snow, and arctic cold temperatures. From coast to coast many of us enjoyed more than a few days off due to extreme weather. The disruption in and cost to businesses can be staggering. Think back to the hundreds of flights delayed, diverted or canceled by the latest Midwest and East Coast blizzards.
Now businesses (and gutsy individuals) can hedge against winter. According to a story posted by CNN Money.com the Chicago Mercantile Exchange began offering snow futures in 2006 with just two contracts and now offers more than 6 locations. Investors can bet on snowfall levels in New York City’s Central Park, and at the Chicago, Minneapolis, Boston and Detroit airports.
Other contracts allow for businesses to hedge against either too much, or too little snow. Here’s one example: The owner of a snow removal company bet that Chicago would get more than the 37 inch average snowfall this winter. He bet the snowfall would total more than 49 inches. He bought a contract for $37,000 that would pay his snow removal company $16,000 for every inch above the 49-inch level.
During the latest blizzard, the contract settled for $130,000. Hopefully, this will help offset higher costs associated with his company having to clear that much more snow. The reverse wager could be profitable if he were to bet on too little snow next year.
Look for a wider array of winter and weather related contracts being used by more and more companies. While we can’t control the weather we can at least manage the financial impact of it. And hopefully, you’ll get out and enjoy winter.
