Donald Johnson

Did Barron's Really Pan All Commodity Investing?

I just got around to reading the Barron's article, which answered a lot of questions about the speculative premium in most futures markets. It also left a lot of questions unanswered.

Given that some of the grain markets have daily limits of $1 or more, think about how much a speculator could lose in five $1 limit down days in a row at $5,000 per day. That's a potential wipeout of $25,000 in a week. I don't know what the margins are now, but they're probably in the $6,000 to $10,000 per contract range on wheat. Maybe lower. So an index fund has, say, 5,000 contracts, according to the article.

The question is, are the downside risks worth the potential down side losses, assuming you're a buy and hold index fund and not a trader who watches the screen every minute of every trading session?

Who will bail out the dumb money?