/1 Case Study: reason #1263 most Hedge Funds are worthless. Simply put: they don’t listen. In mid-March, a young guy at a pretty well-known hedge fund reached out to discuss the Lumber market. The Fund was considering putting on a #Lumber short. (Cont’d) #OOTT #Oil #trading

At that time, ppl thought the Virus would curb demand for building & related materials. Markets, broadly, were still panicky. The hedge fund thought Lumber was an easy short. But commodities are seldom that straightforward. I told the analyst that we thought demand for lumber

& building materials was actually holding up, & in some places even accelerating. (Family is involved in retail lumber business.) Twenty-something analyst disagreed, & basically implied that we were out of touch. For a few wks, Lumber prices *did*

decline, hitting a 4-yr low on April 1st. Did the HF close out the trade? No. They “pushed it.” In the meantime, I continued to tell ppl I thought it was a bad short. Even went on Twitter (didn’t have any followers, so went on popular threads) to advise against the Lumber short.

As a couple wks passed, it became even more obvious to us that the Pandemic was actually spurring a ton of home-improvement & remodeling, & that even new-build would snap back w/ rates so low. Flash forward to last week: Lumber

Prices have more than doubled off the April low to a RECORD HIGH & the hedge fund undoubtedly ended up losing some real $ on the trade. Moral of the story: there’s no point in doing channel checks or soliciting outside advice if you just brush it off. But that’s the biggest

Weakness IMO (*after the fees) w/ most hedge funds: even the junior ppl think they’re way smarter than anyone else. This hubris was (& will continue to be) the HF industry’s undoing. /end

#lumber #OOTT #CME #trading #Commodities #hedgefunds #markets