The History of Hillary Clinton Trading Futures

Hillary Clinton Commodities_1Super Tuesday has come and gone, and while it’s not impossible for Senator Bernie Sanders to win the nomination, it’s seeming more and more likely that Former Secretary of State Hillary Clinton is going to be the presidential nominee for the Democratic Party. We typically don’t dabble in politics here, but when one of the front runners for the presidency happens to be a former futures trader, that’s worth looking into a bit. Could she be not only the first female president, but also the first president to have had a futures account?  Maybe George W. Bush dabbled in Crude Oil futures at one point, being a Texas man, or some other president had exposure to the futures markets (after all, futures trading goes back to the 1800s). But we feel pretty safe saying she would be the only President to have her name on a statement with Cattle, Sugar, Copper, and more on it.

A little background

It may or may not surprise you that public service doesn’t pay well, especially on the local level. According to CNN, when former President Bill Clinton was Arkansas’ Attorney General in the late 70’s, he was making $35,000 and Hillary was making $25,000 annually. Granted the cost of living is less in Arkansas than other states, and the money probably went slightly further, but the soon-to-be Governor and First Lady of Arkansas were perhaps looking to increase those amounts some. One of their ideas was investing in a real estate endeavor called Whitewater (which we’re not going to get into); and the other was trading cattle futures with the help of their friend James Blair and futures trader Robert L. “Red” Bone through a firm many in the futures space are familiar with – Refco. If ever there were a name for a 1970s era futures broker – “Red” Bone sure fits the bill.

So how did Mrs. Clinton do in her futures trading account. There are various reports on how much money Clinton made in her futures account, but both the New York Times and the Wall Street Journal reports agree that Clinton made a $1,000 investment and at one point had $100,000 in gains in about 10 months. In today’s dollars, that’s akin to turning $3,800 into $380,000!

First the Wall Street Journal…

“The basic plot line of Mrs. Clinton’s foray into the futures markets (keep your eye on two players — lawyer James Blair and broker Robert “Red” Bone) is that in October 1978, she put up $1,000 to start trading through Mr. Bone, who worked in the Arkansas office of a brokerage firm called Refco. Mrs. Clinton said she did this at the urging of a friend, Mr. Blair, who until early this year was chief in-house counsel for Arkansas-based Tyson Foods.

Over 10 months, buying and selling futures contracts in a variety of commodities, especially cattle, Mrs. Clinton after various ups and downs had made nearly $100,000, and in July 1979 got out of the market.”

Now the New York Times…

Mrs. Clinton was involved in a string of winning trades on sugar, hogs, soybeans, copper and cattle in 1978-79 that earned her almost $100,000 on a $1,000 investment. The second account, at Stephens, was opened with a $5,000 deposit in October 1979.They showed futures trading in wheat, sugar, lumber and copper.

Let’s throw out the past performance is not necessarily indicative of future results disclaimer here, because those results (a 9,900% gain) are nearly unbelievable. We’ll tell you from firsthand experience that it is not that easy in the futures markets, with professional traders typically requiring hundreds of thousand of dollars to successfully navigate the markets. And perhaps that is how and why there is some controversy surrounding Hillary’s big futures gain.

What were the trades in question?  Unfortunately that’s not public information as far as we can tell. It’s not clear exactly when she entered or exited trades or the months she was in certain markets, other than the multiple references to the Cattle markets. So just how volatile was the cattle market back in 1978/1979? The Wall Street Journal says it was “roaring”,  and we looked back at the data and it appears there were 4 significant swings in the market when Hillary could have been trading.

Live Cattle 1979_1(Disclaimer: Past performance is not necessarily indicative of future results)

The controversy lies over whether or not Hillary placed the trades herself, if she got special treatment when her account was on a margin call (which typically requires the account owner to put up more money or exit their positions), and whether her profits were a result of better trades put into her accounts at the expense of others.

15 Years Later

None of this controversy really came to light a year into President Clinton’s presidency in 1994… when it was revealed that Hillary hadn’t paid taxes on $6,498 of the profit from her futures trading days. Bill and Hillary ended up paying $14,615 back to the IRS and the Stare of Arkansas for the oversight. After doing so, then First Lady Hillary Clinton, held a press conference denying any wrong doing, and was given a clean bill of health, so to speak, by then CME chairman Leo Melamed.

“But in another statement, released today, Mr. Melamed called the matter “a tempest in a teapot” and said there was no evidence that Mrs. Clinton had knowingly benefited from improper trading. He conceded that her brokers had not required her to post the financial cushion that commodities traders usually have to provide.

“What these records show is that Mrs. Clinton was during 1978 and 1979 a relatively modest trader who traded in a variety of commodities, including cattle, soybeans and hogs,” Mr. Melamed wrote in a statement released by the White House. “She paid normal, full commissions. She made money on a lot of trades, lost money on some.”

Futures Trading Risky?

But what was particularly interesting about this press conference back in the 90s was when Hillary defended individual futures trading, saying she didn’t think futures trading was a big risk.

“I didn’t think it was that big a risk. [Blair] and the people he was talking with knew what they were doing.”

Now, any futures broker registered with the National Futures Association is required to inform those they are prospecting that Futures Trading is indeed risky and that it isn’t suitable for everyone. You’ll see that language over in the right hand column of this blog, for example.  But even if that wasn’t required – we’ll say turning $1,000 into $100,000 involves more risk than you can imagine. That’s only possible by betting the entire account on a position, getting it right, then doing it again, and again – day after day. Maybe Mrs. Clinton was thinking it wasn’t that big of a risk because it was just $1,000 – but in the world of risk analysis, percentage gains/losses, and volatility of returns – that had to be one of the riskiest accounts in history.

First President that Traded Futures?

Whether Hillary was incredibly lucky, selected an incredibly skilled broker, or something untoward was going on – we’re not here to weigh in on. Just like we’re not here to weigh in on her chances of becoming President. To each their own on that decision.  We’re just here to say that if she does become President, we could be looking at the first US President (as least that we know of) that has ever traded commodity futures.  Wherever you stand on the story of her $100,000 in profits, the thought that she could be the first president that knows what it means to be on margin call (maybe, that was 35 years ago), the first President that has publicly stated that she doesn’t think futures trading is risky, and the first US President to have traded with some guy named “Red” Bone is more than a little interesting.

 

4 comments

  1. Here is the backstory. Tyson needed to dispose of chickenshit. Arkansas prohibited it via state regs. One way to dispose of the chickenshit was to change the reg.

    Tyson took the losing side of a cattle spread, and Hillary kept the winners. They did it through a local broker.

    The Arkansas chickenshit disposal regulation was changed, and Tyson was able to dump where they wanted to.

  2. I should further add that there was no audit trail at the time. So, you can’t prove or disprove anything. You also cannot blame Leo Melamed-what was he going to do take on the first lady of the US?

    Refco was one of the dirtiest brokers out there. They became the core of MF Global, run by Sen/Gov/Presidential Bundler Jon Corzine. He turned out great for the futures industry didn’t he?

  3. Only one journalist figured out how she did it back when the story broke and I can’t remember who it was or where it was written. I worked for REFCO during the period that she was trading and know exactly how she made the money. The journalist had connected the dots on fines that REFCO had incurred during the time in question for improper order entry. Many of REFCO’s account execs had huge customer runs that were all listed as “individual” accounts that should have been under the execs “discretionary” listing. Since discretionary accounts were counted as part of the execs personal position limit, they all brought in their customers as individual accounts so they could trade maximum position limits for themselves and many of these “individual” traders. CME compliance fined many of the brokers and REFCO in these areas during her trading period with REFCO and by connecting the dots it was pretty easy to see how Hillary made her money, and it wasn’t by reading the Wall Street Journal. I would venture to say that she has never entered a futures order in her entire life.

  4. The original Refco run by Ray Friedman and Tom Dittmer was not “dirty.” Did they throw their weight around? Yes. Did they have to bend a few compliance rules to accommodate their rapidly growing customer base? Maybe, and they paid the fines. To link the original Refco that Hillary traded through to what it became after Mr. Friedman and Mr. Dittmer sold it and it blew up in the public offering then to be picked up by MF Global and Jon Corzine is inaccurate. Mr. Corzine takes dirty to levels never imagined even possible by Mr. Friedman or Mr. Dittmer.

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Disclaimer
The performance data displayed herein is compiled from various sources, including BarclayHedge, RCM's own estimates of performance based on account managed by advisors on its books, and reports directly from the advisors. These performance figures should not be relied on independent of the individual advisor's disclosure document, which has important information regarding the method of calculation used, whether or not the performance includes proprietary results, and other important footnotes on the advisor's track record.

Benchmark index performance is for the constituents of that index only, and does not represent the entire universe of possible investments within that asset class. And further, that there can be limitations and biases to indices such as survivorship, self reporting, and instant history.

Managed futures accounts can subject to substantial charges for management and advisory fees. The numbers within this website include all such fees, but it may be necessary for those accounts that are subject to these charges to make substantial trading profits in the future to avoid depletion or exhaustion of their assets.

Investors interested in investing with a managed futures program (excepting those programs which are offered exclusively to qualified eligible persons as that term is defined by CFTC regulation 4.7) will be required to receive and sign off on a disclosure document in compliance with certain CFT rules The disclosure documents contains a complete description of the principal risk factors and each fee to be charged to your account by the CTA, as well as the composite performance of accounts under the CTA's management over at least the most recent five years. Investor interested in investing in any of the programs on this website are urged to carefully read these disclosure documents, including, but not limited to the performance information, before investing in any such programs.

Those investors who are qualified eligible persons as that term is defined by CFTC regulation 4.7 and interested in investing in a program exempt from having to provide a disclosure document and considered by the regulations to be sophisticated enough to understand the risks and be able to interpret the accuracy and completeness of any performance information on their own.

RCM receives a portion of the commodity brokerage commissions you pay in connection with your futures trading and/or a portion of the interest income (if any) earned on an account's assets. The listed manager may also pay RCM a portion of the fees they receive from accounts introduced to them by RCM.

See the full terms of use and risk disclaimer here.

Disclaimer
The performance data displayed herein is compiled from various sources, including BarclayHedge, RCM's own estimates of performance based on account managed by advisors on its books, and reports directly from the advisors. These performance figures should not be relied on independent of the individual advisor's disclosure document, which has important information regarding the method of calculation used, whether or not the performance includes proprietary results, and other important footnotes on the advisor's track record.

Benchmark index performance is for the constituents of that index only, and does not represent the entire universe of possible investments within that asset class. And further, that there can be limitations and biases to indices such as survivorship, self reporting, and instant history.

Managed futures accounts can subject to substantial charges for management and advisory fees. The numbers within this website include all such fees, but it may be necessary for those accounts that are subject to these charges to make substantial trading profits in the future to avoid depletion or exhaustion of their assets.

Investors interested in investing with a managed futures program (excepting those programs which are offered exclusively to qualified eligible persons as that term is defined by CFTC regulation 4.7) will be required to receive and sign off on a disclosure document in compliance with certain CFT rules The disclosure documents contains a complete description of the principal risk factors and each fee to be charged to your account by the CTA, as well as the composite performance of accounts under the CTA's management over at least the most recent five years. Investor interested in investing in any of the programs on this website are urged to carefully read these disclosure documents, including, but not limited to the performance information, before investing in any such programs.

Those investors who are qualified eligible persons as that term is defined by CFTC regulation 4.7 and interested in investing in a program exempt from having to provide a disclosure document and considered by the regulations to be sophisticated enough to understand the risks and be able to interpret the accuracy and completeness of any performance information on their own.

RCM receives a portion of the commodity brokerage commissions you pay in connection with your futures trading and/or a portion of the interest income (if any) earned on an account's assets. The listed manager may also pay RCM a portion of the fees they receive from accounts introduced to them by RCM.

See the full terms of use and risk disclaimer here.