I’m old enough to remember the 1972 launch of Futures Magazine (although it originally was called Commodities Magazine). The earlier name was more appropriate because the only futures markets that existed at the time were on commodities. I was in the second year of my career as a commodity analyst and spent my days analyzing such things as corn, wheat, soybeans, broilers, cattle, hogs, pork bellies, cocoa, coffee, cotton, sugar, orange juice, eggs, and potatoes. That was the entire commodity universe at the time. Gold futures weren’t introduced until 1974. Crude oil futures didn’t start trading until 1983.
Something else happened during 1972 that changed the entire landscape of the futures industry. Foreign currency futures were introduced at the Chicago Mercentile Exchange (CME), which was the start of the evolution of financial futures. Beginning in 1976, the Chicago exchanges introduced a new breed of financial futures in Treasury bills and Treasury bonds, which were followed shortly by Eurodollar and Treasury note futures. That opened up a whole new world to futures traders. Ironically, most of those revolutionary changes took place in Chicago. One reason why Chicago became the launching pad for so much financial innovation was the encouragement and enthusiasm provided by Milton Friedman who taught at the University of Chicago. His close relationship with Leo Melamed led to the introduction of currency futures at the CME in 1972 and paved the way for more innovation to come in financial futures throughout the following decade.
The next major innovation took place in 1982 with the introduction of stock index futures. That opened up the world of stock trading to futures analysts and traders. Another piece added to the commodity picture was the introduction of futures on the Commodity Research Bureau (CRB) Index during 1986, which offered a basket approach to trading commodity markets. The introduction of a futures contract on the U.S. Dollar Index around the same time offered a way to trade the dollar against a basket of foreign currencies. By that time, distinctions had to be made between the terms commodities and futures. While all commodities were futures, not all futures were commodities. As a result, the term futures became the more widely accepted description of the industry.
I started my career in the late 1960s as a stock analyst. Because I lived in New York, that seemed a logical choice. By 1970, however, times got tough for aspiring young stock analysts and I became a commodities analyst for a large brokerage firm on Wall Street. As it turned out, that was a great (although lucky) move. The 1970s were a lost decade for stocks, while commodities soared. It was truly a golden age for commodity traders. But that ended in 1980 when commodities peaked and entered a two-decade slump. During those 20 years, bonds and stocks rose. Fortunately, by that time, futures traders were able to shift their trading emphasis away from hard commodities into financial futures.
Coincidentally, the launch of stock index futures in 1982 coincided with the start of a two-decade long bull market in stocks. Financial futures contracts allowed futures traders to profit from bull markets in bonds and stocks. It wasn’t until 2002 that commodities began another bull run that lasted through most of that decade as stocks entered another lost decade.
My experience as a futures trader led me to a new field of analysis during the 1980s, which is now called intermarket analysis. For the first time in history, futures traders were able to trade the four main asset classes, which included bonds, stocks, commodities and currencies. It didn’t take long to notice that those four asset classes, which used to be looked at separately, actually fed off one another. A whole new way to look at the markets began to evolve. The development of intermarket analysis over the last four decades closely parallels the development of the futures industry. The price discovery mechanism of the futures markets provided the catalyst that sparked the growing interest in and awareness of interrelationships that exist among the various asset classes.
My first book on intermarket analysis was published in 1991 and a second one in 2003. My third one entitled Trading With Intermarket Analysis (John Wiley) is scheduled for publication later this year. The entire intermarket approach is based on the observation that the four asset classes have an impact on each other and need to be analyzed together. One of the main intermarket principles is that commodity prices and the dollar trend in opposite directions. A peak in the U.S. Dollar Index during 2002 helped launch a major bull market in commodities that lasted until mid-2008 when the dollar bottomed. Commodities were in fact the strongest performing asset class in the decade after 2000. Largely for that reason, commodities are now considered to be a separate asset class that offers a viable alternative to stocks and bonds (as do managed futures). The availability of commodity exchange traded funds (ETFs) over the last decade has also made commodity markets more available to the investing public. It’s as easy to buy a commodity ETF as it is to buy a common stock on a stock exchange. Greater participation by the investing public, who may have shied away from commodity futures in the past, has now increased the demand for those same commodities.
The futures industry has come a long way during the forty years since 1972. It’s reassuring to know that Futures Magazine has been there during the entire time to describe those changes and to help make sense out of them. And it’s still doing it today. After 40 years, you’re still fabulous. Happy birthday.