No matter how you look at this election cycle, there’s no doubt it is unprecedented. But for us, it’s not in the way you might think. If Hillary were to win in November, she would be the first president to have a futures account that had Cattle (Meat Casino), Sugar, and Copper in it. But the time she spent trading futures left her in controversy, with eyebrow-raising returns.

We posted this back in March, but with hours until the first presidential debate, we think it’s relevant to revisit. Enjoy.

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!

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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

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.

Live Cattle 1979

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.

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