Gavekal Capital: Commercial Traders Are Long Bonds & Short Stocks

Wednesday, November 20, 2013

Commercial Traders Are Long Bonds & Short Stocks

Every Friday the CFTC releases positioning data for a variety of futures contracts they track.  They divide the participants into commercial traders and speculators.  Commercial traders are those involved in various commodities or financial products--the end-users, financial intermediaries, etc.  They are often called the "smart money" due to their involvement with the markets.  On the other side are speculators, or the "dumb money", which are hedge funds, individual investors, etc.  Since all futures contracts net to zero, the thing to pay attention to here is which group of investors are on the long side of an asset and which is on the short side.

Recent CFTC data reveals that commerical traders are net long 10 year US Treasury bonds and net short stocks.  This, of course, means that speculators are hugely net long stocks and net short bonds.  In the first chart we show 10 year UST rates alongside the number of contracts commercial traders are long.  In the second chart, we show the $ value of commercial traders net short position on E-mini SP500 futures contract.