The Most Dangerous Stock in the World

The most dangerous $500 stock in the world is not Google (NASDAQ: GOOG), it’s the Chicago Mercantile Exchange (NYSE: CME). The Merc closed at $553 earlier this week. In December 2002, it debuted on the world’s public markets at what, in retrospect, seems like a bargain price, just $39.

What does CME do? It deals cards, in a manner of speaking. The Merc comes up with new financial products in the futures and derivatives markets for traders to trade with, speculators to speculate with, and institutions to ‘hedge’ risk with. We use the term ‘hedge’ quite loosely.

Derivatives allow institutions to ‘indulge’ in risk the way Oprah might indulge in pork ribs, secretively and with reckless abandon. You can connect the rise of private equity, the bull run of the stock market, and even the rise in some commodity prices with the rise of financial innovation from the Merc. It is the Bellagio of exchange stocks.

Times are so good for CME that it’s made a US$8 billion bid to buy another Chicago-based futures exchange, the Chicago Board of Trade (NYSE: BOT). CBOT trades futures on bonds, corn, wheat, gold silver, the Dow, pretty much anything you want to gamble on. A merger of the two would create the world’s largest derivatives exchange.

Now we have something new to keep us up at night. If the creation of the world’s largest casino for financial speculating isn’t a sure sign of an inevitable financial collapse, we don’t know what is. If you are looking for a canary in the coal mine of the global financial economy, keep your eye on CME, not GOOG.

Locally, we don’t have much time to say more about the pirate equity bid for Qantas (ASX: QAN). We are on our way, via Virgin Blue (ASX: VBA), to Sydney for a few days. But how much more really needs to be said? If structured properly, the deal can only be blocked on the grounds of ‘national interest.’ It would be up to Treasurer Peter Costello to concoct some lame- brained excuse.

In the meantime, the speculative frenzy builds and we read that Foster’s (ASX: FGL) may be next on the auction block for pirate equity firms And here we have an observation about globalisation that may or may not make things clearer. You can’t pick what the world likes about your country. You’re better of taking their money and keeping your prejudices to yourself (and we mean prejudices in a good way, not its politically correct definition of narrow-mindedness.)

For example, it’s a local prejudice that Carlton Draught is better than Foster’s. And since beer is such a familiar and welcome subject to us, we’ll slip into the first person for a second. I haven’t seen Foster’s on tap in a single pub in St. Kilda. Or anywhere non-touristy for that matter. And thank goodness. Foster’s was the first beer I ever got pissed on. And frankly, it’s not a very good beer, which is probably why you can’t find it anywhere where Australians actually drink beer.

Go abroad though, to America and the U.K, and Foster’s is probably a more recognized Aussie icon than Qantas. When America thinks Australia in thinks Foster’s. Now, are there other things you’d like people to think of first when they think of Australia? Fair Dinkum? Beautiful white beaches? Sydney Harbour Bridge? The Great Ocean Road? Ned Kelly? Guy Sebastian?

Too bad. That is the strange irony of globalisation. People get to pick and choose what they like about your country, even if it’s not what you think is best about your country. Your opinion doesn’t count!

As an apostle of American culture, I attempt to convert people to quarter pounders with cheese, Budweiser, and baseball. But it just doesn’t work. People pick what they like about America regardless of my informed opinion, and lately, unfortunately, they aren’t picking much (except for American movies, music, television, technology, and slang.)

The interest of international pirate equiteers in Australian assets is not the same as an America’s love for Australian beer. There will be consequences to the foreign purchase of domestic assets. But if everyone is inclined to think the consequences are horrible, we are automatically distrustful.

Would it be a bad thing for Qantas to have more competition? For prices to go down and routes to expand? It would be good for consumers. But it would undoubtedly be bad for those Qantas employees who lose their job, as many no doubt will. An unemployed worker consumes a lot less. Yet what business does the government have deciding whose interests are to be protected, Australian consumers or Qantas employees? How do you decide?

Dan Denning

Dan Denning examines the geopolitical and economic events that can affect your investments domestically. He raises the questions you need to answer, in order to survive financially in these turbulent times.

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For the record, I’m definitely most partial to quarter pounders with cheese. Big Macs are rubbish, bland and messy to eat.

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