Has CME Finally Broken the Curse?

If you have owned $CME stock since 2007-08, you have felt some pain.  Performance has been woeful.  Macroeconomic effects didn’t help-and government regulation didn’t help-and neither did Jon Corzine.  Few stocks have had as many headwinds.

But, lately the stock has been on a little roll.

CME data by YCharts

It’s almost doubled the $SPY since late February.

SPY data by YCharts

Is it a breakout that will last? Tough to say. But the business is a cash machine. Costs are relatively fixed.  Lately, interest rate volume has exploded.  While the stock indexes, currencies, and agricultural commodity complexes add to the diversity of CME income-at heart it’s really an interest rate exchange.

Prior to the merger between the CBOT and CME, the CME had a better product mix.  They added energy contracts with NYMEX.  But, everyone knew that even though the other products were important, interest rate futures and options were the big dog in the product offering.   At the CBOT, 84% of profit was generated via US Treasuries.  There has been literally zero innovation when it comes to new contracts supporting large streams of revenue at either exchange.  Line extensions in 1997 ($ES_F) and Ultra Bonds have helped.  But, the core products are still the core products that were originally introduce in 1973 and 1981.

After the combination, they haven’t changed.  OTC markets generate some income but aren’t really important when it comes to revenue.  A different way to play the Federal Reserve might be just to buy some way out of the money calls and roll them.  If the Fed starts to move on interest rates, and the bond vigilante’s get excited, volume at CME will double.

Another way to play it is to simply buy a membership at CME. If volume explodes and the breadth of active traders increases-you will generate a nice return from a membership.

They better buy some more coolant for their data center.

Related articles

• Follow The Hot Money

The post Has CME Finally Broken the Curse? appeared first on Points and Figures.