Capitalism 2.0

US Real Estate Derivatives

As we begin the second week of the CME's housing futures and options market trading (real-time quotes for futures are here), anyone who has been watching this market debut is immediately struck by the lack of liquidity.  In the first week of trading there was effectively no volume.  Of course, new market products like this take time to develop, but questions remain about the viability of the concept of a residential real estate derivatives market.

Some comments from the Tuesday, May 30, 2006 (US ed.) Financial Times...

Personal Hedge Strategies

In April we started discussing ideas about how to create personal hedges utilizing various ETFs (and a few major stocks).  In light of the recent market turmoil, commodities volatility, and the ominous shadow of inflation, I again began playing with some of the hedge-friendly ETFs that we've compiled over the past year.  Let's take another look at this list and adjust it based on anything new we've learned in the past months.

The idea here is not to offer speculations about the future, but instead to create hedges against reasonably likely future events.

Day 1 CME Housing Futures

Very little activity on the first day of futures trading.  Apparently the CME received a flurry of interest in the market--lots of phone calls and requests for information--but very few participants were willing to put their skin in the game.

There is a very real concern that this market may be so thin as to be ineffective.  In fact, it may become biased and merely reflective of the prevailing sentiment in the overall housing market.  Unless speculators or long-term hedgers are willing to go long, this market simply won't work.