The sun. [volume] (New York [N.Y.]) 1833-1916, 1914-09-06
DIFFICULT PROBLEM
IN COTTON TANGLE
How Liverpool Straddle Loss
Was Made and Who Must
Meet IL.
LOOKS LIKE GORDIAN KNOT
Meaning Of Proposal Made by
Conference Committee
Last Week.

60 ..lutIe- rave played such q large
ra- .n 'uo existing cotton tangle that 1t
10. boon impossible for those who have
~o' 49,. ,>pe-t knowledge ~ cotton market
.l.. .,...s To gain an idea Of the pros.
s.- ....lNrd Tho iutrcacies Of hedge
..r.. ,.i purchases and such arb,trage
.-,..trions a. straddles hetp oen New
yo.. trd Liverpool mean little ~ nothing
even %. tine man who has been accustomed
N ','. ,u occasional h,cr in cotton spec
ula'jn"
Ti.e4 tc,,Hn,calitics however. furnish
he ,..., essence of the important trans
&C, . and AN attempt will he made to
49, '.,. forth clearly In their relation TO
he nre-r'.t cotton situation.
Wl,I 'ac cotton exchanges OF the world
closed ON July 81 an immedl ate attempt
was nlde TO reduce commitments In or
He- that brokers might draw down mar
ems mat had been deposited on these
trades ln banks and trust companies. This
work has made satisfactory progress, and
or tN practical purposes ~ least for the
.lrlc-s'a riirg of the situation II may he
assumed that most of the speculative longs
and shorts have been closed out except
where these trades became involved IN the
s,raddle between Sew York and Liverpool
What rs = straddle and why IL IL made Z
S4lUr~F. TOT Instance lOtl MI
cotton firm imports / q. 900 bales o, cotton
- Li,crpool In order TO insure them
selves against loss tho importers sell
900 bales Of Ianu rv- February con-
irscts In liverpool ant ~ the time they
sell these contracts they presumably have
A r-oft tn their spot cotton. ny the sale
.. futures they guard themselves against
any loss resulting from a decline FOR tho
profits IN 'ua.- suor, lilies will Offset the
I.f al .s.ss tom tranS14s-
ton u merely a hedge
Hero IL where the strsddle comes in
AZ the time the importer sells his 10000
bales Of January February contracts GER
ain Liverpool operators take the view
HAT the New YORK market Is better
salr than Liverpool AT the existing dif-
forences between the 'wo markets. Janu-
try-February In Liverpool. for instance.
may he only ~ points over January in
New York and the Liverpool operators
fael that when tho weight of cotton comes
on 90, New York market. particularly in
low grades prices in New York will NIX
90 points and perhaps more under Liv-
erp1ol
Therefore when the importer sells 10000
bales OF cotton contracts In Liverpool the
English operators take these offerings ana
sel. 10000 bales Of January cotton In
T"w York ~ the existing difference. In the
hope of uudoing this operation later -
covering shorts in New York and selling
ont longs in lAverpool--at "A profit OF 20
points or 30 In addition to commissions.
These transfers of hedge sales originally
made ii Liverpool 10 New York constitute
an Important. and In fact the most Inn
oor.ant. part OF the business between
New York and Liverpool They are known
IS straddles In the working out OF the
differences between the TWO markets some
very complex questions are involved ana
only tu eNper. market operator cares 20
4''-mp, them Through the medium OF
'h-s" s'raddle operations the Liverpool
stock Is frequently hedeed TO a large
cN'cnt in New York
The present cotton tanrlo Is concerned
almost entirely with the straddle interest
between New York and Liverpool. This
= estimated TO consist ~ about $4,000
hs'es u cotton sold b. Liverpool in New
York and about $50 00n bales In Liver
pol soll by English operators TO New
York firms. In this latter instance the
New York buyers took the hedge sales
directly instead OF through the medium
~ straddle sales in New York This
makes a total OF about 500 no0 bales
virtually hedge sales OF which New York
firms are long
Since the exchanges closed on the last
daN Of July the Liverpool stock has
'hrunk In value about cents PEI pound.
pr"v'aed :, were possible to import cot