What “Trading Places” Tells Us About Markets

Trading Places was initially released 40 years ago during June 1983.

Through the Eddie Murphy Rule, it is still relevant today.

Trading Places

Because of a $1 bet between the influential and rich Duke brothers, Eddie Murphy (Billie Ray Valentine/homeless con man) and Dan Aykroyd (Louis Winthorpe III/upper class commodities broker) trade places. Murphy becomes a Wall Street trader while the brothers make sure that Aykroyd loses everything. The bet is about whether the switch makes a difference.

When the two find out about the wager, they create a scam of their own.

Using fake USDA reports, Murphy and Ackroyd make sure that the Duke brothers lose huge money. Implementing the opposite strategy, Murphy and Aykroyd sell contracts. Then, following the basic prototype for selling short, once prices fall, they buy back the contracts. (That just means you sell high before you buy low. How? First you borrow and sell. Then you wait for markets to drop, buy, and return what you borrowed):

Echoing the film, still today, traders care about the orange crop.

The Orange Supply

The price of a glass of orange juice is way up. At $9.18 a gallon in supermarkets, just one glass costs a whopping $3.00 in a diner.

Although price is up, growers are leaving the business as their crop shrinks. For one grower, this year’s yield plunged from 500 to 600 boxes to between 150 and 200. One reason is a bacterium that has been spreading through Florida’s orange groves. Called citrus greening or HLB for Huan long bing, the disease stops the fruit from ripening. As a result, supply is down by 50% from two years ago.

As the main sources of U.S. oranges, Florida is producing much less:

WSJ tells us that “speculative investors are betting that prices will rise.” We can be sure though, that they are not using unreleased crop information:

Our Bottom Line: The Eddie Murphy Rule

Before the 2010 Dodd-Frank Act, it was okay to base trades on crop information before it was released. As a result, the Trading Places protagonists were not breaking the law. Then though, calling it the Eddie Murphy Rule, Dodd-Frank said you could not use “nonpublic information misappropriated from a government source.”

Where are we? About more than orange juice and commodities trading, the Eddie Murphy Rule reminds us that information moves markets.

My sources and more: When I read this WSJ orange crop article, I immediately thought of Trading Places. In addition, you might enjoy, as did I, this Mental Floss trivia look at Trading Places. Long ago, after Dodd Frank was passed, econlife looked at the Eddie Murphy Rule.