CME Group closing most of its Chicago trading pits

Yahoo Finance’s Jared Blikre joins the Yahoo Finance Live panel to discuss CME Group closing most of its Chicago trading pits.

Video Transcript

AKIKO FUJITA: It is the end of an era in Chicago. The CME Group announcing that it will close most of its trading floors permanently. Let's bring in Jared Blikre for that story. Jared, we should point out officially they're called trading pits. They've been closed since March of last year. So things have been a little quiet there. But this is certainly a big decision, especially given this is one of the last ones that had sort of the live trading floor, this atmosphere that you've alluded to you remember for a very long time.

JARED BLIKRE: Yeah, well, I'll tell you what. I visited the [? CBOT ?] pit when I was a kid. And you couldn't walk around in it, but they had this elevated walkway where you could just kind of watch the people. They would use the hand signals. And there were guys who would walk around and just tell people exactly what was going on. It was fascinating. It got me interested in trading. And now they're closing all but one of the pits, and that would be eurodollar futures pits. I'm not going to go into the details there, but basically interest rates are used by a lot of institutions, most liquid futures contract in the world. They reopen that in August. That's going to stay open. But the others are going to stay closed permanently.

And you were talking about pits versus the floor. Well, they have actual pits there where you walk up. And it's just a bowl of humans. And if you saw the bond trading pit back in the day with Tom Baldwin-- he was Mr. Top Step back in the day-- it was incredible. Those guys had to be big. You had to be big to exist in there because they would break out in fistfights sometimes-- no joke.

So I'll tell you another funny story because there's something in trading called the O'Hare trade. And this is kind of a binary bet on the rest of your life. So if you see the futures are volatile one day you're in a pit, you make a huge outsized bet in one direction or the other, maybe flip a coin, and then you drive to O'Hare, which is the airport, and then you call in around the close. You say, where did things settle? If it's in your favor, well, you go back to the office. If you don't, you fly to a country with an non-extradition agreement with the US. Anyway, end of an era. Sorry to say, guys.

AKIKO FUJITA: Yeah, bowl of humans. I like how you describe that, Jared. I'm looking at these photos, certainly accurate. And you pointed out you actually visited the floor when you were younger. So at one point, we're going to have to have you bring in that photo. We're talking about the CME Group. We have to talk about commodities. And we've seen lumber futures passing $1,500 for the first time. What's behind that move?

JARED BLIKRE: Well, I'll tell you what. There's limited supply because of a variety of reasons. And there is also incredible demand from the housing industry. I mean, homebuilders are at record highs right now. And let's just pull up a lumber chart here. I mean, everybody seems to know what lumber futures are doing nowadays. See if I can find LBS ticker. Here we go. It's up 1% today. Year to date, up 70%. And then over the trailing year, up 345%. Now part of this is because we import a lot of softwood lumber from Canada. And it's still taxed at 9%

And we had a guest on last week who was explaining this. I have an article up on Yahoo Finance writing about this. And this is really adding a lot of costs to home. So basically, $36,000 to any new home on average because of these soaring lumber prices. And they're probably about, I would say, to top out, maybe at 1,500, 16, 17. We've seen these blowoff tops before. And they could easily decline into the-- as we pass expiration of the current contract that's going to happen in a week or two. But nevertheless, this is not good news for new homebuyers because people are getting priced out. And I know this is kind of a personal story for you, too, Akiko.

ZACK GUZMAN: Yeah, it's--

AKIKO FUJITA: It is--

ZACK GUZMAN: --a good time here. I don't know the details behind that one, Akiko. We're going to have to chat offline. But a good day for people who are in the lumber market. Jared Blikre, appreciate you bringing us that one there.