With Commodity Trading There is Always a Loser

This is a Closer Look at Tom Dittmer. He was a farm boy from a small-town in Iowa who went on to serve in the ‘US Army’s prestigious 3rd Infantry Old Guard and as a White House aide under Lyndon Johnson. In 1969, he co-founded what was to become one of the largest commodities trading firms in the world, Refco, with his father, Ray Friedman. In 2006 he was inducted into the Futures Industry Association Futures Hall of Fame. Tom Dittmer joins former SEC chairman Arthur Levitt to talk about his life and a book he has written, which is a rollicking personal memoir of his remarkable life called, “Talkin’ Big.”

Host: Arthur Levitt 

Producer: Madena Parwana 

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Episode Transcript

Speaker 1 (00:00):
This is a closer look with Arthur Levitt. Arthur Levitt
is a former chairman of the U S Securities and
Exchange Commission, a Bloomberg LP board member, a senior adviser
to the Promontory Financial Group, and a policy adviser to
Goldman Sachs. This is a closer look at Tom Dittmer.

(00:22):
He was a farm boy from a small town in
Iowa who went on to serve in the US Armies
prestigious Third Infantry Old Guard and as a White House
Aid member under Lyndon Johnson. In nineteen sixty nine, he
co founded what was to become one of the largest

(00:43):
commodities trading firms in the world, Revco with his father,
Ray Friedman. In two thousand and six, he was inducted
into the Futures Industry Association Futures Hall of Fame. He's
written a rollicking personal memoir of his remarkable life called

(01:07):
Talking Big. He joins me, now for a closer look.
Temm you right in the acknowledgement of your new book
that your current wife, Francis and others pretty much forced
you to write it, and it was going to be
just a family project at first. What did you want

(01:28):
to accomplish, and are you pleased that you did it
exactly like you described it. We're gonna make six or
seven copies for the kids and the grandkids and printed
ourselves on Amazon, and that would be it. And well, then,
since my wife is a author and written several books,

(01:49):
she said, well, maybe we should get a publisher, and
then maybe we should get a publicist, and then maybe
we should go on a book tour. And that's why
we're talking today. And yes she has rugby fighting and
screaming all the way. This isn't the usual business book
of deals and challenges. At least half the book is

(02:10):
very personal stories of your family and marriages and kids.
So let's start with the key people in your early life. First,
your mother, Evelyn. Your biological father was not part of
your life, So tell us about your mother and life
with the extended family on the farm. Well, that was

(02:31):
you know, that was one of the great blessings in life,
except for the You'd be running around playing with your
cousins and every time you go by somebody's house it
was a relative and it feed you. But then they
always wanted to give you a bath too. So your
brand life crazy and and so it was a very easy,

(02:53):
wonderful life to grow up in, you know, in a
small town and on the farm, uh, with a with
all the family. And doesn't your mother remarried Ray Friedman,
whom you call Pop. A new step parent is a
wild card for any child. But Pop was a good
addition to the family and key to your future. Us

(03:16):
about him, he was well, he was exactly that. He
gave me all the opportunity and we started the company
in sixty. But probably one of the best stories is
that when I first meet him, when the car driving
to Omaha or something, it's fifty two Pontiac and you

(03:36):
recall how the seats used to break in the old days,
and your head to be peering over the window. And
I was a pretty good sized guy, and he was
six ft two and and we could barely see out
of the car. And I'd say, Pop, you know, you've
had some pretty you know, things go in your life.
I said, why are you so happy? He says, well,

(03:56):
you gotta pick happier, said pick happy. You had challenges
growing up, You had a severe learning disability, and you
stuttered say you had trouble in school, but suddenly you
got much better grades when you were promised a car,
Is that a clue to the tenacity we see in

(04:18):
your future? The car was the only time that I
did not get all these the only time, and my
mother almost killed me for that, because she said, You've
been getting ds your entire life, now all of a sudden,
for a car, you can get these, you know, And
so she was very upset with that. But I didn't
disappoint where I went back to these again. So you

(04:41):
graduated at the bottom of your high school class, not
quite second from the bottom, second from last. You failed
out of summer school, but you were determined to go
to college. And you did tell his story because it
says a lot about you as a young man. That
was probably the low point. I just got in a

(05:01):
car accident and and ruined my car, but no one
was hurt, and so that was all good. I flunked
out of summer school, and so is the army, get
a job or find a school that would take me.
And I went to the University of South Dakota and
Mr Frankenthaler was the dean of admissions, and he must

(05:22):
have been eighty years old then, and he said I
couldn't possibly go there and I said, Dr Frankenhal, I
have to go here, and he said no. But I
waited outside his office for three days. And the third
day he weakened and he says, Okay, I'm gonna give
you the test that we give the the the folks
on the Indian Reservation and he and he says, I'm

(05:44):
gonna help you out. When it says you want to
be a plumber or fireman, pick fireman, that's great. Well
you wanted to work at IBM, but you were rejected, yes,
and you ended up in the army. And you're right
that the U. S. Army is absolutely the best thing
that ever happened to me. Many people say that, but

(06:05):
what are your reasons? Oh, I thought the army was
was was one of the great experiences of my life actually,
and uh. And being a second lieutenant is is it
is a wonderful position. You get to be a be
a patoon leader and uh. And I thought it was,

(06:27):
you know, one of the better things that I've until
they got to do in my life. It was wonderful experience. Tom.
You write that back in the sixties when you started out,
commodities exchanges were segregated. Jews from the Irish tell us
about that and when did it change? Well, the Mercantile

(06:48):
Exchange where I got my job in nineteen sixty six
was the Jewish Exchange. It came from the old Butter
and Egg board and that was primarily where the Jews were,
And and I reached word the Chicago Board of Trade.
That I think changed forever when the Chicago berg Until
Exchange brought the Board of Trade. And in nine you

(07:11):
formed a partnership with your stepfather, Ray Friedman and Company
or Revco. What was REVCO doing at that point? He
was in Siou City, Iowa, and I was in Chicago.
He had a good sized business in the Siu City stockyards,
and I had a smaller business in Chicago. And in

(07:31):
sixty nine he owned sevent and I owned, and we
went to partners together, and from day one we were
profitable because we each already had a business and we
were paying out part of our commission to another fellow.
And so from day one we were we were profitable.
And I think above and beyond that the fact that

(07:54):
you had a harmonious relationship with him was a tribute
to both of you understanding personalities and how they interface. Yes,
bused the New Mark Exchange started to sell futures on
live cattle. How did this go for you? Oh? This, well,
that's actually what what put us on the map. Um,

(08:16):
that's why Pop went down to the city stockyards, which
at the time was was a large stockyards, and and
in the people in the cattle business were all there.
And in in seventy five I got in the feed
lob business and in the Panhandle of Texas, and we've

(08:37):
had a million cattle a year and they're still in
business today feeding a million cattle a year, and so
that really kind of helped put us on the map.
When when they started treating cattle around that period of time,
I personally was in the cattle business. I was in
business with a guy named Larry Oppenheimer of Kansas City.

(09:00):
I wonder if you knew him. The name sounds very familiar, uh,
but but I can't place it specifically. He ran herds
of cattle for absentee owners. And in terms of what
he did, they converted ordinary income into capital gain by

(09:22):
feeding cattle that were then sold at capital gains rates.
Now you right that in one Nixon closed the gold window,
and you say that this was the beginning of what
got you into the mess and the debt were in today?
Would you explain this? When they close the gold window,

(09:46):
Germany or whoever the country was could not be paid
back in gold like they could before that, and now
they had to keep the dollars, and and that I
think is what gave us. We could export our inflation
and and and gave rise to the housing markets commodity prices,

(10:07):
and it actually made the commodity business what it was
in the nine seventy four You bought out pop, your
partner and stepfather, Ray Friedman. Why was that because it
was just a natural thing actually, because I was young,
probably thirty years old, and he was and he wanted

(10:29):
to take the money out and spend it. And I
wanted to you know, expand the business and and grow it.
And he wanted to spend and so I gave him
a buy sell that I'll buy or sell at and
and he decided to sell m Your first move on
your own was to five feed lots. What happened after that?

(10:52):
And what was your motivation? Well that that happened because
I mean the cattle business, we were the biggest futures
cattle brokers and then with the with with the cash
cattle business eight feet yards seeing four d and fifty
thousand cattle at a time, you you had pretty good
ideas about what feeder cattle costs, fat cattle cost, grain

(11:16):
cost and and and what the packers were doing. And
so it really helped out as from an information point
of view. Uh, you're creating and your hedging. Now you
created Revco Capital to finance your own cattle. Yes, were
you unstoppable at this point in my mind or reality? Well,

(11:47):
of course everyone's stoppable. But I I thought because at
that moment in time, the banker was making more money
um loaning us money that we were making feed in
the cattle because it was skinny margins as you recall
in those days. And uh, and the banker was making
easily three or four times while we were making. So

(12:08):
that's why we got in the finance business. And uh
and it worked out wonderful. Did you ever expect to
corner the market on on cattle? You know what? You
must be talking to my wife because on our second date,
she said, did you try and corner the cattle market?

(12:30):
Is that a true story? And so you know I
probably tried. Do you believe markets can be corner. I'll
tell you what I've been doing the fifty sixty years.
You've got to be very lucky in the in the
commodity markets, because there's always somebody with a bigger paddle
out there at its height. How big was Revco? Well,
you know, we really have to put this in perspective. Um,

(12:55):
Revco was a large commodity future is broker. But in
this Wall Street it's not a big deal compared to
the size of of of Wall Street. We had a
little niche, uh for a while, and um, and it
was a nice niche, but in the scheme of things
that it was a pretty small deal. Niches are often

(13:16):
very significant factors. And evidently you use this to good
advantage and developed an outstanding business. How did you get
into the hedge fund business? In that was other people
were running the company and and and I thought that

(13:38):
would be would be fun and uh, and me and
a friend of mine started a little company and who
were successful for for quite a few years. And and
then and then we quit. I was getting divorced, and
I moved to California, and he went back to Texas.

(14:00):
You write that with commodity trading there's always a loser.
Not so with stocks. Is that how you could take
such big risks knowing that losing sometimes just part of
the business that there is. You know, stocks and commodities

(14:21):
are not the same, and and there's a deadline on
on on commodities and stocks paid dividends, and usually if
you store a commodity, you're paying interests in storage. And
so it's a two different complete entities. And and the
differences is that at that moment in time, we had

(14:43):
we had thirty three PhD s and in in in
in Acon, and we had the biggest cattle operation and
because of that, we were, you know, trading thirty five
million bushels of corner here. And and so the information
flow and the information from the PhDs and the clients

(15:06):
that we had, we had a we had a good edge,
which is now obviously with the computer has gone now,
the i r S and the CFTC, we're always investigating
both you and REVCO. What you described is government overreach
so onerous that settling is the only cost effective option.

(15:31):
Do you know of any or would you favor any
fundamental change to keep our markets transparent and fair for
investors without killing companies through legal fees and other expenses.
What has happened is that you know they had been

(15:52):
to the computer has has changed a lot of that.
The the position limits that that we had and you
know historically was a hundred and fifty cattle and then
it went up. I think the four hundred and fifty,
well today you can have seventeen thousand cattle. And so
the position limits have have changed dramatically. But I think

(16:12):
there is one thing that that is and I think
maybe you have a better field than I do with this,
is that exchanges used to be country clubs and then
they went public now as an exchange, and at the
country club, whether it's the New York stocky Change or
the or the or the board of trade was to

(16:34):
look out after the customers and the customers money. Now
they have a dual purpose. They got to look out
for the shareholders money. And so I think there's kind
of a a a tough trade there for him because
they have to look out for the shareholders and also
to both supposed to be looking out for the customers.
And I think maybe those at times camp coming conflict,

(16:56):
like they did with with E. D. N f Man
chapter the end of an era. You're write about partnership
issues that ended with you selling the company. What made
you decide to sell and what ultimately happened. We had
been with customers sake funds. I think the straw that

(17:18):
broke the camel's back was we had sig funds. And
for thirty years that we've been doing it, we've been
buying three year paper or two year paper and rolling
him over every month. Every month someone would roll off
and would roll back into the same exact thing, I mean,
would go back in the three year and hand. Just

(17:39):
keep doing that. And and then one day I went
up to see the CFO and I said, you know,
I don't know why, but but but the three years
on fire, And I said, you know that that's really
helped the month. He says, no, he says, I didn't
do that. Last months we didn't roll it, and we
sold all all the SAG fund money, sold the stuff

(18:04):
that we had, the twos and threes, And I said
what and and just on your own. And from that
moment on, it was another thirty days and I sold
the company. Tom you wrote that meeting Jerry Gould, a
professor from the University of Chicago, changed your life for
the better. Tell us about this. Well, Jerry was a

(18:27):
real character to begin with, and and what he did
is he introduced me to a lot of the professors
out at the whether it was Arthur Laugher, whether Miller.
He induced me to all the professors out there, Gary Becker,
and and we became friends over the years and went

(18:50):
to Davos together and had it really improved. You know,
I said, you know what am I supposed to read?
He says, you don't have Have you read the Tokville?
I says no, He said, you need to read it,
and and and Hiachi and and and all the stuff
that that that I should have read I didn't And

(19:12):
and he got me a reading list and and and
we had a lot of good times together. It sounds
like you really benefited from that relationship. But you also
had a relationship with Arthur Laugher and Milton Friedman and

(19:32):
some other Nobel winners. If you were having dinner with
those men today, what do you think you'd be talking
about besides Donald Trump? Well, would would would probably be
talking about them the markets now and what they're gonna do,

(19:52):
And and I would be quiet and let them talk
because I don't have any idea. I'm not sure they
do either. But nevertheless, your wife said that with commodities,
you weren't selling a car or a widget. You were
selling an idea, and ideas change, therefore you always have

(20:14):
something new to sound. Is that why you found it
so much fun? As you've said so many times, the
future's business. If you're right, they don't ask your pedigree,
your family, your upbringing, your religion. If you write the market,
they pay you, and if you're wrong, you pay them.

(20:37):
And in that way it's a very um uh free
democratic experience. You traded for Cuba and you spend time
with Castro. What was your impression of him? And do
you feel the embargo against Cubas should have been lifted?

(20:58):
First of all, it's illegal for for for two for
Americans to trade with Cuba, so do your London office
or your Paris office would have to do that too,
would be I don't think it should be lifted. That
is just my own personal opinion. But meeting with him
and having dinner, you know, with four to six people

(21:20):
in the room, is this kind of a monologue? Is
that you ask your question, he answers the question, and
this goes on for a couple of hours and then
you go home and it's not that exciting as what
you think it would be. Wherever you've been, you founded,
you found a school to help. When you lived in St. John,
you helped the Gift Hills School. But tell me about

(21:44):
the school you found in Chicago Providence St. Mel. That
was one of my um more fun things in life.
My mother passed away in and those are big moments
in your life, and you think, you know, I need
to pay attention a little more. And I thought inter

(22:06):
city education was the the place that I should look.
And I found Paul Adams a problem St. Mel. And
he was he was eating his own cooking. He lived
in the in the attic of the school, and whatever
money was left over, whether it was nine hundred bucks
a year or two thousand bucks year, that was what
he made. And he and I became friends over the

(22:28):
years and we've helped the school together. I've just bought
him time. Uh, when you give him some money, you're
buying time for him to get things right. And they've
done a wonderful job and they are fabulous people. You
also talk about meeting Chicago Legends, Studs Circle, in the eighties,

(22:51):
and you told him you didn't think the come out
of the business had a future because you always thought
of it as a hotdog stand. Uh what did you
mean by that? Well, you know, if you put on
too much pickle relation, too many onions, and too much mustard,
you're not going to make a profit. And too, as

(23:12):
you said, it isn't the securities business, and it was,
um it has now gone to where it's electronic trading,
and the commission business doesn't really support much of anything anymore.
And and the way that that that we were in

(23:32):
business doesn't really exist anymore. And and I didn't think
it was a good long run place for my children
to be. You're right that one of the reasons the
commodities markets don't work like they used to is because
there's no convergence between the futures price and the cash price.

(23:55):
Could you explain what changed that and when it took place?
I'm not sure what what changed that. M I know
that the people that used to trade like me, they're
almost everyone's quit. I'm not sure that the the artificial
intelligence cares what the convergence is. Uh, you see it

(24:17):
all the time and meets and grains and and everyone
just kind of aggravated about it. But I don't know, um,
if that's ever going to change. Well, I think farm
markets throughout America, throughout the world changed dramatically. Is a
function of lots of things that you and I both

(24:38):
know about. That is correct. He is an Iowa farm
boy who graduated second to last in his high school class,
but became a member of the Army's prestigious Old Guard,
a White House social aid, and the co founder of Revco,
which was once the largest brokerage on the Cargo Mercantile Exchange.

(25:02):
He's written a memoir Talking Big How in Iowa farm
boy beat the odds to found and lead one of
the world's largest brokerage firms. Tom Diptmer, thanks for joining us.
By the way, if you have comments about the show
or suggestions for topics, you can email me at a

(25:24):
Closer Look at Bloomberg dot net. That's a Closer Look
one word at Bloomberg dot net and follow me on
Twitter at Arthur Levitt. This is a Closer Look with
Arthur Levitt.