-28-
Mr. Maduff
Respondent’s other expert, Michael L. Maduff, received a B.A.
in economics from the University of Iowa. Between 1965 and 1984,
he was chief executive officer of Maduff & Sons, Inc., a licensed
futures commission merchant and clearing member of the Chicago
Mercantile Exchange. After 20 years in business, he went to law
school at Northwestern University and received a J.D. in 1988.
Since 1988 he has been a practicing attorney, as well as a
consultant and expert witness regarding the futures industry.
Mr. Maduff's report and testimony concern Tandrill's 1979-81
commodity and futures transactions. Mr. Maduff testified that a
spread in gold, silver, or copper futures is principally a
speculation on interest rates rather than a speculation on the
value of the metal itself.21
20(...continued)
using the Black-Scholes Model to evaluate the spread. From this
analysis he determined that a reasonable value for this spread
would have been somewhere between $32,638 and $50,553. But
Tandrill actually sold the spread for $25,004. Even allowing for
subjective judgments among different market participants, Mr.
Natenberg opined that this was well below the price any
knowledgeable trader would have placed on the spread.
21 Mr. Maduff explained that in 1979 and 1980, precious
metals and long-term interest rates made historic highs and
experienced great volatility. While absolute prices of the
metals may be volatile, the relative price for different delivery
months of the same metal remained fairly constant, reflecting the
cost of maintaining an inventory of the metal over time, so-
called carrying costs, with interest being the major component of
these carrying costs.
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