My Current Commodity Futures Positions - 8/31/08

A contemplation on my trades from the week that was:

• Shorted the British Pound (again) - Roll over, Sterling! The trend is my friend, the trend is my friend, the trend...bad economic data keeps on coming from the UK. This move was long overdue.
  

• Went long Coffee - I absolutely DON'T like the way coffee is acting since I took this long position, but I'm in for the long haul - hopefully.

Other existing positions I've got:

• Silver Futures - Same old story - I expect silver and gold to rally strong towards the end of the year.
  

My wish list (waiting for an uptrend):

• Sugar
• Cotton
  
• Swiss Franc
• Japanese Yen
• More silver
• More cowbell

Open Positions

Date	Position	Qty	Month/Yr	Contract	Entry Price	Last Price	Profit/Loss
08/29/08	Short	1	SEP 08	British Pound	1.8190	1.8213	($143.75)
08/12/08	Short	1	SEP 08	British Pound	1.9042	1.8213	$5,181.25
08/26/08	Long	1	DEC 08	Coffee 'C'	146.55	146.60	$18.75
08/21/08	Long	1	DEC 08	Mini Silver	1390.1	1369.0	($211.00)
Net Profit/Loss On Open Positions:							$4,845.25

Account Balances
Current Cash Balance	$52,962.94
Open Trade Equity	$4,845.25
Total Equity	$57,808.19
Long Option Value	$0.00
Short Option Value	$0.00
Net Liquidating Value	$57,808.19

Cashed out: $18,000.00
Total value: $74,518.00

Weekly return: 2.3%
YTD return: -1.0%

***"Cash out" mostly means taxes, but lately I've also been using it to pay down my credit cards a bit. Why credit card debt? I'm financing a startup and trying to outpace my CC interest rate in the futures markets - kids, don't try this at home.

Roll Over, British Pound! Going Short Two Contracts

A jolly good day to you, dear reader chap. This morning, over tea and biscuits, I posed the following query to myself:

Q: What's better than one short British Pound contract?

A: Well that's easy, my good man - the answer is TWO short British Pound contracts.

Check out this chart - is this dog waking up anytime soon?

Look, George Soros made $1 Billion shorting the British Pound in his most famous trade - I've got some catching up to do!

Further reading:

• FX Street: How Much Lower Can the Sterling Slide?
• "The news for sterling has gone from bad to worse," said Ian Stannard, a currencies strategist at BNP Paribas in London. He said that the pound could test resistance at $1.8180 area "before a corrective rebound develops," as sterling catches up with the dollar's recent move lower.

Diddy on YouTube: "Gas Prices Are Too M*F*cking High"

Probably a step up from your standard CNBC fare

U.S. Mint: Sorry, We're Sold Out of Gold

From Reuters: The U.S. mint said in a statement on Thursday that it was temporarily suspending sales of its American Eagle bullion coins due a shortage as demand soared.

This "super spike" in gold bullion happened as gold touched as low as $773, a nine-month low. Apparently, many savvy US investors took advantage of the dip to "back up the truck" and load up on physical gold.

I posed the question last week: "Should we buy, or should we run?" Looks like many investors decided to do both, and run to fill up on cheap physical gold!

Gold is steadily recovering from the (pre-engineered?) crash, trading at $833 as I write this.

Remember When I Said I Hate Trading Coffee?

Here's a great case study. Woke up this morning, pleasantly surprised to see coffee up 3 cents from my entry point.

And then, before I could put down my morning cup of coffee - prices rolled over. Guess I didn't put it down fast enough:



Better get my ass down to Starbucks!

Obama to Replace Bernanke?

Last I checked, the futures markets were giving OBAMA! a 59% chance to winning the election - lower than I would guess, so I suppose you could say I would go "long Obama" if I had to make a trade.

Thus I have internally accepted the fact that we must prepare to deal with the future economic policies of OBAMA!

This usually means a brace for the negative. However, a very interesting point posed by Martin Hutchinson over with Money Morning:


On monetary policy, Obama is advised by former U.S. Federal Reserve Chairman Paul Volcker, a believer in fighting inflation through high interest rates – a strategy he successfully employed in the early 1980s. Further, current Fed Chairman Ben S. Bernanke is a Republican appointee whose term expires in January 2010. And since former Fed chief Alan Greenspan served throughout the Clinton years, there has not been a Democrat-appointed Fed chairman since Volcker himself in 1979. It is thus very probable that Obama will replace Bernanke, and quite possible that he will replace him with a monetary “hawk” who will push interest rates higher. This will make Wall Street squawk, and will likely cause a temporary crash in stock prices, but will end up being very much to the long-term benefit of the U.S. economy. Enough with the financial bubbles that we’ve seen!

Coffee Breakout - Off to the Races?

Note: This article has been published by Seeking Alpha.

Coffee futures are not my favorite to trade. They're so volatile that it's tough to distinguish a true breakout from noise.

Hopefully for me (I went long the Dec contract today), this move has more legs than the head fake from June:



Taking a step back, the long-term trend for coffee is up, up, up:


Long-term fundamentals are very favorable for long positions. The world continues to increasingly caffeinate itself with coffee, driven by - you guessed it - China and the rest of East Asia. A small but growing coffee market continues to gain ground on tea, the traditional caffeinated drink of choice.

On the supply side, most of the world's coffee comes from Brazil. So coffee supplies are heavily dependent on the quality of the Brazilian harvest, for better or for worse.

Coffee fundamentals are setup for us to see a super spike over the next 5 years. I firmly believe we'll see $2+ coffee at some point. And coffee has not yet had a major run up, like many of the other agricultural commodities - it's certainly due.

WSJ: Slump in Nickel prices has forced several operations to shut down

Full WSJ article (subscription required)

Nickel is off over 30% this year, forcing several operations to shut down or reduce output. Analysts quoted in the article expressed mixed opinions about how far away a potential floor for prices is.

Wherever that near term floor may be, my interest is always piqued when prices in something drop below the cost of producing it.

Current Commodity Futures Positions - 8/24/08

A review of trades from the week that was:

• Covered my Soybean Short - beans rallied, along with the rest of the grains. Closed this out at a loss. And a good thing too - the grains markets continue to rally strong, even into the Asian session this evening. I can't make heads or tails of the grains markets, and I don't think any clarity will be found until the harvest results are in - I'm on the sidelines here for a bit.

• Also covered by Cocoa Short, also at a loss - took a bath on the big cocoa rally. It gapped up, and I got out.

Looking ahead:

• British Pound Futures - The dollar rally rolls on, and the British Pound continues to get slammed. I plan to hold this position.
• Silver Futures - I keep trying to unsuccessfully time a bottom here. I should know better. Still, I expect silver and gold to rally strong towards the end of the year.
  

My wish list (waiting for an uptrend):

• Sugar
• Cotton
  
• Coffee
• Swiss Franc
• Japanese Yen
• More silver
• More cowbell
  

Open Positions

Date	Position	Qty	Month/Yr	Contract	Entry Price	Last Price	Profit/Loss
08/12/08	Short	1	SEP 08	British Pound	1.9042	1.8391	$4,068.75
08/21/08	Long	1	DEC 08	Mini Silver	1390.1	1337.0	($531.00)
Net Profit/Loss On Open Positions:							$3,537.75

Account Balances
Current Cash Balance	$52,980.25
Open Trade Equity	$3,537.75
Total Equity	$56,518.00
Long Option Value	$0.00
Short Option Value	$0.00
Net Liquidating Value	$56,518.00

Cashed out: $18,000.00
Total value: $74,518.00

Weekly return: -4.7%
YTD return: -2.8%

***"Cash out" mostly means taxes, but lately I've also been using it to pay down my credit cards a bit. Why credit card debt? I'm financing a startup and trying to outpace my CC interest rate in the futures markets :)

Silver and Gold: Should we buy, or should we run?

Buy.

Or hold - and buy when the uptrend resumes.

Sure this correction hurts. But corrections happen, and gold/silver were going parabolic for a bit - and anything that goes parabolic corrects eventually.

For a big picture view - let's turn off CNBC and review the facts.

First, let's discuss all of the fundamentals that originally drove the upward moves in precious metals that are no longer in place.

(crickets)

Actually, things have gotten worse, not better, in the macroeconomic picture. Fannie and Freddie are likely worth less than zero - and Hank and Co have given both a license to print US dollars.

And speaking of insolvency, have you checked out the US governments obligations recently?

I'm not holding my breath that future president OBAMA! (hat tip: Porter Stansberry) is going to slash government spending, reduce tax rates to spark economic growth, and improve our future charity obligations (Social Security, Medicare, etc).

In fact, the only true threat I see to the gold/silver bull case is a deflationary scenario where everything goes down. But if you believe in our government's determination and ability to print money, you'll probably agree that we'll rev up the helicopters and use the miracle of the printing press to inflate our way out of anything Mr. Market tosses our way.

And inflation is out of the gates early - highest inflation levels in the US since 1991, even after the government's bogus adjustments.



Further reading:

• Franklin Sanders: Either this is the Greatest Silver and Gold Buying Opportunity of All Time, or the End of a Bull Market

• Ted Butler: Investors should recognize that the manipulative sell-off may have created the very springboard that will cause the price of silver to soar.

  
  

Money Morning: Interview with Jim Rogers

Part 1 of the exclusive interview

Jim Rogers Interview, Part 2

Part 2 of the exclusive interview

Current Commodity Futures Positions - 8/17/08

Ahhhhhhhhhhhhhhhhhhhhh, relief at last - that's me, pissing away the last of my 2008 gains. Glad we got that out of the way.

Tuesday I was feeling really smart, and bought a mini-silver contract at the bargain price of $15. Unfortunately nobody told me that the bargains were going to get even better! I sold silver on Friday for just over $13.

Hey, I got exactly what I deserved. Look at this chart of gold and silver, courtesy of Agora Financial:


What kind of idiot would try to time the bottom of that spike through the basement floor? (Pointing both thumbs at my chest...) "This guyyyyyy."

On Friday, I jumped into a vat of rough rice and holy water, and repented for my trading sins. Last time I fully repented was last November, when I developed a new trading outlook. That outlook served me very well until I decided I smarter than it.

Well, here's to new beginnings. As I repeat the mantra I should never have forgotten "The trend is my friend, the trend is my friend, don't eat yellow snow, the trend is my friend..."

Open Positions

Date	Position	Qty	Month/Yr	Contract	Entry Price	Last Price	Profit/Loss
08/12/08	Short	1	SEP 08	British Pound	1.9042	1.8620	$2,637.50
08/15/08	Short	1	DEC 08	Cocoa	2589	2587	$20.00
08/14/08	Short	1	NOV 08	Mini Soybeans	1260	1221	$390.00
Net Profit/Loss On Open Positions:							$3,047.50

Account Balances
Current Cash Balance	$56,272.41
Open Trade Equity	$3,047.50
Total Equity	$59,319.91
Long Option Value	$0.00
Short Option Value	$0.00
Net Liquidating Value	$59,319.91

Cashed out: $18,000.00
Total value: $77,319.91

Weekly return: -8.0%
YTD return: 1.2%

***BTW, I usually "cash out" money just to pay for taxes, rent, and cheap beer. So total value is all pre-tax.

Silver Smash Commentary by Analyst Ted Butler

A very well written piece by Ted Butler regarding the recent demolition of silver.

Ted make a very compelling case that the margin of safety at current prices is significant, as he believes the current price is below the cost of production.

I'm very tempted to buy now, but I hate the thought of buying something that is hitting yearly lows. On the sidelines for right now, but watching with great interest.

Current Commodity Futures Positions - 8/10/08

Took some more cash out this week to pay a credit card, and also pump some more cash into our startup.

Well, my hopes/dreams for '08 being a banner year I think are officially in the tank. Earlier in the year, I was hoping I could keep running up the account, and essentially use it as an ATM to fund my life and startup simultaneously.

Alas, it wasn't to be - really it's turning out to be a bummer year for agriculture. What started off so strong has essentially retraced all the way back (pull up the charts for soybeans, corn, cotton, etc - we haven't moved much). Tough to make money long commodities when they are not going up.

From here on in, I'm looking at doing some more trading in pairs, a la Dennis Gartman. My first try at this is my Long Cotton/Short Soybeans trade, and I must tip my cap to Bud Conrad of Casey Research for his astute short soybeans call in a recent publication. I was already long cotton, but would not have thought to short beans had it not been for an outstanding research piece by him.

Last week was a terrible time to be long any currency other than the US dollar, as the dead cat bounce is in full swing. Have to admit even though we've discussed it here that the dollar was due for a bounce, the magnitude and strength of it has really surprised me.

I'm considering adding a short British Pound position to compliment my (underwater) long Swiss Franc position. The UK economy is in trouble, and the BP could be in a race with the US dollar to the cellar - at least that pair would help hedge from further dollar rallies.

Overall a great entry point for the Swiss Franc and many of the Asian currencies here, I think. The dollar has further to drop, no doubt, but it will be a race to the cellar with many of the other currencies. I don't see the Euro, British Pound, or Canadian dollar climbing much more vs. the US dollar.

Also a great entry point for soft commodities - most notably sugar, coffee, and cotton. This trio is still trading at very depressed prices.

Open Positions

Date Position Qty Month/Yr Contract Entry Price Last Price Profit/Loss 06/17/08 Long 1 DEC 08 Cotton 82.20 69.05 ($6,575.00) 08/05/08 Short 1 MAR 09 Soybeans 1303 3/4 1220 $4,187.50 07/29/08 Long 1 OCT 08 Sugar #11 12.84 13.46 $694.40 07/31/08 Long 1 OCT 08 Sugar #11 13.91 13.46 ($504.00) 07/31/08 Long 1 SEP 08 Swiss Franc 0.954900 0.9219 ($4,125.00) Net Profit/Loss On Open Positions: ($6,322.10)

Account Balances
Current Cash Balance	$70,774.87
Open Trade Equity	($6,322.10)
Total Equity	$64,452.77
Long Option Value	$0.00
Short Option Value	$0.00
Net Liquidating Value	$64,452.77

Cashed out: $18,000.00
Total value: $82,452.77

Weekly return: -9.3%
YTD return: 8.3%

***BTW, I usually "cash out" money just to pay for taxes, rent, and cheap beer. So total value is all pre-tax.

No More Cheap Money for Municipal Borrowers

Bloomberg reports that the era of cheap money for municipal borrowers is over, citing the Bay Area Toll Authority's recent of auction of bonds at rates as high as 5.33%.

How long before the era of cheap money is over for everyone?

If you believe it's not long, I suggest you unload your US Treasuries and bonds, or better yet, unload them and go short. Rising rates are going to cream bond prices.

Dennis Gartman Video: Oil Prices Could Drop Below $80

Full video of Dennis Gartman on CNBC

• Thinks oil will drop to $80-90 range
• He's not crazy enough to try and short the market
• Believes oil's bull run will be on ice for the next couple of years
• Is short Toyota and long Harley Davidson - believes people will downsize their transportation (not sure if I follow that theme)
  

Worst Month for Commodities Since 1980

If you, like me, are wondering where you've gone wrong in your trading over the past couple of months - we can take some minor solace in this fact.

The CRB commodity benchmark index fell over 10% in July, marking the worst month for the index since 1980 (which, incidentally, marked the end of the last bull market).

While I believe we are only in the 4th or 5th inning of this bull market, a couple lessons come to mind:

• The easy money has been made - buying oil at $12 was a no brainer. Buying oil at $120 could burn you in the short-medium term.
• All bull markets have pull backs. Commodities took off out of the gates to begin the year, but many have since retraced and given back most or all of their gains. This has been reflected in my trading performance (up an easy 100%, then giving most of those gains back since).

Bottom line, make your shopping list now, and go easy on the leverage. Nobody wants to be leveraged to the hilt during a correction, but it's tough to know when the next leg up will come - I prefer to have a skin in the game at all times.

My favorites right now: sugar, coffee, cotton, live cattle, lean hogs. Currently still long sugar, cotton, and live cattle.

Current Commodity Futures Positions - 8/03/08

Will post some thoughts later in the week on the positions...

Open Positions

Date Position Qty Month/Yr Contract Entry Price Last Price Profit/Loss 07/23/08 Long 1 SEP 08 Australian Dlr 0.9567 0.9280 ($2,870.00) 06/17/08 Long 1 DEC 08 Cotton 82.20 70.72 ($5,740.00) 07/30/08 Long 1 FEB 09 Live Cattle 108.850 110.225 $550.00 08/01/08 Long 1 FEB 09 Live Cattle 110.700 110.225 ($190.00) 07/29/08 Long 1 OCT 08 Sugar #11 12.84 13.78 $1,052.80 07/31/08 Long 1 OCT 08 Sugar #11 13.91 13.78 ($145.60) 07/31/08 Long 1 SEP 08 Swiss Franc 0.954900 0.9574 $312.50 Net Profit/Loss On Open Positions: ($7,030.30)

Account Balances
Current Cash Balance	$81,107.68
Open Trade Equity	($7,030.30)
Total Equity	$74,077.38
Long Option Value	$0.00
Short Option Value	$0.00
Net Liquidating Value	$74,077.38

Cashed out: $15,000.00
Total value: $89,077.38

Weekly return: -3.8%
YTD return: 12.9%

***BTW, I usually "cash out" money just to pay for taxes, rent, and cheap beer. So total value is all pre-tax.

The Every Increasing March of Oil Prices

Kevin Kerr gives CNBC his thoughts on the oil market.

Kevin makes a great point - demand destruction is overblown, as it took $140 oil for to trigger a measly 2.5% drop in US demand. A drop in the global bucket, he says.

He sees oil back up towards $150 by years end.

I agree - until we see new supply coming online, the trend of oil will be inexorably upwards. And since we're not discovering any new elephant oil patches, that supply will have to come in the form of alternative energy - which is quite a ways off today, especially when we're talking about transport energy.

Remember, solar and wind energy are great, but they are not going to power your car, or an airplane. That's oil and nat gas for now and the foreseeable future.

For a great article on this subject, check out David Galland's article on the export land model, and what it means for energy prices.

Side note - David writes for Casey Research, a publication I am a very satisfied subscriber of. In fact, local Casey Research subscribers have begun gathering recently here in the Sacramento area to discuss the global economic situation and investing on a monthly basis. Let me know if you're in the area and would like more info about this.

Rick Rule on the Metals Markets

Rick Rule, if you're not familiar with him, is a legendary metals and mining investor. In this interview with Gold Report, he gives his thoughts on the disconnect between metal equities and the metals themselves, along with his outlook for the US dollar and metals.

A quick teaser/summary:

• Believes the disparity between gold stocks and gold prices will continue, as the margins of gold miners have been squeezed significantly. Profits are not where you'd think they would be, given that gold is up from $300 to $900.
• Sees a continued softening in the US dollar over the next few years, as the bad economic news from the US will continue to mount.
• As a result, he sees gold and silver moving higher in dollar terms.