Turn Back the Clock...It's Another "Flight to Safety" Day

Mama said there'd be days like these...though you may have thought they were a thing of the past.

With the DOW dropping 200 points on the day, and commodities down across the board, the "flight to safety" positions stood tall, just as they did during the darkest days of the Great Deleveraging of 2008.

Yes, sadly, the US dollar, Japanese Yen, and long-dated US Treasuries were just about the only "green shoots" on the board today. This screen shot of the currency markets says it all, from Barchart.com:

On massacre days like today, I like to peruse the boards and find the lone bright spots. So was ANYTHING else up, other than these "safety" trades?

Sugar, coffee, and the meats were the lone bright spots for commodities. Sugar seems to have some nice support around 15-cents:

Sugar appears to have some support around 15-cents (Source: Barchart.com).

While coffee and cattle have been really battered of late. Coffee may be trying to find a bottom around 117, while cattle also looks like it's finding some support. Take a look at the long term chart for live cattle...with prices at their lowest levels since 2006, this could be a compelling time to take a look at loading up on some beef:

Cattle may be finding a bottom after a rough past year (Source: Barchart.com).

Bank of Japans Ready to Intervene Against the Yen's Rise

Sean Hyman from World Currency Watch says watch out, the Bank of Japan is not one to be reckoned with. They are ready to intervene to stop the Yen's rise - and you don't want to test them.

And our pal and trusted currency advisor, Chuck Butler at the Daily Pfennig, agrees with Sean in his letter today:

And... While I don't want to spend the whole letter today on Japan... I must say that I think we should all be very wary of the BOJ and their history of intervening to keep yen weak. This will be a huge battle between the Carry Trade unwinders and Uridashi Bond sellers VS the BOJ... Just don't get caught up in it... If it happens, stay to the sidelines, you don't want to get caught up in an intervention battle...

Weekly Futures Positions Review - October 26, 2008

Top posts from the past week:

• The Case for Shorting Long Dated US Treasuries
  
• Why the Yen and Dollar are Rallying
  
• GoldMoney: Gold's New Highs vs. Other Currencies
• Jim Rogers on CNBC: October 22, 2008
• Foods and Softs Outlook
  

A review of my futures trades from the previous week:

• Covered my Swiss Franc long - Turns out I didn't want a dollar neutral trade after all. The Swiss Franc kept on dropping, and I got out.

Other existing positions I've got:

• Short the British Pound - Last time I shorted the British Pound, it turned out to be a quite profitable trade. The fundamentals of the Pound Sterling are terrible, and I think it's possible we could see the Pound at $1.50 over the next 12 months...or maybe over the next week at this rate.
  

• Short a couple of 10-Year Treasuries - Treasuries have performed quite poorly over the last two weeks, and Jim Rogers described them as the "last bubble left". Have they topped? I think they may have - and boy have they got some room to fall if interest rates skyrocket like I think they will. Although trending up since I shorted (what else is new), the chart still looks bearish, with lower highs and lower lows.
  

My wish list (waiting for an uptrend...and we could be waiting for awhile):

• Sugar
• Cotton
• Coffee
  
• Natural Gas
  
• Silver

Open Positions

Date	Position	Qty	Month/Yr	Contract	Entry Price	Last Price	Profit/Loss
10/10/08	Short	1	DEC 08	British Pound	1.6870	1.5804	$6,662.50
10/15/08	Short	1	DEC 08	T-Note (10yr)	111-250	115-105	($3,546.88)
10/13/08	Short	1	DEC 08	T-Note (10yr)	112-185	115-105	($2,750.00)
Net Profit/Loss On Open Positions:							$365.63

Account Balances
Current Cash Balance	$48,710.90
Open Trade Equity	$365.63
Total Equity	$49,076.53
Long Option Value	$0.00
Short Option Value	$0.00
Net Liquidating Value	$49,076.53

Cashed out: $20,000.00
Total value: $69,076.53
Weekly return: 0.5%
YTD return: -10.4%

***"Cash out" mostly means taxes, but lately I've also been using it for living expenses, and also to finance a time management software startup I'm working on.

Why the Yen and Dollar are Rallying

Here's the best explanation I've read yet - courtesy of Everbank's Chris Gaffney - in today's Daily Pfennig:

These investors had to sell some of their higher yielding assets to make up for the losses, and a move toward deleveraging started to emerge. As these first investors sold these assets, their price dropped, forcing still others to sell. The credit crisis, and the lockup of the credit markets was a final straw in the leveraged carry trades. Even investors who wanted to stay in the trades could no longer get the loans to keep these trades alive. They were forced to deleverage, selling their investments to pay back the loans.

So the benefactors of this deleveraging of the financial system? The Japanese yen and the US$, currencies which were used to funds these carry trades. The US and Japan have some of the worlds largest banks, and extremely low interest rates making them the perfect funding currencies for the carry trades. As the deleveraging has occurred, investors have purchased back these currencies to pay back loans.

Read the rest of Chris' excellent explanation here.

Weekly Futures Positions Review - October 19, 2008

Top posts from the past week:

• Stratfor: States, Economies, and Markets: Redefining the Rules
  
• Marc Faber on CNBC - October 14, 2008
  
• Warren Buffett: I'm Buying US Stocks Now
  

A review of my futures trades from the previous week:

• Went long the Swiss Franc - As I mentioned last week, I wanted find a match for my short British pound position. And the Swiss Franc is my favorite European currency. I don't want to short the British pound outright, because then I'm essentially long the US dollar. This gives me a trade that is dollar neutral. And hey, if Jim Rogers is buying Swiss Francs, I figure I should be also.

• Shorted a couple of 10-Year Treasuries - Treasuries have performed quite poorly over the last two weeks, and Jim Rogers described them as the "last bubble left". Have they topped? I think they may have - and boy have they got some room to fall if interest rates skyrocket like I think they will.

Other existing positions I've got:

• Short the British Pound - Last time I shorted the British Pound, it turned out to be a quite profitable trade. The fundamentals of the Pound Sterling are terrible, and I think it's possible we could see the Pound at $1.50 over the next 12 months.
  

My wish list (waiting for an uptrend...and we could be waiting for awhile):

• Sugar
• Cotton
• Coffee
  
• Natural Gas
  
• Silver

Open Positions

Date	Position	Qty	Month/Yr	Contract	Entry Price	Last Price	Profit/Loss
10/10/08	Short	1	DEC 08	British Pound	1.6870	1.7266	($2,475.00)
10/13/08	Long	1	DEC 08	Swiss Franc	0.888800	0.8813	($937.50)
10/15/08	Short	1	DEC 08	T-Note (10yr)	111-250	112-020	($281.25)
10/13/08	Short	1	DEC 08	T-Note (10yr)	112-185	112-020	$515.63
Net Profit/Loss On Open Positions:							($3,178.13)

Account Balances
Current Cash Balance	$52,009.45
Open Trade Equity	($3,178.13)
Total Equity	$48,831.33
Long Option Value	$0.00
Short Option Value	$0.00
Net Liquidating Value	$48,831.33

Cashed out: $20,000.00
Total value: $68,831.33

Weekly return: -3.2%
YTD return: -10.7%

***"Cash out" mostly means taxes, but lately I've also been using it for living expenses, and also to finance a time management software startup I'm working on.

My Current Commodity Futures Positions - 10/12/08

Top posts from the past week:

• Quick Thoughts on the (Very) Latest Black Monday
• AuEx Ventures: An Intriguing Gold Junior Opportunity
• Sequoia Capital: RIP Good Times
• Jim Rogers on CNBC and Bloomberg - 10/10/08
  

A review of my trades from the week that was:

• Closed out my Japanese Yen position - Closed out on the Monday spike up. The Yen went a bit higher during the week, all the way to the 98 handle - looks like it's trading down in the Asian markets right now, slightly above "parity".

• Went long another Mini-Gold contract, and got stopped out of both contracts on Friday.

• Ditto for silver - went long a Mini contract on Thursday, got stopped out (and lost my shirt) on Friday. Maybe I need to chill on gold/silver for right now - I keep waiting for both to explode, but maybe they won't do so until all of this extra cash is really flowing through the system.
  

Other existing positions I've got:

• Short the British Pound - Just initiated this position on Thursday - maybe I shouldn't have. We'll see. Maybe I should pair up this trade with the Swiss Franc. Long the Swissie, short the BP - I like the sound of that. I'm scared to be long or short the dollar right now - it's too crazy.
  

My wish list (waiting for an uptrend...and we could be waiting for awhile):

• Sugar
• Cotton
• Coffee
  
• Natural Gas
  
• Silver

Also waiting for a downtrend in long term US Treasuries - we might have that soon.

Open Positions

Date	Position	Qty	Month/Yr	Contract	Entry Price	Last Price	Profit/Loss
10/10/08	Short	1	DEC 08	British Pound	1.6870	1.7123	($1,581.25)
Net Profit/Loss On Open Positions:							($1,581.25)

Account Balances
Current Cash Balance	$52,042.60
Open Trade Equity	($1,581.25)
Total Equity	$50,461.35
Long Option Value	$0.00
Short Option Value	$0.00
Net Liquidating Value	$50,461.35

Cashed out: $20,000.00
Total value: $70,461.35

Weekly return: -4.4%
YTD return: -8.4%

***"Cash out" mostly means taxes, but lately I've also been using it for living expenses, and also to finance a time management software startup I'm working on.

My Current Commodity Futures Positions - 10/05/08

Top posts from the past week:

• Financial Times: Wealthy Investors Demanding Unprecedented Amounts of Physical Gold
• Jim Rogers on CNBC 10/1/08
• Quick Thoughts on the Latest Black Monday
  

A review of my trades from the week that was:

• Closed out my Swiss Franc position - Yikes - this trade did not work out, I got hammered big-time. The Swissie was up big on Black Monday as the carry trade unwound...but probably not as big as it should have been. That should have been a cue for me to get out, but I hung in until around the 0.90 mark and got out.
  

Other existing positions I've got:

• Long the Japanese Yen - The Yen was way up early in the week as the carry trade was unwound in a big way on Black Monday. Then it came back down to Earth - but all in all, another impressive week in the face of continued (surprising?) strength from the US dollar.
  

• Long Gold - Very tough week for gold, but as we've discussed in this space before, I believe the government's printing of money as fast as it can will send the price of Gold and Silver higher. And not to sound like too much of a broken record here - but how long can spot prices stay low, when you can't buy the physical stuff?

• Short Soybeans - Soybean futures broke down in a big way this week. I plan to stay the course as a short.
  

• Short 10-Year Treasuries - I am quite bearish on long-dated US Treasuries. I think interest rates have to rise, and rise significantly, as I can't imagine the world will continue to lend the US government money at these bargain basement rates. Anyone care to finance a $700 billion bailout plan, by the way?
  

My wish list (waiting for an uptrend...and we could be waiting for awhile):

• Sugar
• Cotton
• Coffee
  
• Natural Gas
  
• Silver

Open Positions

Date	Position	Qty	Month/Yr	Contract	Entry Price	Last Price	Profit/Loss
09/04/08	Long	1	DEC 08	Japanese Yen	0.9340	0.9553	$2,662.50
09/24/08	Short	1	MAR 09	T-Note (10yr)	113-245	114-315	($1,218.75)
09/17/08	Long	1	DEC 08	Mini Gold	864.6	839.0	($849.92)
09/09/08	Short	1	NOV 08	Mini Soybeans	1168 1/4	989	$1,792.50
Net Profit/Loss On Open Positions:							$2,386.33

Account Balances
Current Cash Balance	$50,397.12
Open Trade Equity	$2,386.33
Total Equity	$52,783.45
Long Option Value	$0.00
Short Option Value	$0.00
Net Liquidating Value	$52,783.45

Cashed out: $20,000.00
Total value: $72,783.45

Weekly return: -6.0%
YTD return: -5.2%

***"Cash out" mostly means taxes, but lately I've also been using it for living expenses, and also to finance a software startup I'm working on.

My Current Commodity Futures Positions - 9/28/08

Top posts from the past week:

• Five Easy Ways You Can Diversify Away From the Dollar
• US Mint: Sorry, we're out of gold (again)
• Jim Rogers: Bailout is "welfare for the rich"
  

A review of my trades from the week that was:

• Went long the Swiss Franc - The Swissie is the Yen's carry trade cousin - they usually rise and fall in unison. The Swiss Franc is one of the world's sounder currencies, and I expect the carry trade will continue to unwind.
  

• Also shorted 10-Year Treasuries - As discussed earlier in the week, I am quite bearish on long-dated US Treasuries. I think interest rates have to rise, and rise significantly, as I can't imagine the world will continue to lend the US government money at these bargain basement rates.
  

Other existing positions I've got:

• Long the Japanese Yen - Not much action this week in the Yen.
  

• Long Gold - As we've discussed in this space before, I believe the government's printing of money as fast as it can will send the price of Gold and Silver higher.

• Short Soybeans - Nothing too exciting here, the trend still appears to be down. If the harvest is good, there will be a glut of soybeans on the market.

My wish list (waiting for an uptrend):

• Sugar
• Cotton
• Coffee
  
• Natural Gas
  
• Silver

Open Positions

Date	Position	Qty	Month/Yr	Contract	Entry Price	Last Price	Profit/Loss
09/04/08	Long	1	DEC 08	Japanese Yen	0.9340	0.9503	$2,037.50
09/22/08	Long	1	DEC 08	Swiss Franc	0.931700	0.9212	($1,312.50)
09/24/08	Short	1	MAR 09	T-Note (10yr)	113-245	113-225	$62.50
09/17/08	Long	1	DEC 08	Mini Gold	864.6	892.2	$916.32
09/09/08	Short	1	NOV 08	Mini Soybeans	1168 1/4	1167	$12.50
Net Profit/Loss On Open Positions:							$1,716.32

Account Balances
Current Cash Balance	$54,458.17
Open Trade Equity	$1,716.32
Total Equity	$56,174.49
Long Option Value	$0.00
Short Option Value	$0.00
Net Liquidating Value	$56,174.49

Cashed out: $20,000.00
Total value: $76,174.49

Weekly return: 0.2%
YTD return: -0.4%

***"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.

Deflation Everywhere You Turn, Get Comfortable

My morning glance at the Futures screens revealed that, well, just about everything is down across the board. Of special note:

• Cotton flirting with the 60-cent handle (wow, that looks cheap)
• Silver getting kicked in the teeth again
• Oil off big again, flirting with $90

Not to mention global stock markets getting slammed across the board.

In fact the lone positions weathering this storm appear to be our old friend, the Japanese Yen, and US Treasuries - both due to this flight to "safety".

Maybe "perceived safety" in the case of Treasuries - is it really safe to lock in a long-term yield that is below the rate of inflation, to a heavy debtor with an awful balance sheet?

I'm playing this mostly from the sidelines. I've got my long Japanese Yen position, which is performing nicely. While adding another contract may be the trade to make, I'd like to see how the rest of the week goes at the very least. I don't like buying the Yen, and the Swiss Franc for that matter, on these spikes, as I've seen them give back these gains before.

Also have my short Soybeans contract - which looks like it wants to bust through that lower level of resistance.

All in all, we may need to hold tight on the commodity front until the global economy gets through this soft spot. My suggestion would be to get comfortable. When the global economy reheats, we will have some fantastic buying opportunities.

Futures traders going long US Dollar

Chuck Butler mentioned yesterday in the Daily Pfennig that, for the first time since 2005, Futures Traders are going long the US Dollar. 2005, you'll remember, was the year of the dollar's counter rally in this downtrend.

Nothing goes straight up or down, so we'll see if this is the start of some sort of dead cat bounce for the US dollar. Be careful and consider this when making your trades.

I should follow some of my own advice - I snuck back into the Japanese Yen Sunday night, and snuck back out Monday morning, taking my usual haircut on the Yen. It's getting to be a bit of a joke, even around here, as I was walking around the house cursing the Yen - even my wife yelled at me "Stop trading the Yen, all you do is lose money! Stick to commodities!"

FT.com: Is the Yen still a Japense Currency?

David Bloom makes the case that the Japanese Yen is no longer trading based on Japanese events.

From personal observation - I agree, the Yen has been basically an inverse proxy of risk appetite in America for the past year or so.

Times Online: Dollar tumble spells trouble for yen trade

Full article

Summary:

• We all know the yen carry trade - folks borrow "cheap" yen (paying unnaturally low interest rates), invest in higher yielding terrain (ie. Australian dollar) and leverage the shit out of it.
• This doesn't work when the yen rises - as it is now. I had assumed that most of the carry trade was "unwound" - but this article suggests the real fireworks could be ahead of us.