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Saturday, 04 May 2013 06:39

food commodities could outperform stocks

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stock markets along with other paper assets take a beating on global debt woes and anemic economies.  there has been a rush to perceived safe havens such as gold and us treasuries (downgrade notwithstanding).

a potential alternative according to sudakshina unnikrishnan, commodities analyst at barclays capital: "with agricultural commodities, even in periods of recession or a downturn in global growth, demand doesn't decline in the same way as it does across energy and metals markets."

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caroline henshaw, dow jones on 8-9: in the six months to june, the sector saw total inflows of $5 billion—almost 40% of the total--including the largest quarterly influx on record, according to barcap. this trend reversed in the second quarter, with $2.2 billion of outflows, the first since the financial crisis.

etf securities said that its agriculture exchange traded products have
recouped one-quarter of their first-half outflows over the past month,
"suggesting that much of the first half outflows may have been short term
profit taking".

"we would...expect agricultural prices to outperform the rest of the
commodity complex, especially the more cyclically-leveraged energy and
industrial metal sectors," said goldman sachs.

much of agricultural markets' resilience comes down to tight fundamentals.
hot weather across the u.s. corn belt has raised concerns that this year's crop will once again fall short of demand at a time when stocks are already at historically low levels.

“food related commodities may not be on the same leash to global economic woes as paper assets, but a severe enough slowdown may reach them as well” according to adrian muller, principal of time leverage capital.

agricultural markets have had a bumpy ride this past year – and much volatility may lie ahead.   nonetheless, the sector may be a good diversifier in shaky times.


in sugar too, concerns that output from top producer brazil will fall for the first time in a decade in 2011-12 has pushed up prices and spurred managed money investment to a record 26% of open interest.

jp morgan said it expects sugar and gold to see the most future upside.

"dollar weakness and rising inflation expectations also open the upside for
raw sugar prices to surge far higher than would otherwise be likely, perhaps
doubling or more in a spike," said the bank.

Saturday, 04 May 2013 06:39

s&p downgrade, lesson learned?

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s&p downgrade, lesson learned? 

the s&p ratings services (and their colleagues) famously bungled ratings on housing and financial institutions. the financial system nearly collapsed as a result. the agencies were rightly challenged for lack of foresight and accused of blatant conflict of interest.  s&p and other raters played a central role in causing the financial crisis and the bailouts. to their credit, s&p has since learned to take bad balance sheets seriously and partially redeemed its credibility by making good on its warnings about the u.s. credit rating. the s&p could downgrade further within 6-24 months (1/3 chance), according to john chambers, managing director. without systemic changes, other agencies may follow suit.

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sign me up for a 5 minutes webinar to review the balance sheet of the usa!

various disgruntled parties attacked the s&p action. in many cases the complainers are the same who railed against the lenient math that lulled the public into a major financial mess. s&p and other rating services will not be caught with their pants down again and will retaliate against pressure to overlook questionable numbers. professional obstinacy will serve to deter future attacks and consolidate the influence of raters to wield greater power. money and power are an intoxicating mix…

the us used to be the biggest creditor nation. i remember american leaders lecturing other countries for reckless spending, irresponsible practices and rampant corruption. now we are on the receiving end of such lectures from the former objects of our criticism. 

sign me up for a 5 minutes webinar to review the balance sheet of the usa!

as treasuries hold, we are reminded of a comment by simpson-bowles debt commission co-chair– erskine bowles: the u.s. economy is the healthiest horse in the glue factory. the real concern is not default (per treasury performance so far), but global debt and slowing economies.  worse yet, alan greenspan noted on sunday’s this week that the current forecasts are based on numbers not being achieved. if the foregoing is true, actual results may be worse.

with 1 in 7 households on food stamps and less than half of americans paying taxes, the balance sheets will be challenging for a while. as the economy thirsts for liquidity, corporate trillions sit onshore and offshore – waiting for the right bait to enter markets.

sign me up for a 5 minutes webinar to review the balance sheet of the usa!

clearly there are no obvious trading or investment strategies implied in the foregoing observations. extreme caution makes sense.  only serious traders with a keen understanding of risk should consider speculation in these markets. 

sign up for a 5 minute overview of the u.s. balance sheet, popularly referred to as the debt clock  hard numbers will make sense of the inane political chatter and give us a better handle of our economy and our future prospects.

sign me up for a 5 minutes webinar to review the balance sheet of the usa!

Saturday, 04 May 2013 06:38

weekly wrap

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statistics, observations and thinly veiled references to politicians and unabashed 1st amendment protected opinions.

weekly wrap by adrian muller

the fed can’t track its own books.  dow jones reported that the federal reserve issued a correction on the balance sheet it reported thursday 8-18(?!).

a revised version of the fed's weekly balance sheet report (aka - h.4.1), was posted on the fed's public website.

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the central bank said:

1. its original report understated the average value of u.s. government securities held in custody on behalf of foreign official
accounts during the past week,

2. its original report understated the average amount of u.s. treasury
securities and federal agency securities held in custody for that week.

is this worrisome?

signs of a double dip recession

* the european summit between france and germany was unsuccessful, if you factor in the ecu equity market reaction.   european stocks responded by getting crushed – again.
* jobless claims jumped by 9,000 to 408,000 in the most recent week. is there any reasonable expectation of improvement?  many fear employment will get worse before it gets better – and for good reasons.
philadelphia fed manufacturing crashed to minus-30.7 in august from +3.2 in july. it’s the worst shift going all the way back to the depths of the 2009 recession!
*existing home sales fell 3.5% in july versus expectations for a 2.7% rise. theoretically low interest rates aren’t helping.  sidelined lending capital is scared or unwilling to bite.

* consumer prices surged 0.5% last month – more than twice as much as economists forecast (wrong again…). this number implies the annual inflation rate at 3.6%, far above the 2%-or-less rate the federal reserve typically likes to see.  worse, bernanke has painted himself (and the economy) in a corner with the attempted “bernanke put” – announcing rate policy until 2013.  completely unprecedented…

another round of qe with these kinds of inflation readings gives no political cover for another stimulus / spending attempt. moreover, two regional fed bank presidents yesterday said explicitly that they don’t want to be seen as bailing out stock investors!

philadelphia fed president charles plosser said the fed’s recent pledge to keep rates low through 2013 was “inappropriate policy at an inappropriate time.” dallas fed president richard fisher added “my long-standing belief is that the federal reserve should never enact such asymmetric policies to protect stock market traders and investors.” he went on to decry the perception that the fed has thrown a “bernanke put” to the market.

with all that said…  good luck in the markets.  we hope volatility will be your friend.  call or email with your comments.

adrian muller

p.s.  next week we’ll do a special meeting on the debt.  it will be scary and oddly hilarious at the same time.  please let me know if you want to attend or receive access to a link afterwards.

Saturday, 04 May 2013 06:38

day trading using options

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the term day trading is used when the act of buying and selling a stock within same day is in action. it is considered more profitable by leveraging large amount of money in order to earn profit from little price movements. there are two main problems on the way to day trading which are discussed in this article.

first is the option premium’s time value component has the propensity to reduce the price movement. second, the option market liquidity is less which makes bid-ask spread wider than for stocks. these two options are in your way, if you have plans to day trade and you must learn how to overcome these problems.

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for day trading, the main goal to achieve is using the options with minimum time value and little delta. the point for you is to day trade the near month in-the-money options of stocks with high liquidity. in-the-money options have the minimum time value and largest delta and that is why we day trade in the near-month. in addition to that, near expiry period, the option premium is dependent on intrinsic value. this will impact underlying price changes thus making you aware of every point-to-point movement of the underlying stock. always remember that near month options have got more liquidity as compared to longer term options.

the main advantage of day trading is that it allows you to invest with little amount of money. it is considered as more profitable than buying your own stock. in this case, if somehow the underlying stock price goes down, your loss will be as low as your premium amount.

another option to consider is to plan the daytrade for any specific stock for small upside moves for next few months. in this case, you may buy defensive put options which will avoid any loss in case of stock crash.

daytrading is no doubt a difficult skill and mastering it requires many strategies. as a successful day trader your first goal is to achieve an ideal stock. an ideal stock contains these two qualities: liquidity and volatility. liquidity is like an entry and exit point for a stock at good rate. volatility is the calculation of daily price range and a day trader operates within this range.

if you are done choosing your ideal stock, your next goal is to spot out possible entry points. some tools like intraday candlestick charts and real-time news service are used to identify these entry points. you will also require finding a price target which will mainly depend on your style of trading.

the entry points in day trading are somewhat same as in normal trading but the exit points are different. every year hundreds of traders choose daytrading as their business and dream to earn double and triple profit but reality is different. many of day traders lose their money. well, this is not the case with everyone. if you have chosen the right strategy for your trading, you may earn profit as well. but you need to be extra focused with your every move in order to be a successful day trader.

Saturday, 04 May 2013 06:37

what are credit spreads?

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credit spreads - low risk option trading

why not to give yourself 80 percent trading edge by making use of option “time decay” to your benefit with credit spreads. stock market will not finish in near future because it is one of the major markets in the whole world. one can understand from here that mastering some basic profit earning strategies in stock market can easily make us able to set a constant and dependable income source.  do you know the skill that can earn you lots of profits? well that is option trading.

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there are more than one trading strategies in the market and few of them are bulleted below:
•    strangles
•    straddles
•    bullish call debit spreads
•    bearish put debit spreads
•    ratio backspreads
•    calendar spreads
•    credit spreads

this article emphasizes on the main advantage of option credit spreads.  this option is very flexible and thus allows you to trade options without any danger, for long time.

what is option credit spreads? they are termed like this because they add credit in your account on their creation. this is opposite to debit which normally occurs when it comes time to pay for a stock or its derivative. what if the options in the credit spread expire? well you can still keep the credited funds if the share price has not crossed a certain level.

you must be thinking why it creates credit and not debit. the reason is you are selling an option at a strike price which is not far away from the on-going share price. to not create difficulties for yourself, you minimize your risk by buying the same number of option contracts at a strike price further away, both having the same expiry date. we can summarize it as, selling option is better than buying option, if it is closer to the money and that is when you receive credit.

you should know taking advantage of the time decay factor and it is possible if you open the spread with very little time to expiry. do you know that time decay falls exponentially and more steeply as the expiry date comes closer? because of this you should create spread just before a month to expiry. you can do this even before 2 weeks to expiry as it will assist you in keeping your credit much quicker. in this case, your time period will be very short and you will be required to get surer about the short term direction the share will move.

why are option credit spreads so beneficial?

following are the five points that tell the way in which market can move in any given time period. you will observe only one of the five ways in given time span:

1.    a little move upwards
2.    a small move downwards
3.    a side ways move - i.e. in a given time span, the market price "goes practically in no specific direction" or before that timeframe expires, returns to its original point.
4.    a big move upwards
5.    a huge move downwards

you are lucky if you have opened one of these spreads as the market then can move in any four ways and the profit will be yours. you can still save yourself if the market goes the unlucky fifth way, but how? you can simply delay your profits by rolling out or rolling out and down your positions to a later expiry date and/or lower strike prices. you can carry this on until the market comes to somewhat stable and profitable positions.

what else one would wish for? no matter in which way market moves, you will be safe and earning profits.

you should also know money and risk management to make yourself more safe and lucky.

Saturday, 04 May 2013 06:35

managed futures vs. going it on your own

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commodities are getting famous every day and there is nothing wrong about this information. initially commodities were not considered very attractive in the investment world but now they are making their place in the portfolios of serious investors. according to some careful analysis, many large scale endowment and pension funds, and rich investors are adding a rising section of commodities to their on the whole investment strategies. it has been observed in the past few years that amount of money in managed futures has almost got doubled due to their connection to the stock market.

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the fast increase in the cost of commodities over last few years has also been noticed by small investors. speculator money ran into the jewels like gold and silver and also in crude oil. this all happened at a very fast pace in the start of 2011. unluckily, a lot of “green investors” were ruined a lot when this happened in may of current year. a simple point to raise here is: if they had deferred their money to commodity traders in a managed futures account, this worst situation could be averted. new traders believe that they can get on the road to richness by just taking a few weekend seminars or going through latest books on this subject. this has been observed a lot of times and this is of course not correct. last month we came across a potential client who was convinced that he was about to day trade lacks of dollars and net 10% every month. all the best to him!

investors should know this well that to trade commodities with full professionalism, you have to spend years in this profession. it is just like becoming an engineer, doctor or lawyer after years of studies. no student can just read a medical book in one day to become a professional doctor. of course this is mad even to think! one of my respectful teachers told me that i can’t be constantly successful at trading without spending several years in this field, and i found their statement amazingly correct. don’t do the mistake of buying all the courses and seminars that are sold by so called traders everywhere.  they are just making their money by fooling you because they remained unable to earn from stocks. successful guys do not sell seminars and courses; they love professionalism and trade the money in the same way. there are of course exceptions in this, but mostly it is true.

if you are really looking for making some realistic and cool returns in commodities, you should go well planned and well researched. you can research commodity trading advisors that have impressive track record. talking to your commodity broker is also a good idea! brokers are experienced guys and they can refer various advisors that are well reputed and trustworthy. remember, a well reputed commodity advisor can keep you from lots of problems and save you a reasonable amount of money.

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Contributing Editors

  • adrian muller has conducted seminars for the chicago board of trade, including a key series in 1999 which cautioned about a top in the equity markets (see his article “top experts and statistics on the dow”). adrian muller has appeared on cable tv financial programs with analysis on the futures markets and equity market directional forecasts. he has been quoted in barron's, the wall street journal, and futures magazine.

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