[Chaparral]

Progressively exited HU at 19800 down to 19600 and went long at 19650. Exited today at 20200. Exited CL at 6850 and do not particularly care to be playing around with that now.

I will try to go long on HU again at 19900 given the demand side of things.

Not fooling around with NG.

[MrBill]

Hey guys. Was in London this week and saw everyone it seems? They were all busy and under fire on all fronts. Fixed income (CPI/inflation concerns); emerging market (interest rate hikes/risk adversion); energy & commodities (some blood letting); equities (some sell-offs especially in Russia); etc. You could feel the tension in the air as guys came off the trading desks in shifts to talk to us, but their Blackberries were on the constant ready. Not to mention everyone seemed to be suffering from colds due to London's liquid sunshine! ; - ) Ate & drank way too much. Always good to go to London and catch the buzz, but after 4-5 days, I am just as happy to leave again.

It would appear to me that the limits of the commodity boom, especially in metals like copper and aluminum, is the age old price-cost squeeze, as those super cheap low cost producers like China have a competitive advantage in labor, but must still pay market prices for their inputs of energy and metals. They cannot pass these costs along to their customers due to overcapacity and a consumer that is increasingly tapped out on the debt side.

Commodity sellers and traders are only getting product, and in return selling them on, to cash customers. No money, no metals. An increase in letters of credit as these end users turn to bank credits as they have run out of cash. This is bad news for the banks as many small & medium sized players will be unable to repay those credits and they will end up as bad loans on the state banks balances. So take your pick, either a slowdown from inefficient, smaller users being priced out of the market due to high input prices or another banking crisis if those who can get bank credits cannot repay them? New pardigm indeed? Just the same old patterns in a new guise.

PIMCO says we are not in a commodity bubble. Morgan Stanley warns we might be? I will post both sides of the argument as soon as I get caught up here. For what it is worth, the economist at Lehman Bros. told us he expects FED funds at 6.50% by middle of next year. Certainly, the higher than expected core inflation rate put markets into a tailspin this week. A correction in any case.

As for crude, the trading envelopes using 2 standard deviations from the 21-day moving average on the daily charts corrected nicely from overbought at $75+ down to fair value at $68.50 area and are now in neutral territory. My feeling just from those charts is now another test to the topside on geopolitical supply concerns (Iran/Nigeria/N.Korea/and Rice and her big mouth). In any case, catch-up with my posting after I wade through my inbox and follow-up on my meetings. This sell-off in Russia will create some interesting entry points, so need to line-up funding. Cheers.

[Silverharp]

I was looking at the Oil COT and it appears to be in the classic sell off position with the commercials short and the large specs long with a high open interest that look like it is turning down. Any opinions on this

[MrBill]

$this->bbcode_second_pass_quote('Silverharp', 'I') was looking at the Oil COT and it appears to be in the classic sell off position with the commercials short and the large specs long with a high open interest that look like it is turning down. Any opinions on this

[rwwff]

AU 6575 AG 1236

Someone got hosed....

[Chuck]

$this->bbcode_second_pass_quote('rwwff', '
')
Someone got hosed....

[Chaparral]

I've been getting hosed on the metals but cleaning house on energy. Constrast that to two weeks ago where I was getting hosed on energy and cleaning house on the metals. At least I saw Friday's gold massacre coming.

With the COT reports where they are, I've tended to short CL and HU where I think it's high (Like in the area of Mr. Bill's number 7140) whenever I take long positions in GC or SI. Given the recent prognostications on HU demand, the recent chart behavior, hurricane season predictions and the commercial hedger positionings, I'm getting to be more of a HU bull so I'm now willing to go long as high as 20400 whereas earlier in the week I wouldn't have thought of doing that at any point below 19900.

The weird thing about all these metals corrections it that the commercial hedgers are either in the middle of their usual long-short extremes or are actually edging towards the long end of their 1 year ranges (like that "range" even means anything in the face of such high variability). If the metals are so overbought, why aren't the commercials forward selling like it's going out of style? That is one reason why I just haven't gotten the guts to short the stuff. Maybe if gold and silver try to recover this next week and I see the gold lease rates converge upwards, I'll get up at midnight PDT and short the stuff when London is open. That seems to be the point where it has been making its highs before being slaughtered in NY.

Of course, the one time I really got hosed this year, I was...you guessed it SHORTING GOLD

[MrBill]

$this->bbcode_second_pass_quote('Chaparral', 'I')'ve been getting hosed on the metals but cleaning house on energy. Constrast that to two weeks ago where I was getting hosed on energy and cleaning house on the metals. At least I saw Friday's gold massacre coming.

With the COT reports where they are, I've tended to short CL and HU where I think it's high (Like in the area of Mr. Bill's number 7140) whenever I take long positions in GC or SI. Given the recent prognostications on HU demand, the recent chart behavior, hurricane season predictions and the commercial hedger positionings, I'm getting to be more of a HU bull so I'm now willing to go long as high as 20400 whereas earlier in the week I wouldn't have thought of doing that at any point below 19900.

The weird thing about all these metals corrections it that the commercial hedgers are either in the middle of their usual long-short extremes or are actually edging towards the long end of their 1 year ranges (like that "range" even means anything in the face of such high variability). If the metals are so overbought, why aren't the commercials forward selling like it's going out of style? That is one reason why I just haven't gotten the guts to short the stuff. Maybe if gold and silver try to recover this next week and I see the gold lease rates converge upwards, I'll get up at midnight PDT and short the stuff when London is open. That seems to be the point where it has been making its highs before being slaughtered in NY.

Of course, the one time I really got hosed this year, I was...you guessed it SHORTING GOLD

[mefistofeles]

$this->bbcode_second_pass_quote('', 'I') think this is the most important lesson, and that is to avoid an ABSOLUTE flat price bias. Have to follow the momentum as it very dangerous to say, gold is too expensive at $600 or crude is too cheap at $60. They can and will undershoot or overshoot fair value, as fair value changes with the seasons and the mood. Gold is a great hedge when US interest rates are stimulative, but at a certain point, you want to own interest earning assets, and gold is not an interest earning asset, it is a hedge against inflation.

[MrBill]

$this->bbcode_second_pass_quote('', 'Q')uote:
We should start to see support creep in here now, but even a deeper move to $6600 would not change the technical picture much in the absence of some new fundamental data or headline driven events?


If your a trading man I think you should look at the LNG market its stablized at around $6.00(NYMEX) and I have an odd feeling that this is where the real game is going be.

[ekaggata]

Did I hear correctly that copper actually went limit down in Shanghai? (I think that's what they said) And the Mumbai actually lost 10% intraday before the banks promised to give money to everyone who'd lost their shirts?

[MrBill]

$this->bbcode_second_pass_quote('ekaggata', 'D')id I hear correctly that copper actually went limit down in Shanghai? (I think that's what they said) And the Mumbai actually lost 10% intraday before the banks promised to give money to everyone who'd lost their shirts?

[Chaparral]

Exited HU-M6 at 20600 and reversed position several ticks higher. Well see how it goes. I am out of the metals for now (now meaning approximately 4 hours or so

Too bad i didn't get into nat gas this morning....

[mefistofeles]

$this->bbcode_second_pass_quote('', 'D')id I hear correctly that copper actually went limit down in Shanghai? (I think that's what they said) And the Mumbai actually lost 10% intraday before the banks promised to give money to everyone who'd lost their shirts?

[MrBill]

$this->bbcode_second_pass_quote('', 'T')he price of crude oil seems to be in a very tight range $67-$69. So its hard to see why we have so much volatility in energy equity prices, at least based on the prices of the underlying commodity(sweet light crude).

The FT times had an interesting article about derivatives and how large derivative positions by major banks and large hedge funds have been causing wild market swings.

Unfortunately I wonder for this period whether we have a break with reality between energy equities and energy prices. The story on the demand and supply end seems to be good for energy stocks.

I wonder how long this disconnect can last?

[ekaggata]

Buy all the Uranium you can get your hands on! so to speak

[MrBill]

$this->bbcode_second_pass_quote('ekaggata', 'B')uy all the Uranium you can get your hands on! so to speak

[MrBill]

Why didn't we read this OpED piece on April 23rd? ; - )
$this->bbcode_second_pass_quote('', 'M')ay 23 (Bloomberg) -- The storm that has lately hit stocks
around the world didn't come out of a clear blue sky.
Surging commodity markets gave a hard-to-miss signal of
increasing turbulence -- and that wasn't all. Warning clouds had
also been discernible for months in simple data on the money
going into mutual funds for U.S. investors.
In the first quarter of 2006, according to the consulting
firm of Financial Research Corp. in Boston, investors poured $71
billion into shares of international and global funds. That
represented two-thirds of the $105 billion in inflows to all
long-term stock and bond funds, including exchange-traded funds.
To call that a trend is putting it mildly. Two of every
three new dollars of late has gone into international funds,
which own securities from markets outside the U.S., and global
funds, which typically have both U.S. and non-U.S. holdings. The
first-quarter percentage of 68 percent, by my reckoning,
represented an increase from 62 percent in all of 2005 and 40
percent in 2004.
In other words, U.S. fund buyers, who have long been told
they were underinvested in other markets around the world, have
become increasingly intent on catching up.
Better late than never, right? Over the last five years,
more than 350 international and global stock funds tracked by
Bloomberg averaged an annual gain of 8.6 percent through the end
of last week. That more than doubled the 3 percent-per-year
advance of domestic growth and value stock funds.

Party Time

Well, ``better never than late'' is sometimes the wiser
precept in investing, where the last to arrive at the party risk
missing the fun and yet sharing in the hangover. As with many
other preparations served up at parties, the big question about
worldwide funds sooner or later becomes how much is too much.
One concern is that markets elsewhere may actually be more
vulnerable than American stocks to whatever threat may be posed
by rising U.S. interest rates. Sure enough, in the past month
through last week an average of 88 emerging-markets stock funds
tracked by Bloomberg lost 6.1 percent while domestic growth and
value funds declined 4.2 percent.
In FRC's tables, assets of international and global funds
reached $1.3 trillion as of the end of March. That's just a shade
under 20 percent of the $6.7 trillion in long-term funds of all
types.
Looks like a reasonably conservative allocation, judging by
the rough rule of thumb that two-thirds of the world's economy
lies outside the U.S. It may seem even more conservative to those
who figure the strongest sustained future growth will come in
places such as China, India, Latin America and Eastern Europe.

Room to Grow

``Higher inflation, higher personal and corporate taxes, and
a lower dollar point U.S. and global investors away from U.S.
assets and toward more competitive economies,'' argues Bill
Gross, manager of the world's biggest bond fund and chief
investment officer at Pacific Investment Management Co., in his
monthly Pimco commentary for May.
Whatever one may think about the economic outlook, though,
experience teaches that concentrated flows of mutual-fund money
often raise warning flags.
A glance back though Investment Company Institute figures
reminds us that demand for stock funds of all types climbed to
record highs in early 2000, just before a fierce bear market set
in. The chart veered to extreme outflows around mid-2002, just as
that bear market was getting ready to bottom out.
No blanket indictment of fund investors is intended here.
Flows occur at the margin; the great majority of fund owners hung
tight through the wrenching ups and downs of the late 1990s and
early 2000s.

Rocking the Boat

The payoff for anyone willing to stay aboard from the end of
1995 through the end of 2005 was a 9 percent annual return, as
measured by the Standard & Poor's 500 Index. That's right around
the historic norm, and nice money if you can get it. The catch
is, to earn that kind of long-term payoff you usually have to
ride out some inclement weather along the way.
Most fund investors have shown an ability to stay calm and
patient through good times and bad. But any time the flow of new
fund money becomes a torrent, the calm and patient may want to
stand back for a little while.

[MrBill]

This is a long one, but well worth the read. I do not agree with everything David W. Tice says, and, of course, I have not checked the numbers, but you cannot help but feel that the gyst of what he is saying is fairly accurate?
$this->bbcode_second_pass_quote('', ' ')Federal Reserve must choose between the US Dollar and Home prices


The Federal Reserve will do what it takes to maintain its credibility, which is central to preserving the integrity of the US dollar, said Dallas Federal Reserve chief Richard Fisher on April 11th. Alluding to the Fed's dual role of insuring inflation doesn't “raise its ugly head” while still promoting the fastest possible growth, Fisher said, "We seek to get it right. And the answer to your question is we will do what gets it right."



Fisher said the US dollar is “a faith-based currency, the currency of the world and we must maintain its integrity. I will spend every ounce of energy doing that. I have no doubt that my colleagues will do exactly the same," said Fisher, who is not a voting member of the Fed’s policy committee. But since Fischer made his pledge to back a strong US dollar, the greenback plunged by as much as 7% against a basket of key currencies, heightening concern among America’s biggest financiers.



About half of the $805 billion US current-account deficit last year was financed by foreign central banks, with those of oil-exporting nations playing a major role. OPEC plus non-OPEC oil exporters deposited a combined $82 billion US dollars into BIS reporting banks in the third quarter of 2005, the largest-ever quarterly placement.

OPEC holdings of Treasury notes and bonds stood at $84.9 billion in February 2006, up from $52.7 billion in July, and an even bigger chunk of petrodollars are recycled through London via British banks. British holdings of US Treasury notes and bonds have soared more than $100 billion since June 2005 to $251 billion.



To protect the US dollar’s status as a world reserve currency for oil exporters, the Bernanke Fed is under pressure to lift the fed funds rate by a quarter-point to 5.25% in June. Failure to do so, could spark a renewed assault against the US dollar, and re-ignite inflation fears, lifting gold prices and US bond yields. However, a tighter Fed money policy could also deflate the US housing bubble, the greatest source of savings for many US households, and risk an economic slowdown or recession.

[Marklar]

Stocks Advance As Commodities Bounce Back


http://biz.yahoo.com/ap/060523/wall_street.html?.v=12

Funny. Not long ago that headline would have read. "Stocks decline as rising commodities spark inflation fears" or something similar.

What gives?