[Micki]

Anyone else sensing build up in Silver???

Last few days Silver has shown strength compared to gold by holding up better and longer before being pushed down.

I have noticed during this week that one of the Australian silver mining shares that I follow has been closing clearly higher although bobbing up and down during the day.
Meanwhile the gold shares have closed up one day down the next and been mixed beteen the companies.

Any one else seeing similar signs, i.e. among the US silver miners?

Therewas also some talk about potential delivery default on the net. That would make the price explode. But that should drag gold along and I just don't see the same strength in gold...for now.

[MrBill]

I broke one of my cardinal rules yesterday. I went long in the Europe time zone and then it dropped like a rock on the back of pronouncements out of the talking heads that the violence in the ME would be contained during the first hour of trading in NY.

After I was down a 100 pts. I just could not be bothered stopping myself out, as I just cannot believe there is an easy exit from the fighting between Hizbollah and Isreal, and sooner or later Syria and Iran will become involved.

Also there enough refinery fires and glitches that I do not think today's inventory nos. will be that bearish, and with crack spreads still very wide, gasoline $21, I think this will eventually support the price of crude. Now that I am 200 pts. under water, I guess I am just talking my book, but there you go.

Without discipline all you have is dumb luck and that is where I am right now.

Today's DOE forecasts are

Crude -700.000 bbls
Distillates +1.5 mio
Gasoline -200.000
Refinery Runs +0.2% to 93.1%
Imports below 10.5 mbpd
Gasoline demand +9.6 mbpd

Refinery problems at COP's Wood River in Illinois, Valero's St. Charles in Louisiana and Total's refinery in Port Arthur, Texas, as well as the fire at VZL's PDVSA refinery that will be shut for 4-6 mos. depending on who you believe. That is a big effect as it is the world's largest refinery and it is the source of short haul imports to the East Coast of the USA. Therefore, losing this swing capacity will certainly hurt just as much as the disruptions from Nigeria who produce a good blend for making gasoline as well.

And according to reports the water temperature in the GOM is heating up so the hurricane season will start sooner or later. I am sitting in on a conference call this afternoon given by JPMorgan's Katerine Spector and some ME analysts to talk about energy markets, so it should be quite interesting. Will report what they have to say.

In the meantime, I am long and wrong, so hope I can pull a rabbit out of the hat and save my sorry hide.

[Chaparral]

$this->bbcode_second_pass_quote('MrBill', '
')In the meantime, I am long and wrong, so hope I can pull a rabbit out of the hat and save my sorry hide.

[Chaparral]

$this->bbcode_second_pass_quote('Micki', 'A')nyone else sensing build up in Silver???

.

[drew]

Nice bounce today on the TSX. I am in happy territory again. I have to overcome the feelings I have to sell because I am only about even for the last few months. Still, these nice little up-ticks seem to last only a few days at best. It is like all the traders are quite in on the game. Last year at this time was way easier to make money-I remember buying some Encana, and then some more a day after the hurricane-maybe people are feeling a little tense.

Still some bad news would be good-but I can't, and shouldn't be wishing for that should I?

On the other hand, the summer doldrums are almost over, so maybe the markets will start moving again-hopefully up.

Drew

[MrBill]

$this->bbcode_second_pass_quote('Chaparral', '')$this->bbcode_second_pass_quote('MrBill', '
')In the meantime, I am long and wrong, so hope I can pull a rabbit out of the hat and save my sorry hide.

[MrBill]

The Investment Biker rides again...
$this->bbcode_second_pass_quote('', 'C')ommodity prices will rise for
another 10 to 15 years and oil will reach $100 a barrel,
according to Jim Rogers, chairman of Beeland Interests Inc.
``We are in a bull market for commodities and in this bull
market for commodities it's very simple that oil will go to at
least $100 a barrel,'' Rogers said in an interview today. ``The
bull market has got another 10 to 15 years to go so it's a fairly
easy assumption to me.''
New York crude oil futures climbed 26 percent in the past
year on concern a nuclear standoff with Iran and reduced
production in Nigeria threaten supplies. Prices reached a record
$78.40 a barrel in New York on July 14 after violence flared
between Israel and Lebanon's Hezbollah.
While oil production will grow ``marginally,'' oil fields
such as those in Alaska, Mexico and the North Sea are in decline,
said Rogers, author of ``Hot Commodities: How Anyone Can Invest
Profitably in the World's Best Market.'' At the same time, demand
for petroleum and commodities worldwide is rising, he said.
``There have been no major oil discoveries anywhere in the
world for over 35 years and all the great oil fields in the world
are in decline,'' Rogers said. ``The world is running out of oil.
There may be some oil out there, we just don't know where it
is.''
Rogers said rising oil prices push up the cost of synthetic
fibers, making agricultural commodities such as cotton a good
investment.
``A good way to play the price of oil is to buy cotton or
buy sugar,'' he said.

[MrBill]

A bit surprised by this sell-off here in the crude. It started with unleaded slipping well below $2.3000 and has gathered pace. Maybe some profit taking ahead of the weekend, but I thought the Friday PUT with events in the ME would have been more supportive? Brent has come off the most. It was at a 65 cent premium to WTI last night where I sold it, but now it is at 10-20 cents. I was hoping to get the chance to smack it at $1.00, but we never saw it.

Also interesting is that SEPT Brent is almost trading at par with OCT instead of at a steep discount. Are traders worried about supply? I doubt it? If so, it should support gasoline where oil majors have had to cancel tanker bookings out of Nigeria due to not enough supply. Nigeria's Bonny Light is a good gasoline grade of crude and makes up a component of US imports.

Still given how high we are, I really do not want to buck the sell-off which might see prices slip another $1.00-2.00 per barrel before any Friday afternoon buying emerges as weekend cover. Precious metals are also off on the day and the US dollar stronger, so no support from that quadrant either.

Late economic releases this afternoon should show a slowdown in US GDP growth. Forecasts are

Q2'06 +3.1% vs.
Q1'06 +5.6%

H1'06 +4.3% vs.
H1'05 +3.2%

Final domestic demand excluding inventory growth and exports should slow to an anemic

+1.7% in Q2'06 vs
+5.8% in Q1'06,

and the drop in consumer spending to

+2.5% in Q2'06 vs.
+5.1% in Q1'06

so consumers are still managing to spend more than they produce likely due to higher energy prices and higher interest rates. Year on year, 30-year fixed mortgages have increased to

6.68% in 2006 vs.
5.58% in 2005

so the cost pressures on consumers is sapping their animal spirits, which should continue to drain away any upwards momentum in housing prices as unsold inventories increase and monthly sales continue to fall. This may also explain why crude prices are retracing slightly on a lull in fresh carnage out of the ME, while traders contemplate the effect of a growth slowdown in the US who consume 20% of the world's crude and 40% of its gasoline.

Any upward revision to core personal consumption above 2.9% may puncture the euphoria surrounding Bernanke's latest pronouncements on interest rate tightening, fuelling speculation of more rate hikes to come and deflating equity prices from their current levels. We shall see?

Have a nice weekend and speak to you next week.

UPDATE: here are the nos.
$this->bbcode_second_pass_quote('', 'H')ousing Slowdown

Consumer expenditures rose at an annual rate of 2.5 percent last quarter, as a slowdown in the housing market discouraged spending, compared with a 4.8 percent pace in the previous three months. Economists expected a 2.1 percent gain, based on the survey median. Consumer spending growth has averaged about 3.4 percent a quarter the past 30 years.

With today's report, the government also revised GDP data going back to the first quarter of 2003. The economy grew at an average annual rate of 3.2 percent from 2003 through 2005, or 0.3 percentage point less than previously estimated.

The value of all goods and services produced in the U.S., the world's largest economy, rose to $11.4 trillion in the second quarter after adjusting for inflation. Unadjusted for price changes, GDP rose to $13.2 trillion.

The government's personal consumption expenditures index, a measure of prices tied to consumer spending, rose 4.1 percent after a 2.0 percent rise in the first quarter. The index excluding food and energy, a measure favored by Fed policy makers, rose at a 2.9 percent annual rate after a 2.1 percent rise the previous quarter.

The GDP price index, a measure of prices tied to the report, held at a 3,3 percent annual rate in the second quarter.

[MrBill]

Instead of talking about oil markets today, you may want to give this article a read. Links into several other posts on Chinese growth independent of US growth, etc. Deftinately worth a read.
$this->bbcode_second_pass_quote('', 'T')he bullet point summary of these 12 anti-decoupling arguments are as follows:

Trade links are important in transmitting shocks from the US to the rest of the world.

The oil and commodity price shock is a shock that is common to the US and many other oil and commodity importing countries.
Monetary policy will be tightened in the US and many other economies given global concerns about rising inflation. The era of cheap liquidity is over

Housing bubbles are bursting - or flattening - not just in the US but in many other economies as easy liquidity had led to housing bubbles in many parts of the world.

The recent fall in equity prices is not just US based; it is rather global and more severe in the rest of the world than in the US; it will thus have negative effects on global consumption and investment spending and on business and consumer confidence in many economies.

The weakening of the US dollar following the US slowdown is leading to the appreciation of the Euro, Yen and other floating currencies. Given the tentative recovery of the Eurozone and Japan, this appreciation will hurt net exports and growth.
Foreign direct investment (FDI) is another channel of transmission: when the US slows down the sales in the US of US-producing affiliates and subsidiaries of foreign firms fall, negatively affecting the profits of such firms in their home base in Japan, Europe and around the world.

Risk aversion is rising globally and the downturn in markets is negatively affecting "animal spirits", i.e. business and consumer confidence.

The US and G7 slowdown will have negative growth and financial effects on emerging market economies that, until recently, had widely benefitted from high global growth, high commodity prices and low global interest rates. Lower global growth, lower commodity prices and reduced global liquidity will have negative effects of the real economies of emerging markets, as the recent sharp market selloff in these markets is already signaling.

The last four global recessions have been characterized by an oil shock and an inflation scare that led to monetary tightening and stagflationary outcomes. The same is happening this time around and global business cycles are highly correlated.

There is now a serious risk of a systemic financial crisis - as in the 1987 stock market crash or the 1998 LTCM near collapse. The factors that led to systemic risk in previous episodes of systemic financial distress are present again today.

Unlike the 2001 global downturn there is little room for monetary and fiscal policies to be eased to deal with the global slowdown; while exchange rates are now a zero sum game as, in a slowdown, most G7 economies will want to avoid an appreciaton of their currencies. Thus, the risks of trade and asset protectionism are rising in a global economy with large and increasing global imbalances and geostrategic risks.

[MrBill]

Last summer, being new to this oil trading game, I was looking at builds in inventory and thinking that the bull rally was way overdone. And yet up it went. The market was expecting some unspecified event to justify the price premium, and low and behold, along came Katerina/Rita and justified that premium.

Now this summer the fundamentals still point to a well supplied market, but again we are at new highs. What is the market expecting? I am not sure, but it sure isn't peace breaking out in the ME or a quick solution to Nigeria's problems or a calm hurricane season.

Sure prices are overbought based on supply and demand, but there is still the nagging doubt that anywhere at anytime could come the final nail in the coffin that sends us to $100 a barrel? Given that Roubini and others see a high likelyhood of a recession in 2007, certainly $100 per barrel and perhaps 'real supply disruptions' would likely push us in that direction in any case.

The way we seem to be able to rally from any support point on the slimmest of headlines suggests the market still has an upwards bias. Inventory alone is not enough to quell that. Especially as physical players can fill their storage and sell the paper forward.
$this->bbcode_second_pass_quote('', 'C')rude is king when it comes to bull markets in the 21st century. The price of a barrel of oil in New York futures trading has climbed some 280%, as of last night's close from January 1, 2002. As bull markets go, this one's been extraordinarily profitable for those who've ridden the wave. This year alone, crude's ascended by more than 30%, based on the near-$80-a-barrel mark set earlier this month. But every wave crashes, eventually, even one that's driven by a potent supply/demand profile that drives the oil market.

[truecougarblue]

Does anyone else share my opinion that if the AU breaks 650 we'll be off to the races again? I'm not hanging my hat on this, but I've got a feeling.

I've done OK this month, not nearly as well as last, but respectable. I guess the reinforces that some months it's just harder to play the game.

I'm concerned going forward with the effect that a global slowdown could have on silver prices since my favorite PM miners are principally silver mines. That could seriously affect my model. Any ideas on how to quantify the tradeoff between silver as a safe port in the storm of inflation and the possibility of a glut due to industrial slowdown?

[cube]

$this->bbcode_second_pass_quote('truecougarblue', 'D')oes anyone else share my opinion that if the AU breaks 650 we'll be off to the races again? I'm not hanging my hat on this, but I've got a feeling.
...

[Chaparral]

Took profits on half my CL-U06 today at 7500 even. Went long on Kansas Wheat given the strong fundamentals and the fact that it dipped nicely today on what I'm guessing to be spread unwinding and harvest pressure. Shorted silver at 11780 with the intent at taking profit at 11500-11600 range before the week is over. Set a limit at 6600 to take profit on Dec gold- never got a fill so maybe I'll hold it and see what happens.

WRT Corn, I am short the Dec 06 contract and have been so since the high 2700s and long on the Dec 07 contract. The market seems to be pricing in average yield. I am getting skittish however and I expect C-Z06 to revisit 2510 to 2520 and I think I may either take profit or fully hedge with C-Z07. The price of the dec contract will come under heavy pressure as we approach harvest. I'm thinking with the high carryout from last year plus a big harvest this year, things could look bearish for the Dec 06 contract. This year's prod'n, and hence the carryout, won't be known for quite some time.

WRT the grains as a whole, I am seriously thinking I should bet on climate change and weigh that in my decisions more than I have in the past. Things are just getting too weird across the globe.

I ain't touching nat gas with a 10 foot pole. Not until we have a cat 5 bearing down on Beaumont. Then I may short. The commercial hedgers are at a 5 yr record net short positon.

[drew]

Congrats on Moderator status, Mr Bill---woot! But, I gotta say I am shocked-you're new to oil trading? You're kidding, right? You've been a commodities trader for quite awhile, no doubt, but I was still shocked at your newbie status in oil. Nevertheless you are a sharp cookie.

Anyways, I read the article on the US slowdown, and I completely agree with the writer. The nagging question is what to do about it.
When does one become defensive? How can one time it? Are all commodities going to suffer, including the shiny yellow stuff?
Is uranium going to keep going up because nuke plants have a long lead time and are always state enterprizes? When do you move into bonds?

There, those are some good investment questions...

congrats, again!

Drew

[drew]

People are dumb, Chapparal, including myself! If a hurricane hits something 'good', buy some gas (stocks). I waited a full day after Katrina hit and still made 6 or 7 bucks a share (encana). That was stealing candy from a baby! BTW, I wouldn't touch gas with a ten foot pole either

Coug, gold is having a decent run today. I think a lot will depend on whether Castro croaks or not. Of course Hizbollah isn't hurting AU either.

Cube, I wish I knew too; but then that's the fun of it isn't it?

Drew

[MrBill]

Drew, although I have been trading for twenty years. Starting trading agricultural commodities back in the mid-80's before moving onto forex and money markets and then fixed income. I just started trading oil & gas futures and options last spring. Just in time for last summer which was a real rollercoaster.

Found out that oil & gas trades quite different than forex for example. The price action in forex is more continuous and decentralized. However, the very definate daily rhythm of the open and the close, and the emotice trading of the open outcry pit trading in NY, makes oil & gas that much more difficult to trade if you do not have physical assets or the benefit of flow. I prefer forex, but oil & gas has certainly been an interesting education! ; - )

TrueCougarBlue wrote:
$this->bbcode_second_pass_quote('', ' ')I'm concerned going forward with the effect that a global slowdown could have on silver prices since my favorite PM miners are principally silver mines. That could seriously affect my model. Any ideas on how to quantify the tradeoff between silver as a safe port in the storm of inflation and the possibility of a glut due to industrial slowdown?

[cube]

$this->bbcode_second_pass_quote('Chaparral', '.')..
WRT Corn, I am short the Dec 06 contract and have been so since the high 2700s and long on the Dec 07 contract.
...

[Chaparral]

$this->bbcode_second_pass_quote('cube', '
')So far my long CU06 contract is treating me good......for now.

I've got this theory that traders do NOT drink energy drinks like Red Bull. We don't need the caffeine to keep us awake or alert. The stress does it for us.

[Weatherman25]

I voted >$80, mainly because it looks like we have another long hurricane season ahead of us.

[MrBill]

$this->bbcode_second_pass_quote('Weatherman25', 'I') voted >$80, mainly because it looks like we have another long hurricane season ahead of us.