I make fun of it all the time and think it is stupid. But it is a British thing so I’m OK with it. Yeah, they’ve have really been getting killed. The Canadian financials have held up a lot better the past 6-9 months. Besides Commerce, most of them were hardly affected until like Jan. Of course they wern’t into the same crap the US BB’s were.
Etienne Wrote: ------------------------------------------------------- > JoeyDVivre Wrote: > -------------------------------------------------- > ----- > > jrumph Wrote: > > > -------------------------------------------------- > > > ----- > > > What is the best way to short oil in a p.a.? > > At > > > work Goldman pitched us some far out of the > > money > > > puts that were trading at about $0.30, but > that > > is > > > only for institutional portfolios. > > > > > > If I want to do the same in a p.a., what > > options > > > do I have? > > > > Uh, short futures contracts? > > > > If you can’t afford to short futures contracts, > > you shouldn’t be playing this game. There’s a > > reason they are sized that way. > > > > Going short oil right now because you think > it’s > > just too high is really f-ing stupid. It > really > > amazes me when someone asks what kind of > > securities should they use to place a bet when > the > > question of how is vastly easier than the > question > > of why. Honestly, if you can’t think of all > the > > ways of placing the bet, you haven’t studied > the > > situation enough so you shouldn’t be placing > the > > bet. You need to learn to be your own risk > > manager and stop yourself from doing this > stuff. > > JDV, I could be wrong, but you sound like the kind > of guy that would have been buying tech in 1999. > I (or someone else) might have been on here asking > what the best way is to short tech and you would > probably have been saying “don’t be stupid, you > just haven’t studied the situation enough.” > Occasionally, familiarity is the enemy of rational > decision-making. > That’s silly too. If you asked what kinds of securities would allow you to short tech in 1999, I would have told you to stay away from it also. Shorting any number of different securities in 1999 would have turned out well in hindsight. Do you think oil now is the same story as tech in 1999? If you do, it means that your story is very limited to somethiing like “They have both gone up lots and I think they are in a bubble because they went up lots”. > I would happily short copper. Then why don’t you? Get a futures account and short COMEX copper. If you have real money short LME copper. > Why? Well, I know > that the Chilean gov’t has a long-term price > assumption of 1.21/lb and presumably they know a \> thing or two about copper. I also know that the \> cost of bringing new capacity on-stream is a \> fraction of the spot price. Both of these \> arguments seem more sturdy than the myopic \> arguments I might get from a typical metals \> analysts about strikes in Peru or China's demand \> over the next 18 months. So when I first started in the futures business many moons ago, my boss who has made for himself 100's of millions of told me that one of his early learning experiences in futures was trading copper. He felt that the production costs of copper were higher than the market cost so copper had to go up. He kept going long copper for two years based on this. There’s lots to know about copper before you can make money trading it.
I disagree. I think signs of irrational exuberance can be apparent to someone without specialist knowledge. Making a call on, say, the consumer staples sector - a sector where by definition people seldom become excessively bullish or excessively bearish - is in a sense considerably more difficult. Housing is the obvious contemporaneous example. A perceptive lay person could have noted that huge swathes of the population, at one point, thought that property would make them rich. He or she could have observed the appearance of new real estate sections in newspapers, the flyers through the door offering off-plan apartments in Cambodia (true), the plethora of different TV shows dedicated to climbing onto the property ladder and their endless re-runs… A perceptive lay person could have put all this together and wondered “how do I short housing stocks?” He could have been wrong, and I may be wrong about copper and oil. I would argue, however, that I have reasonable basis to believe that I am more likely to make money than to lose money.
Note to forum: If you don’t have a futures account and/or cannot afford trading futures DO NOT suggest or ask advice on how to short commodities/indices etc, or be prepared for a nasty beatdown/smackdown from JDV…
I don’t care at all whether anybody has a futures account. I don’t think you should trade commodities without one though.
Rather than argue on who should/can be shorting, I’ll comment on why I think it’s at $108. From the various different viewpoints, I think the most plausible reason is that there is simply nowhere else to deploy cash. Think of it this way, inflation is 4%+, yield on short-medium treasuries are well below that so the real-risk free rate is negative. Nobody wants to be guaranteed to lose money, so many are investing in the next best thing: the bet that the CBs will continue to run the printing presses. Money is flowing into commodities on the assumption that they will grow at the rate of inflation. Remember it’s not just oil going up; everything from NG to soybean to silver is going up. Oil is just the easiest to justify because once you say “peak oil” you can argue for any price you want. Go down the list of “major asset classes” (familiar to those who are studying lv3 I’m sure); basically every asset class has less than rosy short term potential so there is little choice in the matter. So when does the buck stop? I would imagine when Bernake ditches his “prevent recession at any cost” mantra. (well, since we’re already in recession, how about: save C and other hedge fund buddies at any cost mantra)
Aerius, Thanks for bringing us back on course. I agree with your synopsis and I see that all commodities for the most part are doing, base metals not so much, but that makes sense. I agree 100% that much of the reason for the spike is due to inflation concerns/lack of faith in CB’s, they’re basically (in the case of the fed) printing George Washington’s mug into obscurity. If you look at the price increases of oil the past few years in terms of Euro’s that is readily apparent. But I guess where I sort of disagree is that asset managers are parking heavy cash into the futures market. I mean, what has the open interest change been on some of the near term heavily traded futures. For those of you who have been around the market unlike me, has there been a big increase (presumably due to speculation, people parking money etc. as opposed to the pure economic rationale for purchising crude futures)?? I just sort of see the commodity trading market as unattainable for many individual investors (due to relatively high margin required, high leveraded nature and hence ability for loss) and unattainable for many institutional investors (due to regulations of their firm, for instance many say L/S hedge funds wouldn’t be allowed from a prospectus POV to play the commodity market, right???) Let’s keep the ball rolling on this. I think it’s a bit overvalued, but I’d like different perspectives like Aerius’
On 1/1/2005 the open interest in Nymex crude was about 670,000 contracts. It’s has since surpassed 1.5M and stays reliably above 1.2M.
From Reuters: - Investments in commodities reached $178 billion (88 billion pounds) in 2007, according to a recent survey of 260 institutional investors by Barclays Capital. The level of commodity investments has already overtaken the $120-150 billion that investors estimated would be poured into commodity assets in 2008 in a Barclays Capital’s survey in February last year. “I’m very confident it will be at least $200 billion by the end of 2008,” said Kevin Norrish, director of commodities research, told a briefing on Monday. But of those investors, 65 percent said they were now worried about high commodity prices, compared with 43 percent last year and 54 percent in 2006. The price of oil, gold and other commodities has surged to record highs this year, driven by tight supply/demand fundamentals as well as growing investor demand to diversify portfolios via commodity investments. Institutional investors, hedge funds and pension funds have boosted their exposure to commodities in the past few years and look set to step up the pace, according to the poll. The number of investors expecting to put more than 10 percent of their portfolio into commodities over the next three years, for example, rose to 34 percent from 22 percent in 2007 and 19 percent in 2006, according to the survey.