Best long plays: Oil, gold, corn, sugar, cotton, soybeans

Discussion in 'Energy Futures' started by BrandNewTrader, Jul 1, 2006.

  1. Over the past 6 months I've been reading as much research as possible about agricultural commodities and have come to a conclusion and i'd like to hear your thoughts.

    First I'll give you background.

    I used to be "Soon2BTrader" and am now a proprietary equities daytrader with a "professional" group of eqities daytraders. I have a strong finance education and have recently completed a year on an eq derivatives sales desk at a major bank. While at the bank I took advantage of their resources and read tons and tons of credible and very expensive private bank, investment bank, academic, and hedge fund research on "proprietary investment products" in general. I say it like that because my sole purpose in finance is to make money. I don't want to be right, I don't care how I make it, I just want to be where the money is and take as much out of the market as is in my destiny. As far as finance goes, I don't care about anything else. I graduated from one of the most respected finance bachelor programs in the world and have learned that too many people in this game are worried about being right, looking smart, or just having the title - "I'm a trader" "I trade at such and such place" "I'm a prop trader". Please. Basically I'm trying to set a tone (if possible) - please don't let serious social and personaliy flaws permeate this thread. We're all here to make money, so let's see if we can learn something from one another and each gain valuable information that will help us with our trading individually. No bickering or posturing or all that dumb $hyte. Sometimes I think this site is frequented by novices, big mouths, and stupid teenagers. The name of the site begins to look more and more like an oxymoron. Obviously on occasion I read great posts by true professionals and others who know how to post in a rationale manner such that they can prolong a valuable thread and squeeze all of the money out of it.

    The culmination of my research and what I've taken from all of these reports I have looked at is that the 6 commodities i the title of this thread are probably the best long plays for the next 5 to 10 years (based on current conditions and resultant future probabilities. conditions are constntly changing, obviously). In my next post I will state why I think so, but what I'd love to hear is why you think I'm wrong about one of these markets so we can flesh it out.

    Why am I doing this? I am a few years outta school and finally have $25,000 in ACTUAL RISK CAPITAL that I can afford to lose. (I lived a fast life after college.) My goal is to make as much as possible as quickly as possible. There are alot of diff markets out there, but it's obvious to me that the best place for me to make the most amount of money based on my capital size and risk tolerance is in commodity futures.

    For cynics who doubt my judgement - yes I have no trading experience. But I'm not talking about trading techniques here. I'm talking about a fundamental/technical view on a market direction.

    Would love to hear views on:

    Short (1 year), mid, and long term (3 year) market outlooks on each product in the thread title. Please dont criticize the 3 year long term thing - Trying to "educated guess" market direction and behavior past 3 years is futile because of the exponential increase in the variability of random events. The same reason why long dated options are traded OTC by large institutions with massive amounts of capital and listed options aren't priced out past a few years - there's just too much risk.

    None of this "fibonacci gann elliot wave optimized backtesting selective chart highlighting" bs either please. Plain english, straightforward sensical money-making discussion please. we're all grown-ups right?

    oil, gold, corn, sugar, cotton, soy

    Thoughts? =)
     
  2. >>While at the bank I took advantage of their resources and read tons and tons of credible and very expensive private bank, investment bank, academic, and hedge fund research on "proprietary investment products" in general.>>

    Why don't you share with us your insights?
    :cool:
     
  3. Will soon. In my post I said "AS far as finance, that's all I care about" What I meant was all I care about using my finance knowledge for is making money. Not learning how to structure, engineer, or philosphize on esoteris stuff that won't move the decimal in my bank account. I have a variety of interests outside of trading - don't want to mislead anyone or misrepresent myself.
     
  4. (1) Go Buckeyes! Congratulations on graduating from OSU. (2) With corn, soybeans and cotton, you're wasting your time with having a time horizon longer than one year. Too much changes from one growing season to the next. (3) Oil, gold & sugar are correlated too much. The three should trend up and down together. Each of the three have probably maxed out their bullish potential too. (4) Stop wasting time with your BS-institutional research and develop trading rules that you'll be able to follow & execute. You'll have to avoid the perfectionism trap that over-educated people tend to fall into and start trading your money. Afterall, you've made it clear that making money is your sole objective in life, not being bogged down in doing "research".
     
  5. Don't apologize for account size. You have one foot towards defeat when you have this kind of attitude. It will spill over into, and cause a losing mentality.
     
  6. $25K is a little light...since you may (you will) suffer a severe drawdown and someday have to cover a black swan event.....i.e. margin call that you will need immmediate overnite cash to cover

    IMHO you really need to be aware of all tools technical since many players are driven by them...

    I would save your $25K and start with $100K and be able to meet a $50K margin call overnite....

    if you trade with scared money, the odds are stacked heavily against you....and to have a chance at it, you will need to devote nearly full time to it...

    dont be drawn in by the futures traders snob appeal.....you will get killed

    as for a long play in gold, sounds like a winner since the US will have to print more money to subsidize our ridiculous lifestyle...but it's just an opinion of course
     
  7. I graduated from Wharton



    Quote from nazzdack:(2) With corn, soybeans and cotton, you're wasting your time with having a time horizon longer than one year. Too much changes from one growing season to the next.

    Consider that one of my points was that the emerging market growth in Brazil, China and India (2.6 Bn people) will lead to a "shift in the aggregate demand curve" for these countries and the goods that they will consume and produce. Since these 3 countries are a surprisingly large % of the global population (2.6/6.5 = 15%) their impact on demand will outpace supplies of basic goods such as cotton (fabrics, etc), corn (ethanol, fodder for livestock, etc), wheat (lowest ending stock in 25 years, decrease in production forecast), sugar, coffee and rice are similar stories with demand set to outpace existing supply levels, soybeans are a stretch and may not belong in the group. And let's not even get into the main drivers of these two agricultural commodity classes (grains and softs) - restrictive gov policies, impact of China joining WTO accelerating liberalization of its economy and coming surge in imports, increase in adverse weather patterns i.e. hurricanes, droughts, floods (Mid Atlantic flood! Who could have predicted that? The beginning of a growing trend), potential for increase in crop disease as a result of globalization and travel/trade and transfer of alien seeds/crops etc... the list goes on.



    Quote from nazzdack:(3) Oil, gold & sugar are correlated too much. The three should trend up and down together.

    Each of the three have probably maxed out their bullish potential too.


    So what if they trend up and down together? I'm not a portfolio manager at T. Rowe Price who needs to DIVERSIFY risk, I'm a trader/short term investor who needs to MANAGE risk.

    "Maxed out bullish potential?" For oil, gold, and sugar??? With global inflation a possibility and supply shocks pressuring the upside due to peak oil theory/reality/hysteria.
    Fortunately (for me), I think I take a little bit more into account and assume a "minimum body of knowledge" while you... well I don't know - but i did pickup on your inadvertent suspicion that I have no idea what I'm talking about, you shouldn't assume that everyone is like you. Try some critical thinking and analysis rather than "read, watch, repeat". Don't mean to waste time on a personal attack, but I don't think we look at finance from a similar perspective at all. I think we interpret market fundamentals and financial theory differently, so we might as well not argue about who's right, but about what we think is going to happen in the markets we're talking about?



    Quote from nazzdack: (4) Stop wasting time with your BS-institutional research and develop trading rules that you'll be able to follow & execute.

    You'll have to avoid the perfectionism trap that over-educated people tend to fall into and start trading your money.

    Afterall, you've made it clear that making money is your sole objective in life, not being bogged down in doing "research".


    Why can't I read research while I develop my trading rules? institutional Research is the most expensive research available and it's used by large INSTITUTIONS and FUNDS to determine their strategy. Research and fundamentals for the strategy, trading rules for the tactics sounds like a sensible approach wouldn't you say? The largest money managers in the world would agree, isn't that the "smart money"? Aren't those the guys that move markets? And by that I mean entire countries (sensex, DAX) Gee, if you beat them to the punch, you're in from the beginning. Factor in leverage and scaling and I'm sure you get the picture.

    Thanks for the tip on avoiding perfectionism, since I'm so over-educated - me and my bachelors degree.

    You're wrong. Making money is not my sole objective in life, just in the markets. In life, my goal is to devote myself to my family and close friends in order to ensure their happiness while contributing something valuable or useful to mankind and my community, all the while living to the fullest with no regrets. How can you make money if you don't do any research? In this thread I'm speaking about potential futures investments I may make on the side with 1 to 20 day holding periods. However I will have a job daytrading equities - less research but eve so I still have to do SOME research.

    I'm not sure what your angle was on all of this. I often see this happen to others, but haven't been involved until now and it makes sense why it ends up the way it does... You didn't address the issues at all, you only addressed issues related directly to myself and my personality. You questioned my education level and dismissed my arguments recklessly. What do YOU think about the questions I asked? What's YOUR view on these markets over the next 1 - 3 years?

    More and more I'm convinced that those unable to think dynamically fail in the marketplace because they can't synthesize large amounts of random information and data points that may or may not be correlated and fluctuate within a varying range of probabilities and event cascades. Creativity perhaps? I'm not referring to mathematical genius, just comfortability with broad-based thinking and macro-behavior. I ramble.

    Any views on gold, oil, corn, sugar, rice, wheat, etc? Why will these markets NOT produce large opportunities for long profits?
    Any links to any websites that contain valuable information rarely utilized by the average (a.k.a unprofitable) retail and semi-pro trader? Try www.rgemonitor.com :
    - Nouriel Roubini's Investment consultancy to independent researchers, corporates, and large institutions and reference organizations (university library, etc). Roubini is a Nobel prize winning economist and a professor at Stern. The site has THOUSANDS of links to various papers and articles found both in the financial press and written by academics/speculators or proprietary research written for institutional clients. HUNDREDS of these papers and articles are added everyday and cover global macroecon, geopolitics, emerging markets, world markets, development policy, etc. In addition Roubini and Setser have blogs that they write every 2 - 4 days about current topics. These blogs are free, but access to all of the other services on the site (many more) like the articles costs an arm and a leg. I don't know how much, but I'm going to find out soon. The alternative is to use their "free 2-week trial" offer which is basically a hook in disguise. Once they give you access to all of this info, you may justif spending hundreds of dollars to get a subscription. I know I am. I am NOT selling their services. You'll understand what I mean...

    Rated best economic website in the world by NPR. Forbes said they're at the "forefront of financial knowledge". I've been using the site for 2 months now and I agree. It's taught me what I actually can't teach myself and don't have the patience to learn by completing a PhD program and a few summers at a macro hedge fund.

    too long post i will get to oil and gold too - i think this happened because of intermittent "cigaring" and a lazy sat. afternoon...
     
  8. contango

    contango

    In the markets you mention fundamentals are clearly important but I think the max. time horizon for any clear fundamental analysis is about a year.

    With energies for example, the BRIC countries will move to alternative fuels as quickly, if not quicker, than the US. I think crude oil has a ceiling price now because traders know what the crack spread margin is relative to ethanol etc.

    I'm more bullish on the ag's you mention long term because of energy crops making big inroads but these are so hard to predict from planting season to planting season. Also, the weather cannot be predicted too far in advance although you could hedge with weather derivatives. I'm not convinced that cotton is a long term bull. There again, there are better alternatives. What if hemp were legalised for biodiesel? Hemp used to be the cotton of the 1800's before Dow had it banned, at least I think that's how the legend goes...

    Gold and silver theoretically have the best potential. I think recently the world has re-awakened to gold as an alternative to the USD and next to property, gold is probably considered the "safest" long term investment now. Production can only decline from here and production costs can only get more expensive i.e. you have to dig deeper and in more places now to get the same gold as you could 5 years ago. Simple supply and demand will assert themselves in gold and silver in a few years time.

    With all these commodities you need to ride the cycles and that's why I think reading Gann (yes, even the astronomical cycle stuff) is really enlightening. Also, Chick Goslin of www.intelligentfuturestrading.com has some really sound and practical methods. No BS, just catch the cycle and ride it. Good luck.
     
  9. bntrader.............

    all the wonderful information in your post is good stuff if you're a buy and hold guy....

    for a trader, your time horizon should be about a week or two, and with a $25K account, you're not likely to be able to ride out volatility long enough to find out if you're right or wrong.....
     
  10. Assume I am long term bullish based on a 1 year time horizon and will enter 1 to 20-day long/short positions based on setups. Also assume I have a basic grasp of money management, position-sizing and volatility and the intent to use these rules. I don't understand why a 25k account isnt enogh to start trading futures. I'm not talking about trading tens of contracts here. The goal is to be exposed and be watching these markets so that when conditions hint at a shock or lare move, you are well positioned to enter BEFORE that initial influx of capital from the institutions.

    What distinguishes these commodities from others like copper and silver is that the fundamentals in agriculture are all pointing towards demand outpacing supply on a sustained basis with upside risks outweighing downside risks, with the key being that the price levels dont reflect this view. the increase in demand hasn't been priced in yet wait till the next liquidity bull rush, right now copper, silver and all of the volatile commodities seem to be capped out, equities may rally again soon, but the forthcoming global slowdown is slowly being accepted and will soon start to price into equities. Notice how the rally after the fed announcement lasted for 1 afternoon? Too much resistance, soon support will start to erode. Where will all of the capital get its return? It's going to start testing market waters and if it likes the water in undervalued agriculutral commodities facing sustained upward pressure then, ladies and gentleman, you have the potential for more irrational exuberance and piling on.

    just my opinion based on what the really rich, really smart guys are saying. You should listen to those guys. =)
     
    #10     Jul 1, 2006