Essential by benbenzhou

VIEWS: 2 PAGES: 8

									                                                   COMMODITIES
                                                                    Essential
Correlation Tables, p2
More like non-correlation tables lately; only a few notables ...
Futures Forecast, p2
No changes from last week. See hyperlinks for technical analysis.
Main Article, p3thru8
News and reaction.

Notable commodity and market news regarding crude oil, metals, agriculture, and China ... and
my reaction:

Trade Essentials, p8
Adjusting stop-loss on BOM.


Portfolio, p8
BOM still moving in our favor; make or break for DTO here with crude oil at $90 ...




                                         14 September 2011
                                               ******
                                                                                                                                                                                    2


Correlation Tables
Last 34 Days:
                       Metals                      Grains                     Softs                Energy           Currency            Fixed Income            Equities
              Gold      Silver Copper     Corn Soybeans Wheat        Sugar Cotton Coffee Crude Nat Gas Aussie          Euro    Yen    US 10-YR   US 30-YR   S&P 500 Shanghai
      Gold     1.000     0.500   -0.562    0.608    0.064    0.284    0.368    0.484    0.672   -0.333   -0.519 -0.251 -0.280 0.169      0.766      0.773    -0.619    -0.709 Gold
     Silver    0.500     1.000   -0.023    0.649    0.395    0.568    0.264    0.291    0.664   -0.106   -0.346 0.052 -0.286 -0.109      0.350      0.395    -0.143    -0.464 Silver
   Copper     -0.562    -0.023    1.000   -0.237    0.256   -0.049   -0.306   -0.060   -0.261    0.457    0.468 0.269 0.010 -0.432      -0.632     -0.602     0.657     0.545 Copper
      Corn     0.608     0.649   -0.237    1.000    0.384    0.693    0.367    0.503    0.909   -0.126   -0.525 0.014 -0.398 0.163       0.656      0.687    -0.259    -0.654 Corn
 Soybeans      0.064     0.395    0.256    0.384    1.000    0.211   -0.130    0.153    0.302    0.328    0.094 0.231 -0.493 -0.331     -0.016      0.062     0.172    -0.185 Soybeans
    Wheat      0.284     0.568   -0.049    0.693    0.211    1.000    0.443    0.126    0.696   -0.143   -0.346 0.256 0.162 0.209        0.339      0.336    -0.153    -0.338 Wheat
     Sugar     0.368     0.264   -0.306    0.367   -0.130    0.443    1.000    0.374    0.527    0.128   -0.147 0.344 0.111 0.347        0.197      0.208    -0.145    -0.124 Sugar
    Cotton     0.484     0.291   -0.060    0.503    0.153    0.126    0.374    1.000    0.641    0.307   -0.270 0.050 -0.577 -0.066      0.442      0.495     0.018    -0.386 Cotton
    Coffee     0.672     0.664   -0.261    0.909    0.302    0.696    0.527    0.641    1.000   -0.035   -0.501 0.133 -0.328 0.104       0.677      0.699    -0.255    -0.606 Coffee
     Crude    -0.333    -0.106    0.457   -0.126    0.328   -0.143    0.128    0.307   -0.035    1.000    0.663 0.695 -0.201 -0.178     -0.586     -0.557     0.766     0.524 Crude
   Nat Gas    -0.519    -0.346    0.468   -0.525    0.094   -0.346   -0.147   -0.270   -0.501    0.663    1.000 0.488 0.080 -0.071      -0.737     -0.749     0.598     0.626 Nat Gas
    Aussie    -0.251     0.052    0.269    0.014    0.231    0.256    0.344    0.050    0.133    0.695    0.488 1.000 0.312 0.120       -0.465     -0.481     0.656     0.509 Aussie
      Euro    -0.280    -0.286    0.010   -0.398   -0.493    0.162    0.111   -0.577   -0.328   -0.201    0.080 0.312 1.000 0.327       -0.319     -0.406     0.061     0.495 Euro
       Yen     0.169    -0.109   -0.432    0.163   -0.331    0.209    0.347   -0.066    0.104   -0.178   -0.071 0.120 0.327 1.000        0.272      0.212    -0.295    -0.186 Yen
 US 10-YR      0.766     0.350   -0.632    0.656   -0.016    0.339    0.197    0.442    0.677   -0.586   -0.737 -0.465 -0.319 0.272      1.000      0.987    -0.747    -0.856 US 10-YR
 US 30-YR      0.773     0.395   -0.602    0.687    0.062    0.336    0.208    0.495    0.699   -0.557   -0.749 -0.481 -0.406 0.212      0.987      1.000    -0.735    -0.900 US 30-YR
  S&P 500     -0.619    -0.143    0.657   -0.259    0.172   -0.153   -0.145    0.018   -0.255    0.766    0.598 0.656 0.061 -0.295      -0.747     -0.735     1.000     0.738 S&P 500
 Shanghai     -0.709    -0.464    0.545   -0.654   -0.185   -0.338   -0.124   -0.386   -0.606    0.524    0.626 0.509 0.495 -0.186      -0.856     -0.900     0.738     1.000 Shanghai
              Gold      Silver Copper     Corn Soybeans Wheat        Sugar Cotton Coffee Crude Nat Gas Aussie          Euro    Yen    US 10-YR   US 30-YR   S&P 500 Shanghai
                       Metals                      Grains                     Softs                Energy           Currency            Fixed Income            Equities


Correlation Notes:

There is a positive 90% correlation between
corn and coffee. Not sure what that means                                                        Commodity Futures 3-Month Forecast
unless coffee beans can now supplement corn
as a new biofuel or pig feed.                                                                                            Last Price              Direction            Target      ΔT
                                                                                                         Gold               1825.1                  Flat              1800
There is also a negative 90% correlation                                                                Silver              4117.5                  Flat              4100          
between 30-yr bonds and the Shanghai stock                                                             Copper               394.25                 Short               380          
market. This is a relatively typical risk appetite                                                       Corn               706.5                   Flat               725
correlation (stocks = risk, bonds = safety).                                                         Soybeans              1381.25                  Flat              1390          
What seems more notable is the lack of tight                                                           Wheat                688.75                  Flat               720
correlations. I boldface all the correlations                                                        Crude Oil              89.85                  Short               80           
greater than 75% or less than -75%. You can                                                        Natural Gas              3.992                   Flat                4           
see there is not much bold over the last 34                                                      Click on the hyperlink to view the audio/visual chart analysis.
days. My guess is that traders and investors                                                     Bold denotes change from last week.
have little conviction one way or the other
about the global economic future and the
potential supply and effect of QE3.




Black Swan Capital's advisory products are strictly informational publications and do not provide personalized or individualized
investment or trading advice. Commodity futures and forex trading involves substantial risk of loss and may not be suitable for
you. The money you allocate to ETFs, futures or forex trading should be money that you can afford to lose.
                                                                                                                               3


News and reaction.
Notable commodity and market news ... and my reaction:

Crude oil

The International Energy Agency dropped its 2011 full-year estimates of crude oil demand by
140,000 barrels per day.

While they have yet to make any concessions on whether or not they will decrease their 2012
forecasts, it seems that there are plenty of risks to global growth that could require further
decreases on their part. Should conditions warrant a revision to 2012 estimates, you can bet
crude oil prices will fall, or will have already fallen, lower in stride.

Recent big rig trucking data (a gauge measuring diesel fuel usage) in the US is signaling an
August characterized by very sluggish growth.

         Based on the July and August data, the PCI will likely decline in the third quarter and
         suggests GDP growth of zero to 1.0 percent. While many may interpret this as evidence
         of an impending recession, we experienced similarly sluggish PCI and GDP growth in the
         aftermath of the 2001 recession, highlighted in the figure below with an ellipse. During
         that time, the economy didn’t really get moving until a wave of new home ownership
         rose. Best therefore to consider a slow-growth alternative to a recession — stumbling
         forward, waiting to get the energy to run again, but not falling down. This could go on
         for some time.

         Weakness in the PCI over the previous months called for a 0.0 percent change in the July
         Industrial Production — the initial release of 0.9 percent was stronger, although subject to
         revisions. The August PCI weakness suggests a 0.26 percent decline in Industrial Production
         when it’s released on September 15.




Black Swan Capital's advisory products are strictly informational publications and do not provide personalized or individualized
investment or trading advice. Commodity futures and forex trading involves substantial risk of loss and may not be suitable for
you. The money you allocate to ETFs, futures or forex trading should be money that you can afford to lose.
                                                                                                                               4




Confirmation of a stagnant August will likely come when new industrial production numbers are
released this Thursday.

Metals

Investment in Brazil’s mining sector is surging as demand for metals grows.

I’ve got a geologist friend who recently took a job out in Nevada with Barrick Gold Corp. I think I
already mentioned his concern that gold might perhaps be in a bubble and his new project
could be in jeopardy if prices crash. I told him I thought gold still had some legs. But it
depended very much on how fast and for how long it kept running.

Clearly, though, it has made sense to funnel money into mining projects as metals have, for the
most part, remained relatively pricey. Case in point:

         Brazil's vast and diversified mining sector has grown rapidly in the last decade, and
         Ibram believes the value of the 2011 mining output is likely to reach $50 billion. If that
         forecast is achieved, it would mark a leap of more than 25 percent from 2010's $39
         billion total. Penna said the higher forecast was based on a combination of larger
         production volumes and higher prices.




Black Swan Capital's advisory products are strictly informational publications and do not provide personalized or individualized
investment or trading advice. Commodity futures and forex trading involves substantial risk of loss and may not be suitable for
you. The money you allocate to ETFs, futures or forex trading should be money that you can afford to lose.
                                                                                                                               5




A couple things are clear:

    1) Investors inside and outside of Brazil believe that Brazil can continue to grow its
       economy and therefore successfully bring on new, affordable metals output.

    2) Investors believe the demand for metals will remain supported by global demand which
       will be lead primarily by Asia.

Indeed. China is Brazil’s largest trading partner. Iron Ore and copper has a lot to do with that.
From China Daily:

         With more than 19 billion tons in proven reserves of high density iron ore, Brazil is the w
         orld'slargest provider of this valuable commodity. Iron ore has also traditionally been Br
         azil's largestexport to China, contributing more than 22 percent of aggregate total by th
         e end of 2010.

         In fact "Brazil could move four or five places up the world's largest economy rankings in
         a shorttime due to our mineral wealth, in particular due to our reserves of iron ore", sai
         d Minister forMines and Energy Edison Lobo.

         The Brazilian company Vale is the world's largest iron ore producer. Its figures showsust
         ainable and increasing demand for the product and Brazil's other mineral resources.



Black Swan Capital's advisory products are strictly informational publications and do not provide personalized or individualized
investment or trading advice. Commodity futures and forex trading involves substantial risk of loss and may not be suitable for
you. The money you allocate to ETFs, futures or forex trading should be money that you can afford to lose.
                                                                                                                               6

         Vale's second quarter earnings this year increased more than 70 percent over the same
         periodin 2010 mainly due to growing Chinese demand.

         China's five-year plan for 2011-
         2015 is set to drive the need for commodities including iron ore,copper and coal even fu
         rther - and Brazilian companies are equipped to supply their needs.

         The housing plan for China to construct 36 million units and the resulting urbanization w
         ill alsofuel even greater demands.

Brazil seems to feel confident about sustained Chinese demand. But if they are banking on
housing development projects in China, they may want to be careful in the short-term ... since
they are probably ensconced by the long-term Utopian scenario of explosive Chinese growth.

Grains & Agriculture

There is growing pressure being applied by the World Development Movement to futures
market speculation on agriculture contracts. It is claimed that speculation now dominates these
futures contracts and regulation is needed to fix this market.

It is hard to deny the increased speculation in commodities markets in recent years. The
creation of myriad exchange-traded products highlights this demand for investment avenues in
food and commodities. The recent rise in food prices is unsettling for those seeking social
justice for third-world countries and emerging markets.

Perhaps some form of regulation is due, but this is not the complete answer.

Some research will likely reveal that there are plenty of other barriers to affordable food in
third-world countries; this will not change by putting the screws to investment banking activity
in the futures market. And it might not even change if these barriers are clearly identified, as
the quality of life has remained abysmal in certain areas for decades upon decades.

But, as the Federal Reserve began to implement QE2 they were faced with much resistance that
said they were directly contributing to the speculation driving food prices higher. Ben Bernanke
tried to defend his action by explaining that food inflation was transitory. We shall see.

Food prices will likely come down with a sustained slowdown in global growth. But until that
happens, it may be hard for the Federal Reserve to implement any new quantitative easing as
investors seem willing to bet on the financial economy rather than the struggling real economy
when the Fed opens the money spigot. If this pressure on speculation gains traction, figure it
will only seep into expectations on future Federal Reserve activity.

The outlook for food futures will depend firstly on QE3 expectations.

Black Swan Capital's advisory products are strictly informational publications and do not provide personalized or individualized
investment or trading advice. Commodity futures and forex trading involves substantial risk of loss and may not be suitable for
you. The money you allocate to ETFs, futures or forex trading should be money that you can afford to lose.
                                                                                                                               7

China

Chinese banks continue to struggle with debt after employing heavy lending aimed at stabilizing
its economy. Fitch Ratings suggested it may come to a point where they downgrade China’s
credit rating.

From Fitch:

         "We expect a material deterioration in bank asset quality," he said. "If the problems in
         the banking system pan out as we expect or are even worse over the next 12 to 24
         months, then that would incline us to take the rating downwards."

Besides the Fitch comments, this is old news. But for the most part, it doesn’t appear that
markets have adjusted for it. We continue to hear that inflation is the number one concern in
China. We have suggested a focus on inflation will hamper growth notably. Thus far that fear of
lower growth has not resonated to any meaningful degree. But it might still.

August inflation came in at 6.2%. That is high, but it is slightly off the previous months’
numbers. Many analysts expect inflation has peaked or will peak very soon. One year ago they
were saying the same thing. But it has been identified that there is a large amount of off-
balance sheet lending happening in China that is keeping the tightening measures from having a
full impact on price increases.

What’s more, the composition of China’s consumer price index is questionable. Specifically, the
size of China and the wide discrepancy in Chinese urban and rural consumption makes the data
somewhat incomplete.

And there’s this from Reuters:

         Savers, who are robbed by rising prices, are giving a strong signal. They have flocked to
         real estate and high-yielding wealth products to beat the measly 3.5 percent mandated
         one-year deposit rate. That makes inflation harder to fight, since money pushed into
         informal lending channels isn't affected by monetary policy tools like bank credit quotas.
         Allowing deposit to be set by the market would draw more back into the banks. But the
         fear of eroding banks' margins seems to stand in the way of what would be a potent
         anti-inflation tool.

The takeaway here is that inflation may prove more elusive to policymakers than meets the
eye; and it may prove more detrimental to growth than currently expected. Though it may take
a bit longer still before the credit markets bring the economy crashing down.




Black Swan Capital's advisory products are strictly informational publications and do not provide personalized or individualized
investment or trading advice. Commodity futures and forex trading involves substantial risk of loss and may not be suitable for
you. The money you allocate to ETFs, futures or forex trading should be money that you can afford to lose.
                                                                                                                               8


Trade Essentials.
We have a nice open gain in BOM. I think copper and base metals have further downside
ahead. But let’s adjust the stop-loss on this position in the event risk appetite changes
dramatically.

BOM (Last price: $12.23)

         CANCEL and REPLACE your order to SELL ALL your shares of PowerShares DB Double
         Short Base Metals ETN, symbol BOM, at $10.53, STOP. New Price: $11.40, STOP; this
         order is good till cancelled.



Portfolio
  Position                Date          Ticker    Direction    Entry    Stop    Last     Target    Return    Notes
  DB Double Short BM      8/31/2011     BOM       Long         11.19    10.53   12.39    15        10.72%
  DB Double Short Oil     9/1/2011      DTO       Long         59.88    54.75   59.2     85        -1.14%

Click on the hyperlink to view the audio/visual chart analysis. Bold denotes change.

    BOM is still moving in our direction. I think it makes sense to tighten up the stop-loss on this
     position, as mentioned in the ‘Trade Essentials’ above.

    DTO keeps making a break but then coming right back. I am rather disappointed that crude oil
     has not been able to follow-through on its downside moves. That said, crude oil is making its
     third test of the $90 per barrel level ... perhaps clearing out some stops before finally moving
     lower. While there remains some correlation between crude oil and the stock market, crude has
     not rolled over to the same degree. And because this move has yet to materialize, I don’t plan to
     give our position in DTO much more time to play out; stay tuned for a stop-loss adjustment or
     exit recommendation.



             JR Crooks
             www.blackswantrading.com




Black Swan Capital's advisory products are strictly informational publications and do not provide personalized or individualized
investment or trading advice. Commodity futures and forex trading involves substantial risk of loss and may not be suitable for
you. The money you allocate to ETFs, futures or forex trading should be money that you can afford to lose.

								
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