I have not been this excited about trades since
http://americanenergycrisis.blogspot.com/2008/11/searching-for-the-perfect-bottom.html
This time however for relatively bearish reasons. I think the big money will be made on the macro picture, however I do not think the Prechters of the world will get their wish. Every moron bear out there is modeling the USA collapse to that of Japan. Since the end of the gold backed currencies, we have had 100 or so Hyperinflations and 1 Deflation. So all their observations are based on a statistical pool size of 1. Having spent so many years in science, I cannot emphasize how retarded that observation is.
Even those basing their observations on Japan conveniently forget certain relevant facts. For example what was the average P/E of Japanese Stock market over the last 2 decades? When you look that up you will realize that in ZIRP environment stocks can trade at much higher ratios than the 5-6 people are calling for, for a very long time.
Second, What valuations did USA housing have compared to Japan at the peak? Japan's housing bubble was much much worse.
And finally for a few who say that Gold rises during deflation.... what happened to Gold during the only Fiat currency era deflation, in that currency?Answer: It declined by over 60%.
I have put on trades that will net 50X in case I am right about certain macro themes over the next 2 years and I have also moved to a slight net short position overall. As usual I use short term calls and puts to further reduce the volatility in my portfolio. I have had a very uneasy feeling about Silver and that has led me to sell calls against my (ZSILUS) position.
15 comments:
Could you be a little more specific? I'm guessing maybe nat gas?
No it is not NG. I cannot reveal it.Not on this one. The position is very thinly traded and I need to establish all my positions first. I have some and I have not decided whether I would like a lot more or not. I really do not want competition in that contract (often I am the only one bidding).
Are nat gas producers ever going to cut back?
They have no choice. The cash from the hedges put in at $12 is now used up. The mean break even is about $5.75. It should go up soon.
I still own only the 2013 and 2014 futures so I can be patient.
About to make my first futures contract purchase. Have been looking at corn. With nat gas this low it is tempting but have heard nat gas is called the widowmaker don't know about making that my first trade.
Dont get leveraged.
Dont buy the front end.
Use the small contracts QM for entry.
Sorry I meant QG.
Qm is for Light sweet crude
Thanks for the advice. Already had a little lesson in leverage and it was quite expensive! I will probably fund each contract with half the full value of the contract. looking at corn or soybeans a year or more out. However the april 11 nat gas looks interesting.
Mad are you still on the inflation side?
CM,
We have not had any significant price deflation, we have had some asset deflation in USA.
I maintain that for now TOTAL GLOBAL MONEY SUPPLY and even MS plus credit is still expanding and never contracted even in the crisis.
That said, simultaneous bursting of property bubbles in China, Australia and a few more countries could actually make even this figure contract.
Mad Ihave felt for a while that oil is far more valuable as a transportation fuel than fot home heating. Of course it can take quite a bit of time to switch to nat gas. However a switch to electric can be immediate. What do you think the oil price would have to be to make this happen?
CM,
Heating oil, propane and residual fuel are small components of our overall yearly oil consumption.
The switch to electricity can be made but it relatively ineffective in extreme cols temperatures where you really need NG or heating oil.
A wwitch to NG may be more likely IMO.
With the oil to gas ratio at around 20 it seems like any industry that could benefit from changing to gas would have already done so but demand hasn't indicated that they have and gas has been low for a while. It would seem at these prices gas to liqiuds plants, trucking companies switching to nat gas fueled trucks would be worth it.yet it is not happening.why?
Maybe our free market system is broken. maybe noone will do anything anymore without a gov subsidy or guarantee.
There is an infrastructure cost issue and then there is payback period.
Think of Geothermal energy.
Hard to find anything wrong with it. Green, clean, efficient and definitely cheaper in the long run compared to anything else.
Yet very few invest in the infrastructure because of the moderately long wait for it to start paying back.
Collectively we are all quite short sighted.
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