Crude Drops Below $70 As Selloff Steepens

This is an excerpt from an article originally published August 27, 2009 in the Wall Street Journal:

Losses deepened in crude oil futures prices early Thursday as the dollar rebounded and U.S. stock prices declined.

At 10:16 a.m. EDT, light, sweet crude oil for October delivery on New York Mercantile Exchange was down $1.47 at $69.96 a barrel, its lowest intraday level since Aug. 19.

Crude oil futures have been under heavy pressure after failing to break above $75 a barrel - the highest level since October - on Tuesday.

The contract moved in a range of $69.83 to $71.68 a barrel since Wednesday's settlement. Crude futures haven't settled below $70 since Aug. 18.

For the full article please go to Crude Drops Below $70 As Selloff Steepens

Investing in the stock market, diversifying asset classes

When looking at a chart of the Dow Jones Index prior to Reagan's second term, spanning the years from 1928 through 1984, it is clear that the stock market goes up over time. However, investing in the stock market over that time was anything but a sure thing. In fact, the only time during that entire period when an investor could safely invest in the index and hold it for a decade resulting in the realization of a worth-while profit was between 1945 and 1955. At any other entry time, the investor had better have a fairly savy exit strategy or be willing to hold their investment for thirty years if they want to make the risk worth their while. Even for those investors insightful or lucky enough to buy at the low on strong down moves, it does not seem to guarantee a worth-while return within a decade without intelligent exit strategies, exemplified in 1970.

So, how can someone effectively invest without getting caught within the complexity of determining entry and exit points?

Well, let's juxtapose a continuous soybean chart with the stock market.


During the period from 1964 through 1984, while the stock market was going sideways, poor entries and exits would double an investment in soybeans. Obviously, this is ignoring some of the ins and outs of commodity trading such as switch orders to roll contracts and other such details the general investor would need to learn. But, as an asset class, the point is still valid. With intelligent diversifaction, lulls in investment returns within the Dow Jones Index can be muted.

For better or worse - Risk aversion, lack of confidence, undermine economy

I have heard that the worst is over, but I am not convinced. The magnitude of risk aversion which directs the "prudent minds" to maintain cash holdings, liquidate assets, and position their fate in fiat currency is officially as irrational as buying stocks in 1998, leveraging your stock gains to buy a home you can't afford, and then taking loans collateralized against inflated house prices to cover the lost income from your failing mutual fund.

If you want your dollar to go up, build up the American worker and employment base. Otherwise, the dollar may be bouncing strong against the Euro but it will be hammered against gold. This means that, as it has always been, money must be spent for money to be made. Costs can only be cut so deep before you kill the patient. The economy is a living, breathing, organism because it is made up of living, breathing, organisms.

The degree of risk aversion and lack of confidence in our economy, and around the world, is our greatest crisis. Now, to be clear, I am not suggesting that anyone should ignore risk analysis or falsify their internal confidence checks. There are certain truths that hold true, enabling us to build confidence, invest money, and avoid risk. (1) Family and friends. Help out your family and friends, because everyone is stressed. If you have a job, help family and friends find one too. It will cost you less than paying for them, and build every one's confidence at the same time. (2) Greed will make you a target. Nobody likes greedy people, but everyone knows they have something worth taking. (3) Patience pays off faster and greater than frustration, speedy actions, and/or hustling. Business people, and people in general, trust patience. Patient people have clarity, and are respectful.

I guess this post was more of an editorial than I thought it would be, but it is still my contention that fear resulting from an over-emphasis on risk aversion due to a lack of confidence is the most major challenge our economy faces.

Initial jobless claims decrease, but unemployment still growing...

Initial jobless claims decreased from 663,000 in the week ending April 4th to 610,000 in the week ending April 11th. This is still not quite a strong sign for the economy. The national unemployment rate is still growing from its already very high rate of 8.5%. Areas like Michigan are even doing worse with unemployment rates of over 12%. Within the United States there are over 6 million unemployed workers, which is the highest total in the nation's history.

What's a dollar worth?

If I were to go by my gut, it feels like a dollar is worth more than ever. At least, everyone I know is having a really tough time getting their hands on any dollars. The traders who watch the markets closely have seen some strength in the dollar index but it still hasn't made a convincing seperation from its low last year. It is still almost 30% of its high in 2002.

So, where are we going? Speculation is none existent, futures markets are down but strong, equities are down but their promise is not forgotten, and cash is the only thing people want but it's still not worth what it was. Unemployment is up, and so is government spending. It is wacky. It is so dissapointing, because we just elected the most liberal government in the history of our country, but I think the US needs an old fashioned kick in the ass from the folks on the farm. I hope commodity prices go through the roof, and the government stops spending money. I think we'll find out what a dollar is really worth when the populus can't afford bread.

Arx Global Holdings - Chicago

In the world of managed futures a very organized and talented company has emerged, Arx Global Holdings. I have met the principals, and have been very impressed.

"Arx Global Holdings is a multi-faceted financial services firm created to serve the evolving needs of alternative investment managers. Arx's mission is to transparently consolidate commodity futures brokerage, fund administration and cash management into a signal seamless brokerage experience."

The concept is simple, intuitive, and invaluable to fund managers and large institutional money alike. It stabilizes the investment process by dealing with the aspects of fund management that the purer traders hate, and the part that those traders really don't have the time to focus on. Trading techniques are becoming incredibly sophisticated, so the amount of time that fund managers can worry about dissembling their position, managing their un-used cash, or overseeing the reporting is limited. The solutions that Arx Global Holdings provides reduce these problems greatly, and increase the fund managers performance and transparency.

Arx Global Holdings, LLC

Trading Articles - Willis Trading Group

I was looking over the website of the formerly independent Willis Trading Group, Inc. (now leading the commodities group at Mesirow Financial) and found great links back to articles from the previous boom in commodities 30 years ago. It is amazing to look back at these articles and read the thoughts of how some of the best traders in managed futures approached the business. Although the business has evolved, some of these documents like "The Big Hitters" are fascinating reads beacuse they are truly lessons in where the business of trading has come from.

The articles span several decades which is also fantastic. When read together, they provide a tremendous insight into something that particularly interests me... the move to electronic trading, and a global market perspective. The global market perspective is something that is a very recent development, in the sense that traders are truly global in execution and mindset. These articles provide a strong sense of how the great traders have followed the market and the business to a more sophisticated global agenda.

Any person serious about futures, trading, or business should take a look and spend some time reading these articles.

Articles, Willis Trading Group, Inc.