The Scary Commodities this Halloween

Halloween is here once more, and everyone around the office is gearing up: carving pumpkins, buying candy for trick or treat-ers, and last minute runs to the store for costumes. To get everyone else in the mood, we found some Halloween like similarities in the futures markets we couldn’t help but share.

Costumes:

Last year, it was the US Dollar/Euro Currency Battle Signal that got us excited for Halloween (Who doesn’t love bat man?)… and now that Bat Signal has transformed into one of the most feared villains in the galaxy… Jabba the Hutt, of course.

USD EUR(Disclaimer: Past performance is not necessarily indicative of future results)

Jabba

A couple weeks ago we went in depth about the US Dollar having its best quarter in years , and how Managed Futures has historically benefited from it (past performance is not necessarily indicative of future results), but what else is out there on Halloween Eve?

Scary Vs:

We’re talking a shock to the system…. That Damned V Reversal. Here’s Why you should be Afraid of the V-Shaped Reversal

That Damned V(Disclaimer: Past performance is not necessarily indicative of future results)

V for Vendetta

Chocolate:

Everyone needs their fill of snickers, Milky Way, 3 musketeers on Halloween. But where that chocolate comes from has but the market in limbo the past couple of weeks. It appears, the Cocoa market decided to get nice and scary (volatile) just in time for the ghosts and goblins to come out. That’s just your basic up move of around 12% and -13.5% fall in about a month and a half… nothing to see here, move along.

Cocoa
(Disclaimer: Past performance is not necessarily indicative of future results)

Sugar: Super Scary

For those that don’t like Chocolate (see here), there’s the laffy taffies, the warheads, the sour patch kids… basically… Sugar…. And lots of it. The market jumped out it’s mountain trend to start the year and has been choppy ever since.

Sugar(Disclaimer: Past performance is not necessarily indicative of future results)

We don’t expect sugar prices to go up anytime soon just because of Halloween, but recent studies show that the brain has the same reaction of cocaine as to sugar, suggesting that there might never be low demand.

Sugar Cocaine

 

That’s enough to maybe sway one of two people to be long sugar for the couple of the next couple years (or maybe short depending if the government calls for harsher restrictions).

We’ll leave that explanation to the journalists who make you really step back and think about it.  Here’s John Oliver from  Last Week Tonight doing his best to explain Sugar.  Have a happy Halloween, and don’t have too much sugar.

Alternative Links: Q3 Numbers & Analysis

Performance:

Managed Futures Are Back In The Game – (Value Walk)

Pursuing Portfolio Perfection – (Attain’s Alternatives Blog)

Liquid Alts:

What is a Managed Futures Fund? – (Morning Star)

(Alternatives doesn’t mean Real Estate) Liquidity vs illiquidity of Alternatives – (Investment News)

Liquid alts that make hedge funds look cheap – (CTA Intelligence)

Futures & Miscellaneous:

The worst possible case for the worst possible idea, the gold standard – (Washington Post)

Regulation:

CME Group interested in buying Korea Exchange stake if shares for sale – (Reuters)

Large Speculators Build Bullish Gold Positions For Second Week In Latest CFTC Data – (Forbes)

Pursuing Portfolio Perfection

It’s 5 years into the one of the biggest stock market bull runs of all time, and all looks fine for the aging bull even after this brief downturn in October.  For many, this has been a great run and they’ve been doing quite well during it. For many others, it’s been rather annoying, as their “smart” choice of diversification has under performed recently.

But here’s the deal – it’s not about beating the S&P 500. You’re on the quest to find a portfolio that best matches your needs before retirement. For some, that’s so far in the future, you’re not worrying about volatility. For some, it’s within reach, and you want to protect what you have before something bad happens. For some, you’re looking for something in between the two. So what’s your “Perfect Portfolio?” It’s not an easy question to answer, and many pros have tried (check out Meb Faber’s impressive list of asset allocation strategies and stats here). The basic portfolios to consider in our mind are the following:

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Past, Present, and Future in 30 Year Bond Futures

While everyone was watching the US Stock market bounce +5% over the last 8 trading days, there were a few hours of sheer terror/excitement (depending on what side of the trade you were on) in the 30 year US Bond Futures market at 10:00 am hour on October 22nd. What? Say you… I don’t remember any big moves in bonds at that time. And if you were looking at the so called ‘front month’ contract, you would be correct.  The December 2014 bond futures traded in a range of 142-10 to 142-12 between 10 am and 1 pm last Wednesday, as you can see below.

But while all was calm in the front month, there was a huge move going on in the June 2015 back month contract. Wednesday was the first trading day for that contract, and it quickly jumped from 141 to 152, a percentage gain of 7%, with a volume of over 16,000+ contracts in just 2 hrs. Compare the two moves below:

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Interesting Reads of the Week

‘Humongous’ Treasury Future Surge Suggests Math Error – (Bloomberg)

CME Eyes London Gold Fixing – (Markets Media)

Business This Week – (The Economist)

Get Poor Quickly – (Millennial Invest)

Illinois Farmer: They Stole My Beans – (NBC News)

90 percent of Americans are poorer today than in 1987 – (RT)

Just for Fun:

NFL Week 8 Playoff Implications: If The Seahawks Lose, The NFC Gains – (Five Thirty Eight)

How Many Ebola Patients Have Been Treated Outside Africa? – (Ritholtz)

We Still Can’t Predict Earthquakes – (Five Thirty Eight)

J.K. Rowling to release new ‘Harry Potter’ story on Halloween – (NY Daily News)

How a Futures Trader Looks at Markets

If you’re already a Futures market guru, enjoy the rest of your day. Nothing to see here. But for those who might not consider themselves experts, here’s some insight into how a futures market trader, or really anyone who knows 1. There’s more than one “market” and 2. There’s more than one side to the “markets”;  looks at the markets.

First, we’ll go backwards a little bit and show you how professional traders don’t look at the market. Here’s how you’ll usually see a list of markets or other investments listed in the Wall street Journal or whatever financial source you’re used to…

Futures Market “Winners and “Losers” of 2014 YTD
(All data taken from Finviz. Performance as of 10/22/2014)

Futures Winners + LosersFutures Losers

At first glance, it appears that over half (62%) of the futures markets have negative performance on the year. Alternative investments operating in the futures markets must be getting crushed, or at least struggling, right?  Would it surprise you to know that Managed Futures is coming off of its best quarter since 2008. How can that be? Here’s one more look at the futures market performance numbers in chart format.

Up and Down Futures Charts

To a pro – this is a really weird way to look at the markets, even though they’ve trained their brains over the years to read these charts in their own manner. They understand that the majority of investors out there are likely long stocks, bonds and mutual funds; and in that world – if the price moves up, your investment in that item is making money, and if down, you’re losing money.  But for a professional trader – the concept of winning when the market rises and losing when it falls is an odd one. That happens from time to time, but they also know the feeling of winning when the market falls and losing when it rises.

So when a pro looks at how markets have done that day, or that year, or what have you – it’s completely dependent on whether they are holding that market long or short, and over what time frame. For a short term strategy, they may make or lose 15% in a year on a market that ends up the year up 0.50%.  For a longer term strategy doing typical trend following type stuff, it isn’t so much whether the market is up or down – but how much it is up or down.

For those in longer term systematic programs, like these, the YTD market chart looks something more like this:

What Market Performance Should Look Like(Disclaimer: Past performance is not necessarily indicative of future results)

.

For them – it’s about the absolute value of the move, not the direction of the move. Systematic guys are directionally agnostic (hey, that would be a great boat name). Their not betting on prices rising or falling, nor rising or falling a certain amount. They are betting on being able to ride a rise or a fall for a long enough time to offset (and some) any losses seen getting into false moves up and down.

Alternative Links: The Brothers that Cornered the Silver Market

He (almost) Cornered the Silver Market:

RIP: Nelson Bunker Hunt – (Crossing Wall Street)

Nelson Bunker Hunt, 88, Oil Tycoon With a Texas-Size Presence, Dies—(New York Times)

The Man Who Would Corner Silver – (Futures Magazine)

Trend Following:

Look Who Decided to Show Up to the Party… — (Meb Faber)

Diversification:

4 Year-end Portfolio Moves – (Huff Post Money)

Liquid Alts:

Market volatility gives liquid alts first real test – (Investment News)

Bloomberg mentions WDTI as stormy weather ETF – (Bloomberg)

Under the Hood: Wisdom  Trees Managed Futures ETF – (Attain’s Alternatives Blog)

Risk Adjusted Ratios:

Don’t Over Rely on Historical Data to Forecast Future Returns – (AAII)

LSE:

LSE to launch intra-day auction in 2015 – (Financial Times)