Elgrey's  Instablog

Elgrey
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Expat finance professional living and working in Hong Kong.
  • My January-14 Strategy 0 comments
    Jan 1, 2014 10:28 PM

    OK, let us start 2014 with the following trade ideas:

    Wheat, Rice, Oats - these three commodities show strong historical tendency to decline in January. Wheat has been a loser for last few months and I do not expect it to recover any time soon. At the same time I do not expect it to drop too much either as it has taken much damage already. OK, there is no such thing as rock bottom but funds short wheat aggressively for last two months so most of the damage has been already caused. Rice market has been down for last couple of weeks already so the trend is on the move. How long will it last? I do not know and I do not have big heart to short this market because of its small size and high volatility. Same applies to oats - although market is overbought I want to wait a bit longer before deciding if I want to jump in.

    Cattle and Hogs - these markets tend to show positive returns in January. However I notice that funds accumulated a substantial long position in live cattle already and this may be a sign of coming bloodshed for unaware bulls. For hogs I am not convinced that historical trend can be applied this year either - recent decline in prices is not finished, funds still have lots of hogs they may want to sell in their portfolios. Recent Hogs and Pigs report shows a slight decline in inventories, 1% in almost every category but I do not think this can revive bullishness and we may see further decline in hog prices.

    Copper - January is seasonally good for copper. I think this is linked with new year optimism. There is plenty of good data coming from almost every source but somehow I do not believe it. We know that governments have not shown how they want to solve state debt and deficit issues and we may have new Greece any moment just like we had Cyprus. it is not me being a stubborn contrarian, it is me holding longs in copper in 2013 when Cyprus happened.

    Palladium - buying palladium during last days of December and selling it in the end of January or early February worked almost every year during last 30 years. In fact this is one of the strongest commodity cycles I have seen. I am long palladium.

    I like to listen to what people like Jim Rogers, Marc Faber, Nouriel Roubini say. Couple of years ago all of them mentioned that 2013 and 2014 would difficult years as major problems of huge debt and underregulated financial markets were not addressed. 2013 was a year of new highs for Dow Jones but I cannot recall any big movement in unemployment rates. Situation improved marginally. At the same time new highs of stock market could be just another bubble caused by free cash flowing from QE3 and tapering of QE3 may blow this bubble and expose same old issues - too much debt, too much money flowing into speculation, too little attention to real sector. Someone also said that booms in commodity markets are caused by booms in economy. This is obvious - if the World needs more oil and copper than more players will come to these markets. But I read articles about outflows from commodity funds. More than that - even big banks are selling or downsizing commodity trading units. This is not a rosy situation. So I'd rather keep my "bear mode" on.

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