Category Archives: Market trends

Asset management, Commodity price, Commodity risk, Hedging, Market trends, Oil market, Risk management, Trading, Trend following, Uncategorized

How we navigated the oil price roller coaster

Extreme price events are far and away the greatest source of external risk facing oil and gas producers and other energy-dependent companies. Frequency and severity of such events has been increasing dramatically since about 2005/2006 causing ocasionally severe pain for many industry participants.

Case in point was the 70% oil price collapse through 2014 and 2015, from over $100 to below $30 per barrel. In the aftermath of this decline, U.S. mining industry – which includes oil and gas producers – reported losses of $227 billion, wiping out eight previous years’ worth of profits as the following chart shows: Continue reading →

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Asset management, Commodity price, Commodity risk, Hedging, Market trends, Risk management, Trading, Trend following

Trading COMEX Copper with I-System technology

The price of Copper has been trending significantly higher since the start of 2016. However, this trend has not been easy to trade using traditional trend following strategies.

HG_PriceCurveFm2015_2018_Framed

This last event (D) was quite painful for most – if not all – trend followers, as the following chart illustrates:  Continue reading →

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Asset management, Commodity price, Commodity risk, Economics, Inflation, Market trends, Risk management

Labor tightness adds fuel to rising inflation in the U.S. economy

Toward the end of 2012, Elliott Management’s Paul Singer made a speech at the Archstone Partnership annual meeting. He stated that, “The thing that scares me the most is significant inflation, which could destroy our society.” About a year later in an interview with Wall Street Journal’s “Heard on the Street” program he explained that this could come about with small changes in perception of inflation risk: “The first whiffs of either commodity inflation or wage inflation … may cause a self-reinforcing set of market events … which may include a sharp fall in bond prices, … fall in stock prices, rapid increase in commodities…” Continue reading →

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Asset management, Economics, Inflation, Market research, Market trends, Policy, Stock market

Parabolic markets may signify onset of high inflation

Asset price inflation might signal debasement of the currency and acceleration of commodity price inflation

This time it may well be different… For several years now, numerous high-profile commentators and analysts have been forecasting an imminent stock market correction, or indeed a crash, evoking the events of 1929, 1987, 2000 or 2008. Of course, many are now predicting it is sure to happen in 2018. If not, perhaps in 2019 or maybe 2020? Who knows… But so far, not many analysts – if any, apart from yours truly – have considered the possibility that this rally might extend even higher from today’s dizzying heights. In an October 2016 post I suggested that this is exactly what was ahead. Continue reading →

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Asset management, Behavioral finance, Commodity price, Commodity risk, Market psychology, Market trends, Psychology, Risk management, Trading, Trend following

Lessons in asset valuation: the great warrants bubble of China

Investors exert a great deal of intellectual effort to determine the correct valuation of securities. Economic value is central to our decision making and it plays a major role in our intuitive psyche. In daily life, when we buy a loaf of bread or a tank of gasoline, we tend to have a good idea about what we think is cheap and what’s expensive. We like bargains, don’t enjoy being ripped off, and in the same way we’re inclined to shop for value as consumers, we find value investing intuitively appealing. But here’s the critical difference between buying goods and investing: shopping for investments is speculative while buying stuff isn’t, and speculation activates the part of our mental circuitry that can heat up to a boiling point and overwhelm any rational consideration of value. Continue reading →

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Asset management, Behavioral finance, Bitcoin, Commodity price, Market psychology, Market trends, Psychology, Risk management, Trading, Trend following

Of Bitcoins and bubbles

In my book, “Mastering Uncertainty in Commodities Trading” I argued that security prices “are driven by human psychology and its self-stoking collective action that can sustain major trends spanning many years.” That’s because in speculative decision making, our views about the actions of others can entirely override our rational appraisal of the underlying asset value.

The most recent example of this is the price of Bitcoin that has surged from below $400 in January last year to $4,300 this week. When we set up the Altana Digital Currency Fund several years ago, many people thought that digital currencies were just a strange fad and investors continued to show little interest in them – until very recently. Continue reading →

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Asset management, Behavioral finance, Commodity risk, Complexity, Hedging, Market psychology, Market research, Market trends, Psychology, Risk management, Something completely different, Trading, Trend following, Uncategorized

Speculation in the natural world

Nature has … some sort of arithmetical-geometrical coordinate system, because nature has all kinds of models. What we experience of nature is in models, and all of nature’s models are so beautiful. – R. Buckminster Fuller

Nature’s survival strategies that bear the most similarities to activities of market speculators are those of predators. To live, predators must hunt and this activity includes elements of speculation. Like trading, predation requires knowledge, skills, judgment and decision-making. It also entails risk and uncertainty. A predator can’t be sure where her next meal is coming from. Each hunt is an investment of resources; it involves the risk of injury and loss of energy expended in failed hunts, which tend to be more frequent than successful ones. To survive and procreate, predators must consistently generate a positive return on this investment. Too much of a losing streak could turn out to be fatal. In his book, “The Serengeti Lion: A Study of Predator-Prey Relations” George B. Schaller painstakingly documented the details of hundreds of hunts by large cats in the Serengeti National Park in Tanzania. We have all seen wildlife television programs showing lions and cheetahs hunting, but Schaller’s work offers a much richer account of the life of predatory cats including their hunting behavior.

The anatomy of a hunt Continue reading →

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Commodity price, Hedging, Market trends, Trading, Trend following

On effective trend following strategies

A question frequently arises among trend followers on the nature of effective trading strategies. The old school of thought holds that strategies should be simple, ultra robust and effective across markets and time frames. I happen to disagree so here I share a hard-won piece of knowledge that should help settle this question. Continue reading →

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Central banking, Commodity price, Economics, Inflation, Market trends, Monetary reform, Stock market

Stock markets might not crash. Investors might still lose big.

Our future is being shaped by an unprecedented monetary experiment run by our central bank mandarins, but a happy ending is a mathematical impossibility. The economic imbalances that resulted in the last, 2008 financial crisis are now much worse and we are facing two possible routes of their resolution. One is a full-blown deflationary depression that could see asset prices drop by 50% or more. The other is a strong and sustained decline in the US Dollar (and other major currencies) with an accelerating commodity price inflation that might span a full decade.

Central banks’ overt commitment to supporting asset prices at all costs suggests that the second scenario may be more probable. In this case, a major stock-market crash could be averted; instead, we could see a significant and sustained rise in equity markets, as was the case most recently during the Zimbabwean and Venezuelan inflations, as well as the Argentinian, Brazilian, Israeli and German inflations before that. Below is the chart showing the appreciation of Israel All Share index during the country’s inflationary crisis in the 1980s: Continue reading →

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Asset management, Economics, Market research, Market trends, Stock market, Trend following

The crucial importance of trends

In Berkshire Hathaway annual report (1985), Warren Buffett wrote the following:

When a management with reputation for brilliance tackles a business with reputation for poor fundamental economics, it is the reputation of the business that stays intact. [1]

My wife and I recently spent some time in Egypt. For a few days we sailed up the Nile from Luxor to Aswan on a cruise ship that counted nearly 70 crew members serving the total of five guests. The manager of the vessel was Mr. Khaled, an impeccably polite and always well dressed man in his 40s who, in spite of running a nearly empty ship managed to keep the crew’s morale high and ran the ship’s operations admirably well. Unfortunately, even if Mr. Khaled were the world’s best cruise ship manager, this particular situation was a good illustration of what Warren Buffet was talking about in his 1985 annual report. Continue reading →

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