HardAssetsInvestor.com's Brad Zigler has an awesome piece this week about the word "volatility" and how it is often misconstrued in the capital markets today. Many people avoid commodities because they feel that they are "way too volatile." This entry into his daily column puts a little bit of science behind unraveling that myth, even in the light of the recent downturn in the commodity market at large. Great piece, I recommend you read it if you are questioning yourself as a trader in virtually any market. It truly puts a good perspective on risk and the relativity of it all.
Brad Zigler's 'Tale of Two Volatilities'
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2 comments:
Thanks for posting that link to the site. I'm late to the commodities arena, chasing growth when the stock markets are looking so bearish, like so many others. This recent downturn took me by surprise, just when I'd doubled some exposure in commodities after my initial, small, efforts in early February, after doing plenty of reading and taking more notice when the chartists were expounding the growth of metals, natural gas and softs on Bloomberg.
I've had to tell myself, over and over again, the bull run won't end just to financially disadvantage YOU, so don't realize the loss and look back again in a month or so. I'm not leveraged, just bought a few ETFs, so overall I'm only down a couple of % and commodities can't go down to zero can they. In fact after going down a bit they'll probably go up a bit, so that'll be the time to add some more exposure, no? I'm toying with buying a silver etf or gold-related stocks if gold bottoms at around $750-800. When interest rates start to rise in the US apparently everything changes though. Talking of interest rates, the Yield curve looks to have gone parabolic. What does this mean for commodities?
All IMVeryHO.
No problem, I aim to please! I'll try and tackle the issues here one at time.. So,
1) Is is a good time to add to a commodities position? I am a firm believer that now is a great time. As far as I can see (and many of those wiser and considerably wealthier around me) the vast majority of this downturn was due to liquidation of assets by hedge funds to make margin calls. This is a synthetic downturn largely not based in fundamentals. Therefore, value investors and institutional investors are going to start creeping back into this space, and I think you should too. Be smart, always place limit orders, and place stops on the downside too.
2) Where to be. Check out the ETF with the ticker DBA. It is a soft agricultural ETF that focuses on Corn, soybeans and wheat primarily and this is where the market has been seeing the most growth (and recent contraction too). It's trading just below 40 right now and I would not be surprised to see it hit 50 by year end. I think right now it's a better play than all of this gold and silver stuff, it has been over-hyped in the lay media and press. Bottom line, if you read about it in the New York Times, you're too late.
3) Yield curve. I gotta say, I could tell you all about bonds and equities responding to various patterns in the yield curve, but to date, I have limited practical experience with yield curves of this anticipated shape in the commodities market. For now, my primary concern with rates would be how they affect institutional ability to borrow cash to invest. If you can draw a straight line to liquidity then you're doing well.
Hope this helps, glad you're reading!
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