Update

Well, I totally bailed on this blog. I suk. I think you'll understand why after learning what has transpired since mid-2008 (in case you haven't already guessed):
- I didn't sell, and oil, natural gas, etc. all collapsed. I got crushed in the process, massive losses, wiping out most of our savings.
- I was particularly bummed when I had a margin call - like my 10th - and I decided to sell my S&P short instead of one or two oil or natural gas longs. I figured, "Eh, I'll get back into it in a couple months." Then a couple weeks later, before I went short again, the bottom fell out of the market. Would have made a killing (although still probably not enough to break even).

Where am I now?
- I still hold one long, a June 2013 natural gas future. Lost a bundle on it, but I figure NG is as low as it can go.
- For oil, I switched to options. Paying a massive time premium, and I can't trade way out in the future, but at least I won't get demolished.
- Everything else is gone, like dust in the wind.

Looking back, what should i have done differently?
- Obviously, I should have sold when things were high, either while I thought they were still going up, or after they obviously were crashing. But how would I have known? Here are some of my thoughts:
1. I needed an independent advisor's thoughts. I think anyone who understood futures well would have told me to get the hell out, and restructure my portfolio. I was looking for someone to advise me, but work just happened to be crushingly busy at that time, so I didn't go out of my way.
2. Before buying, have a target price for selling, both on the high side and the low side, or at least a plan what to do when it hits a certain point (e.g. do a calendar spread, or buy/write options).
3. Have a larger life/financial plan. This one is hard, but if had a firm vision for what this was, I may have sold in time when it looked like we were getting close to a financial milestone (e.g. enough to put 25% down on a house, although that's not one I would do obviously).
4. Watch falling knives. I tried to catch a falling knife when I bought a gasoline long as it was collapasing, very stupid. I also held my oil and natural gas as it was collapsing. I should have just let go of that knife and let it drop to the ground.

Others?

update on my trading

down to monthly updates - no es bueno, pero es mejor de nada, si?

What's going on in my little peanut brain:
- I pulled the trigger and bought another gasoline (RB) contract. Trying to grab the falling knife - We'll see how well I did in a few months. So far I'm down about $2k, which i'd say is a negligible amount. I'm thinking if I get up at least $10k and I see it drop let's say three straight days, I'll sell it - Although I'll possibly keep my other gasoline contract.
- Lost a shitload of money in the past 3 weeks. A shitload. A giant load of shit.
- Natural gas is looking tasty, as is gasoline. as is gold. I'd say oil too but I have a lot of that, already too leveraged (although it's all highly correlated, isn't it?). I'm thinking I may do 4-5 month call options, since I'll kick myself in the arse if the stuff goes up big-time in the next few weeks.

What does the portfolio look like? Here 'tis:

Description	Qty
CRUDE OIL DEC 2015	2
CRUDE OIL DEC 2016	2
EURO FX JUN 2009	2
NATURAL GAS JUN 2013	1
NATURAL GAS DEC 2013	2
RBOB GASOLINE DEC 2008	1
RBOB GASOLINE DEC 2009	1
S&P 500 INDEX SEP 2009	-1

What's not here is the fact that I have a bunch of GLD. I just like it, it feels good - kinda like a warm hot cocoa on a cold day. I think I'm going to buy call options on it. Also that I bought some DBA (that agricultural commodity ETF that I've written about). I like that one, but am too afraid to trade agricultures (or any softs) myself. Just seems too risky, plus they're definitely tied to oil (aren't we all?)

Holy shit - I just realized I have only a couple months left til expiration on my gasoline contract! I better pay attention....

Sequence of events

Another thing folks ask me about is, "When will it end?" or "When will the market crash happens?" Well, I don't know the whens about all these things, but I would take a guess about the general sequence.

First, the easy ones:
1. (Continued) rise in oil and commodity prices, with increasing price volatility.
2. (Continued) fall in the value of the dollar / increase in inflation. This is true both from a relative sense (ie. vs. other currencies), and an absolute one (ie. price changes regardless of other currencies)
3. (Continued) rise in U.S. national debt, including government debt
4. (Continued) U.S. housing collapse

Next, a little more of a stretch:
5. A significant rise in alternative vehicles, especially electric vehicles, with major advances in battery technology and affordability
6. A significant rise in renewable electricity
7. Current countries who are oil exporters significantly reduce exports
8. Current oil-producing countries reduce their oil extraction to extend the life of their wells.
9. Mexico and its currency plummet alongside Cantarell's production levels (ie. short the mexican peso & the mexican economy)
10. The oil market becomes even more of a bidding war
11. All transportation costs rise an order of magnitude from current levels.
12. China lets the yuan fully float and stops supporting/buying U.S. dollars

A little later down the road:
- Current oil exporters stop exporting
- Temporary gasoline (and propane, and kerosene, etc) shortages in the US, eventually turning more and more frequent
- Major job losses in the U.S. and world economy - massive unemployment
- Lapses in public services, including firefighters, police officers, hospitals, garbage, etc.
- A lot of suburbs and/or exburbs turning to slums
- Electric vehicles outnumbering gasoline vehicles
- Noticeable global population decreases, esp. in countries where there are current food shortages
- Increase in interest in supporting domestic railway system (although ??? re: funding)

(hopefully) way down the road:
- U.S. and China directly conflict, air & land war
- Massive poverty & significant starvation within the U.S.
- Virtual halt of international travel (let's call it a 95%+ decrease from current levels)
- Massive global population reduction from current levels
- Significant decrease in obesity and related deaths in the U.S.

have a nice day

TK

latest update

boy i'm not keeping up on this at all... OK, where are we at today:

Description	Qty
CRUDE OIL DEC 2015	2
CRUDE OIL DEC 2016	2
EURO FX JUN 2009	2
NATURAL GAS JUN 2013	1
NATURAL GAS DEC 2013	2
S&P 500 INDEX SEP 2009	-1
RBOB GASOLINE DEC 2009	1

Looks like all I've done compared to last time is buy one gasoline contract. I did that on June 20th, made about $5k on it though with the recent rise in crude.

Here's what I'm currently thinking:
- I'm feeling I've missed at least part of the boat ride on other (esp. food) commodities. I bought DBA (a powershares commodity) and have done well on it, but I haven't gone whole hog into food like I should have.
- I think most food commodities will be valuable. I'd like to figure out which ones have the highest way to go. However, that seems like gambling, whereas buying a commodity ETF or mutual fund seems like a safer way to go.
- Despite gasoline's rise, I'm thinking about buying another one. There's just one way to go for gasoline. I just re-read stephen leeb's little mental exercise in gasoline vs. oil: In a nutshell, he shows how as oil rises, the price impact of oil on gasoline will rise. This is important because peak oil would suggest higher volatility in oil, thus impacting gasoline in an ever-increasing way. In addition, I think gasoline may not fall as much as oil in the downsides of prices bouncing around. Just a feeling...
- Speaking about buying more - natural gas. That has gone up to be sure, but that market is messed up. More and more I think there are traders out there who are taking calendar spreads, long in the near-term, short in the far-term. I see this because of the increasing spread between near-term and far-term prices in that market. Those guys have to cash in and leave those short positions eventually, and it will have a disproportionate impact because those far-term futures are traded so thinly. Buying opportunity when that happens. Overall prices would have to tank to lose money here.
- I'm toying with the idea of selling most if not all of my position in GLD (an ETF that buys gold bullion) and buying futures. But unlike oil, natural gas, & gasoline, the gold market is in permanent contango (far-term is more expensive than near-term), so I'm thinking to heck with it and staying put.
- Industrial metals seem tantalizing though. I recently purchased some palladium stock based on the recommendation of a seeking alpha blogger, Mark Anthony. I might go the next step and buy a commodity ETF in industrial metals.
- Speaking of commodity ETFs, I'm pretty leery about them given my experience with USO. But I've looked into them and most have seemed to performed admirably. I'm really thinking about ETNs, which promise to stick to the benchmarks. The problem with ETNs though is if the writer/underwriter of those ETNs goes belly up, they won't pay them off. ETFs will pay off in the event the financial institution goes belly up because they are secured by actual securities (ie. the futures).

Lastly, people who know I've been trading futures ask me what to invest in. Can't promise anything, but here's what I'd say:
- Oil. Sure you've missed part of the ride, but it's still going to go up. Buy a little USO at least. Use dollar cost averaging if you like. When you have enough, sell all your USO and buy one far-term future.
- Natural gas - same thing.
- Gasoline. This is such an obvious hedge for americans it's ridiculous, yet no one I know is doing this. You may not ever directly consume 42,000 gallons of gasoline in your car (although many will consume more than that). But if you count all the gas used in imports, busses, fire engines, police cars, army trucks, and all the other things you pay for that directly consume gasoline, then it will be far more than 42,000 gallons.
- Food commodities. It's high, sure, but this is also a hedge.
- Metal commodities. Same thing.
- Gold if you don't have GLD already. Do this one sooner rather than later, as gold is near or at the floor right now. It'll be over $1000/oz again within 12 months.

Here's the idea!

OK, it's finally become clear what needs to happen. But first a precursor:

Recall that at one point I was pimping an ETF called "USO." It's whole thing was that it was going to track the price of oil by going long on crude oil futures. Sounded awesome, so I bought in.

But after watching it, I notices how miserably it failed at its mission. To give you an idea, review my comment (and the corresponding article in seeking alpha) re: DBO (which is basically a carbon copy of USO).

It finally occurred to me - here's what I can do! I can start an ETF where I actually buy and store oil! This is what the GLD ETF does - buys and holds gold bullion. It's behaved quite nicely vs. its benchmark. Gold is of course easier to store, but really - how expensive can it be to store a few thousand barrels of oil in rural Oklahoma? If anyone happens to know - give me a holler!

But just for fun, let's see if I can figure it out:
- It'll obviously be in rural Oklahoma, where CL futures on WTI settle. I'm thinking that'll be something like $5k per month for the facility. Maybe another $5k for storage, $5k for settlement, and $5k for insurance and what-not. That's $20k/month, or $250k/year.
- Let's say this was for 100,000 barrels of oil, costing $12million, that means expenses would be 2% per year. that's not including my cut. Hmm.. that's pretty steep. Still way better than USO and DBO, but still...

Oil & natural gas - recent run up

As I'm sure yall are aware, oil is way up - so is natural gas, although not at historical highs like oil is.

From my perspective, I took it as an opportunity to reduce/adjust my exposure to oil, selling on of my Dec 2015 longs.

I've also purchased a euro (and immediately lost money on it). here's the current positions:

Description	Qty	Cost Basis	Price
CRUDE OIL DEC 2015	2	100.65	107.49
CRUDE OIL DEC 2016	2	92.12	108.08
EURO FX JUN 2009	2	1.5438	1.5335
NATURAL GAS JUN 2013	1	7.889	8.869
NATURAL GAS DEC 2013	2	8.935	9.694
S&P 500 INDEX SEP 2009	-1	1325.2	1414.2

I have to say I'm still awfully comfortable with the allocation. It's much easier to be comfortable when you're up, but still it's nice to be comfy :)

Holdin' steady

Looks like I've done pretty much what I thought I'd do since my last post - Isn't that grand, that I can hold steady on a strategy for a whole 11 days?

Oil has gone up a fair bit - My 2015's and 2016's are going for over $104 each. Unfortunately, I sold one of my 2015's for $99.60, so I made a little bit on that one, basically breaking even.

04/09/2008

Sell To Close

1

CLZ15

Crude Oil DEC 2015

99.60

This was part of the plan, as I was a little uncomfortable holding 5 longs. But obviously I would rather have the $5k I would have earned by selling it today instead of last week :)


At this point, I'm holding:
4 long term oil contracts - going for about $104.65
3 long term natural gas contracts (one in june 2013, 2 in dec 2013)
1 long on euro (June 2009)
1 short on S&P (sept 2009)

Natural gas is a very interesting one. Short term natural gas has gone way up, but long-term has gone down. It makes me think there are a bunch of gamblers out there who are spread investing, ie. shorting the long-term and going long in the short-term. They're making money now on it, but they're going to have to eventually close out those long-term contracts. For the long-term investor like myself, I think right now is a great time to buy long-term natural gas. I'm even thinking about buying one of these myself.

Also, lost almost $10k today on my S&P short since it went up almost 30+ points today. But I'm not sad, since again our 401k and what-not rose to offset. It's pretty much doing just what I'd hoped to do. In fact, this short and the long euro are basically my most comfortable investments out of our entire portfolio.

Margin Call

Well, got my first margin call. How scary indeed. Here's what happened:

As per the previous post, you'll note that the account value went up sharply and then back down. After that (around the end of March), the stock market started to go up. This is good for most, but bad for my futures account since I'm shorting the S&P. To give you an idea, each point is worth $250, so when the S&P moved from 1275 to 1375, in the last 2 weeks of March, that's a $25,000 drop. Ouch.

Couple this with a drop in oil. Not an uber big drop, but a decent sized one. It's because I still have 5 contracts in oil, representing 1,000 barrels each. Thus, the $5ish dollar fall was another $25,000.

Those two together = a margin call!

For those unaware, margin is a little different for futures than it is for stocks. In futures, you basically only buy stuff on the margin. In fact, the amount of $$ you put in is more of a down payment on what you're promising to do (ie. the future itself).

When the value of you futures has fallen, then your effective down payment shrinks, just as it effectively goes up when the value of your futures rise. If the overall value falls low enough, then the brokerage / exchanges says, "hey you don't have very much down - we need more cash asap or we're going to start closing out your positions." That's a margin call.

The funny thing is that they didn't give me a specific dollar amount. I suggested $10k, and they said, "OK." Problem was I had to scramble to get them their cash. Fortunately, Amelia wasn't working that morning and was able to buzz over to the bank to wire them some cash.

The thing is though, you really have to ask yourself if you're doing the right thing here, since the overall value of those futures can go back up, or they could continue to fall. Pretty scary.

But after I was able to get a grip, it made perfect sense to put more $$ in the account. First of all, a big chunk of it was the S&P short, which is a hedge against our 401k and the like. So it behaved perfectly, since our 401k and IRA and what-not went up during that period of time.

From the oil perspective, obviously I wish I wouldn't have bought those three Dec 2015 contracts at around $100/barrel when I could have gotten it for less than $95. But I still think $100/barrel will be very cheap in the not too distant future.

After seeing how much this oil market is bouncing up and down, I'm thinking that I'm going to try to "trade" a contract or two. That is, if it seems like the market is over-exuberant, I'll move down to 3 contracts, which will be my "long-term" state. If it seems like prices are too low, I'll add to make it 5 contracts. That last one is the risky one of course, so since I'm at 5 right now, I'll gamble a bit and sell one when prices rebound. We'll see. My worry is that this feels a little too much like gambling, and this is an awful lot of $$ to gamble with.

fun times

sorry forgot to post this - Recent transactions:

03/17/2008	Buy To Open	1	CLZ15	Crude Oil DEC 2015	100.30
03/17/2008	Buy To Open	1	NGZ11	Natural Gas DEC 2011	9.410
03/20/2008	Sell To Close	1	NGZ11	Natural Gas DEC 2011	8.760

Notice that I bought a contract, and turned around and sold it 3 days later for a hefty loss (about $6500). But I'm getting ahead of myself - here's the real story:

So I've been investing in this new thing called futures (see previous post) - and, holy shit - I'm making money hand over fist. Made like $65k or something crazy. right away too, within weeks.

Then, I decide to press my luck (see transactions above). Then everything comes crashing down, and all of the sudden I've lost all of my winnings and I'm nearing a margin call (ie. I have to put up more $$ or they'll force me to close out a position or two). So I sell one - the one I just bought a few days ago.

Turns out the past few weeks has been a roller coaster by any measure. I was reading about all the unprecedented rise and then more about his unprecedented fall in oil and natural gas and what-not. panic buying and selling is what they called it.

Needless to say, last week was quite a welcome into the futures trading market. It was fun going up, not so fun going down. Thankfully I didn't lose my shirt.

I know at this point that I'm too heavily leveraged, but I can't seem to get myself to close out some positions to reduce my risk. Here is what the current holdings are:

Description	Qty	Cost Basis	Price
CRUDE OIL DEC 2015	3	99.85	97.74
CRUDE OIL DEC 2016	2	92.12	98.2
EURO FX JUN 2009	1	1.5275	1.5259
NATURAL GAS JUN 2013	1	7.889	8.596
NATURAL GAS DEC 2013	2	8.935	8.941
S&P 500 INDEX SEP 2009	-1	1325.2	1354.4

what do you say - roll the dice and keep these holdings? Or play it safe and cash out a bunch of these?

Game on

OK, devoted readers. I'm back!

I've been pretty down over the past little while and didn't have anything to say... Until now!

Lately, I've been a'buyin (and a'sellin) futures. I've learned that commodities & futures are where it's at, baby. In a nutshell, I'm convinced that we're in a commodity cycle, we've been in one for a while, and we'll continue to be in one for a while. Some call it a "super cycle" - I could care less about what "they" say though. Basically with India and China exploding at the same time energy is peaking, everyone is going to be going after stuff - not stock.

On top of that, every single signal about the US economy points toward inflation and/or bad things. This includes the Fed's hiding of the M3 money supply, Bernanke's willingness to lower rates at a moment's notice, the Fed explicitly saying "liquidity is fine" for Bear Stearns 4 days before its collapse, or the insane debt culture most recently epitomized by this ludicrous "stimulus rebate" that's coming up here in a few months.

I could go on, but I won't - So here's the game plan:

I'm giving up on trying to figure a way out of this mess, and I'm going to focus on investing with the hope that we have a few years. I'll lay out each of my buys and sells of futures, and some blah blah blah about why I did whatever - or whatever I feel like.

So here's where I'm at so far:

DATE Quantity Price Item
Jan 30 Long - 1 91.24 Crude Oil - Dec 2016 (CLZ16)
Jan 31 Long - 1 7.889 Natural Gas - Jun 2013 (NGM13)
Feb 15 Long - 1 8.919 Natural Gas - Dec 2013 (NGZ13)
Feb 15 Long - 1 93.10 Crude Oil - Dec 2016 (CLZ16)
Feb 21 Long - 1 8.950 Natural Gas - Dec 2013 (NGZ13)
Mar 04 Short -1 1325.20 S&P 500 - Sep 2009 (SPU9)
Mar 10 Long - 1 98.25 Crude Oil - Dec 2015 (CLZ15)
Mar 12 Long - 1 101.00 Crude Oil - Dec 2015 (CLZ15)
Mar 14 Long - 1 1.5275 Euro - Jun 2009 (ECM9)


And here's what I'm thinking right now:
- I'd really like to hedge better against global inflation. Oil is good, but gold would be great. It's way up though, and I already have a bunch of gold in ETFs and mutual funds. Even so, I could get out of the ETFs and what-not and have a lot less cash tied up in gold, but still quite leveraged. Thus, I'm on the fence. But I'll be all over it if gold falls to 900 or so.
- Would like to buy some regular commodities as well. But I don't know jack about them, so I think I'll hold off until I feel a little smarter. Pork bellies and cattle (both feed and lean) seem like obvious buys. but what do i know.
- One thing I do know is that the US dollar ain't going up anytime soon. So I might as well get another Euro, or short the dollar, or something. It turns out that shorting the dollar is a the same as buying a basket of currencies, of which a little over half is the Euro. So the difference isn't that big of a difference.
- I'm thinking that the vast majority of players in this futures market are just short-term traders trying to make a quick buck, not long-term investors. In addition, I believe that longer term futures (such as the 2013 and 2015 ones I've bought) are relatively new. That is, normally, they only make futures a year or less out. Between these two, it seems like these longer-term futures are something of a new asset class, something that the academics haven't considered yet. don't know about all that, but oil is sure as hell going to cost a lot more in 5-10 years than it does now, that's for sure. And I'm willing to bet on it :)