Asset Prime

Parag, The text you wrote was technically accurat...

2011-01-24T12:37:29.893-08:00

Parag,

The text you wrote was technically accurate, but it had nothing to do with the post in question and, in fact, was essentially a retread of other content on this site with a random link at the end to your own website.

I have no problem linking out if the link is relevant to the post at hand, but other than being broadly about commodities, your link was not.

If you disagree you're free to leave a reply, but I wanted to let you know that I marked your comment as spam for a reason.

Hi Stick, I don't have any sponsorship deals,...

2010-03-17T17:16:26.467-07:00

Hi Stick,

I don't have any sponsorship deals, so I'm not sure I follow you here. Where are those links showing up?

Thanks!

-Charles

Best to stay away from those "investmentU&quo...

2010-03-14T12:33:22.669-07:00

Best to stay away from those "investmentU" links. InvestmentU = Sleazy.

Hi emthree, Thanks for the comment, and you'r...

2010-03-07T23:01:04.143-08:00

Hi emthree,

Thanks for the comment, and you're right, there's some onus on me here insofar as I didn't really provide an explanation of how I suggest an investor invest in commodities.

However, the problem is not entirely the result of the roll yield. For example, you say "When we buy futures contracts for exposure to commodities, are we not facing the same issues as the commodity ETFs ? ".

The answer, surprisingly, is no, and this is what I wanted to address with my SECOND reason why Commodity ETFs are problematic. Take, specifically, the price of front-month natural gas, and that of UNG. The front month natural gas contract increased 59% in price from September 3rd to September 25th while UNG increased only 33% during the exact same period. The contracts rolled on the 28th that month, so no roll yield could have conceivably factored into this discrepancy.

The problem with commodity ETFs from an investor's point of view is twofold:
1) Investors think they're buying an investment that tracks the SPOT PRICE of the commodity. It does not.
2) The ETFs don't even do a great job tracking the front month, even accounting for the roll yield.

I seem to have generated some serious confusion here, so I'll write a bigger post explaining this in a day or so.

When we buy futures contracts for exposure to comm...

2010-03-06T19:24:00.978-08:00

When we buy futures contracts for exposure to commodities, are we not facing the same issues as the commodity ETFs ?

When a futures price curve is in contango, we are still paying a premium for the future months and that premium will erode if spot prices do not increase over the life of the contract.

Take Chicago Wheat, for example.
Spot May/2010 is 493'4. May/2011 is 582'0 - an 18% premium.

Besides that, there is no trading volume beyond Dec/2010. So, it will be hard even for smaller accounts to get orders filled more than 9 months forward.

Is it unrealistic to compare the performance of ETF to the 'spot' price of the underlying commodity because the spot price cannot be achieved even buy directly buying and rolling over futures ?

Interesting analysis Marc. I wonder how long such...

2010-02-16T20:53:07.208-08:00

Interesting analysis Marc. I wonder how long such a process change would take to implement?

Also, glad to hear it about the Posies. I actually dug some of their old albums out and was listening to them just last week.

One thing for certain is the barriers to entry wil...

2010-02-16T18:40:45.498-08:00

One thing for certain is the barriers to entry will increase along with the length of review before a new country will be admitted.

P.S I have heard some new stuff from The Posies, looks like they have been doing some touring as well. I heard a clip on NPR about them a few months ago and Ken Stringfellow converted his salary in euros into dollars, it was about $100,000.

Thanks Marc, As you probably guess I agree comple...

2010-02-08T03:06:47.110-08:00

Thanks Marc,

As you probably guess I agree completely. The trouble is, I don't know what the EU does to solve the problem. Re-isolating the economies would hurt them internally, but as long as they have their current structure, one country's problems become all of their problems.

Fascinating commentary Chuck. I am little surpris...

2010-02-05T19:52:21.049-08:00

Fascinating commentary Chuck. I am little surprised this is the first time in the euro's ten year history that is causing some to seriously question the viability of the euro. Combining a diverse array of European political and economic interests is a risky flaw.

Hi Lucy, The fact that your post doesn't seem...

2010-02-05T17:21:14.547-08:00

Hi Lucy,

The fact that your post doesn't seem to mention any specific topics of my blog leads me to believe that you are a robot spamming my blog with a link to your forex trading site (which I have not clicked on).

However, your comments seem cogent enough to imply that you, or whoever wrote your robot script, speaks decent English, and since it was a very complimentary post, polite, and seemingly well intentioned, and since your link seems to be at least partially related to investing, I'll go ahead and let it stand.

Thanks, I think.

-Charles

I recently came across your blog and have been rea...

2010-02-03T22:33:59.960-08:00

I recently came across your blog and have been reading along. I thought I would leave my first comment. I don't know what to say except that I have enjoyed reading. Nice blog. I will keep visiting this blog very often.

Lucy

http://forextradin-g.net

A few books, actually. The Complete Guide to I...

2010-01-24T17:31:12.386-08:00
A few books, actually.

The Complete Guide to Investing in Commodity Trading and Futures by Mary B. Holihan covers the basics of the market, but is not the best written and goes a little too into "technical" trading for my personal tastes.

Futures 101 by Richard Waldron is a great introduction to how futures contracts operate. It's a super quick read and is delightfully written, but it doesn't cover much of the drivers in the markets themselves. It really is a "this is exactly how a futures contract works" type of book and for someone who's invested in other types of market (stock, bond, etc.) it reads a little remedial, still, a fun book to blow throw on a weekend.

Hot Commodities by Jim Rogers. Rogers is a great investing/finance writer in my mind, and while this book reads a like an advertisement for commodities, it covers the basics of why commodities are so central to the economy in general.

If other folks out there have any suggestions for good books I'd love to hear them!

What was the book? Any good?

2010-01-22T20:35:05.044-08:00
What was the book? Any good?

Great point spragus. I actually suspected as much...

2010-01-20T13:40:08.544-08:00
Great point spragus. I actually suspected as much but didn't have the data on hand to verify. Do you have a link to where we might see such a plot?

Thanks for the input.

Curiously, comparing a price chart of crude oil ag...

2010-01-20T07:22:17.720-08:00
Curiously, comparing a price chart of crude oil against the net number of long/short contracts of the non commercial big specs, shows no correlation whatsoever. So, what's the fuss? Showing this evidence to a class of stats 101 students would leave them scratching their heads.
There are markets that do have positive correlations, but not here.
Perhaps the issue is that the composition of the large non commercials is incomplete? If this has some baring on the matter, why can't someone show it?

Those bastards!

2010-01-13T17:53:28.901-08:00
Those bastards!

Hey Eric, Thanks for the comment. I actually pla...

2010-01-11T12:14:07.870-08:00
Hey Eric,

Thanks for the comment. I actually played around with a non-linear correlations (squares, logs, etc.) and couldn't find one that was signifincantly better than pure linear. I mean, check out that graph, after all.

Though if you have some suggestions I'd love to know your thoughts.

Thanks!

woo stats. not to mention all the other really goo...

2010-01-10T23:01:19.297-08:00
woo stats. not to mention all the other really good reasons why the dollar will continue to erode... you could probably get an even better fit with a nonlinear regression. not that it would mean much more.