Posts Tagged 'commodities'

Oil in Big Macs: Chart of the Day

Source: Gregor.us

The idea for this comparison of Oil to Big Macs, is that a Big Mac is representative of a basket of agricultural goods and thus compares the relative advantage of trading food for oil.  Whats interesting about this is that theoretically, it should be a somewhat inflation-adjusted measure of oil prices.  As of now it appears agricultural goods is undervalued relative to Oil. 

Interesting to see how the plays out in a pairs trade?

Short Oil (USO  United States Oil Fund LP)

Long Agriculture (RJA  ELEMENTS – Rogers International Commodity Index Agriculture Total Return)

Daily “Ways-to-Play” The News Before the Moves 3/10/2010

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Morgan Stanley’s ROACH: THERE IS A 40% CHANCE OF A DOUBLE DIP

Stephen Roach, head of Morgan Stanley Asia, discusses the state of the consumer and the real unemployment rate at 11.5%. He discusses many of the items we highlighted in our headline article this morning. Roach is still very concerned about a double dip recession led by consumers and caused by an end to the government stimulus.

sell DJIA DIAMONDS (DIA)

buy iShares Lehman 20+ Year Treasury Bond Fund (TLT)

sell S&P 500 SPDR (SPY)

sell Nasdaq-100 Index Tracking Stock (QQQQ)

buy PIMCO 7-15 Year U.S. Treasury Index Fund (TENZ);

Check out how others are using ETFs to capitalize on this news or add your own opinion

Shorting US Treasuries could be a mistake

over the medium term – say the next several quarters, a reasonable investment horizon – there are reasons to expect the Treasury market to hold its own, and perhaps even surprise with lower yields.

buy iShares Lehman 20+ Year Treasury Bond Fund (TLT)

buy iShares Lehman 10-20 Year Treasury Bond Fund (TLH)

buy PIMCO 7-15 Year U.S. Treasury Index Fund (TENZ)

buy Long-Term Govmt Bond ETF (VGLT)

buy Inter-Term Govmt Bond ETF (VGIT);

Check out how others are using ETFs to capitalize on this news or add your own opinion

Public Pension Funds Are Adding Risk to Raise Returns

Government pension plans cannot beef up their bonds that mature many, many years from now without dashing their business models. They use long-range estimates that presume high investment returns will cover most of the cost of the benefits they must pay. And that, they say, allows them to make smaller contributions along the way.
Check out how others are using ETFs to capitalize on this news or add your own opinion

South Africa: back of the net – not

Hosting the 2010 FIFA Soccer World Cup probably will bring tangible but small economic benefits to the SA economy. While stadium and transportation infrastructure construction provided the main boost prior to 2010, we expect World Cup-related tourism inflows to boost this year’s real GDP by up to 0.5%.

sell iShares MSCI-South Africa (EZA);

Check out how others are using ETFs to capitalize on this news or add your own opinion

Emerging-Market Stocks May Retreat 15%, Aberdeen’s Kaloo Says

March 10 (Bloomberg) — Emerging-market stocks will drop as much as 15 percent this year as earnings miss estimates and global growth slows, said Devan Kaloo, who oversees $22 billion at Aberdeen Asset Management Plc.

sell Vanguard Emerging Markets ETF (VWO)

sell iShares MSCI-Emerging Markets (EEM)

buy Short MSCI Emerging Markets ProShares (EUM)

sell SPDR S&P Emerging Markets ETF (GMM)

buy Direxion Daily Emrg Mkts Bear 3X Shares (EDZ);

Check out how others are using ETFs to capitalize on this news or add your own opinion

Oil Can Top $100 a Barrel Soon Enough

THE FUNDAMENTALS IN THE crude oil market got a boost in recent weeks with renewed hopes of a swift recovery in the global economy (demand increases) and ethnic violence in oil rich Nigeria (supply disruptions). This pushed crude prices above $82 a barrel.

buy PowerShares DB Oil Fund (DBO)

buy United States Oil Fund LP (USO)

buy iPath S&P GSCI Crude Oil Total Return Index ETN (OIL)

buy United States 12 Month Oil Fund, LP (USL)

buy PowerShares DB Crude Oil Long ETN (OLO);

Check out how others are using ETFs to capitalize on this news or add your own opinion

Pound Slide to Help U.K. Outpace Europe, Goldman Says

March 9 (Bloomberg) — The pound’s drop last week to a 10- month low may help the U.K. economy grow faster than the region sharing the euro, which is hobbled by budget deficits and aging populations, according to Goldman Sachs Group Inc.

sell iShares MSCI-France (EWQ)

sell iShares MSCI-Germany (EWG)

sell iShares MSCI-Spain (EWP)

buy iShares MSCI-U.K. (EWU)

sell streetTRACKS Dow Jones EURO STOXX 50 Fund (FEZ)

sell Rydex British Pound Sterling Trust (FXB)

sell Rydex Euro Currency Trust (FXE);

Check out how others are using ETFs to capitalize on this news or add your own opinion

Sector Appeal: Funds That Beat Indexes

Active Portfolio Managers Have Outperformed Many Exchange-Traded Funds, Thanks to Surging Small-Cap Stocks
Check out how others are using ETFs to capitalize on this news or add your own opinion

Build America Pays Off on Wall Street

Brokerage Firms Net $1 Billion-Plus for Selling the New Bonds, but Say It Can Be Hard Work

sell PowerShares Build America Bond Portfolio (BAB);

Check out how others are using ETFs to capitalize on this news or add your own opinion

Eaton Vance Dumps Dirt Bonds as Florida Land Districts Default

Thomas Metzold, Eaton Vance Corp.’s co-head of municipals, sold all his defaulted bonds of Tison’s Landing, an unfinished housing development in Jacksonville, Florida, as the debt fell to a third of face value last year.

sell Market Vectors High Yield Muni (HYD);

Check out how others are using ETFs to capitalize on this news or add your own opinion

The Fundamental Flaw of Europe’s Common Currency

The euro is under attack like never before, as the promises on which it was based turn out to be lies. Hedge funds are speculating against Greek debt, while euro-zone politicians work behind the scenes to cobble together rescue packages. But fundamental flaws in the monetary union need to be fixed if Europe’s common currency is to survive. By SPIEGEL staff.

sell Rydex Euro Currency Trust (FXE)

buy ProShares UltraShort Euro (EUO);

Check out how others are using ETFs to capitalize on this news or add your own opinion

Daily “Ways-to-Play” The News Before the Moves 3/1/2010

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Cumberland Advisors: ETF Strategy Update

Our “core” US ETF strategy has been favoring growth over value and large cap over small cap since the autumnal equinox last year. A blend of three ETFs achieves the mix in the core strategy. At Cumberland, “core” can vary from as much as 70-75% of the total weight to as low as 30-35%. Right now it is about half the weight.

buy iShares S&P 100 Index Fund (OEF)

buy iShares Russell 1000 Growth (IWF)

buy iShares S&P 500/BARRA Growth (IVW);

Check out how others are using ETFs to capitalize on this news or add your own opinion

JP Morgan’s Dimon: It’s California, Not Greece, You Should Fret About

JP Morgan Chase (JPM) CEO Jamie Dimon this afternoon told investors at the company’s annual meeting that he’s more worried about California fiscal solvency than about Greece.

sell iShares S&P California Municipal Bond Fund (CMF)

sell Alliance CA Municipal Income Fund (AKP)

sellBlackRock CA Municipal Income Tr II (BCL)

sell Nuveen California Performance Plus Municipal Fund (NCP)

sell Nuveen California Premium Income Municipal Fund (NCU);

Check out how others are using ETFs to capitalize on this news or add your own opinion

Why China Can’t Cool Its Overheated Real Estate Boom

Even among Western analysts who live and work in China, the major role played by municipal governments in fueling China’s increasingly speculative real estate boom is underappreciated. The actions of those local authorities are at the heart of China’s property bubble, and they explain why the central government’s attempts to cool lending and construction are failing.

sell Claymore/AlphaShares China Real Estate ETF (TAO)

sell China Materials ETF (CHIM);

Check out how others are using ETFs to capitalize on this news or add your own opinion

Copper futures surge on quake fears

Copper futures rose as much as 5 per cent to a five-week high early on Monday after a massive earthquake in top producer Chile sparked supply worries but prices soon retreated.

sell iPath Dow Jones-AIG Copper Total Return Sub-Index ETN (JJC);

Check out how others are using ETFs to capitalize on this news or add your own opinion

M&A burst drives Wall Street higher

A burst of mergers and acquisitions activity moved US stocks higher on Monday morning, aided by stronger-than-expected consumer spending and signs that a Greek bail-out may be announced soon.

buy IQ ARB Merger Arbitrage ETF (MNA);

Check out how others are using ETFs to capitalize on this news or add your own opinion

Greece Now, U.K. Next as Scots Ready for Pound Plunge

March 1 (Bloomberg) — While the eyes of the world focus on Greece’s debt crisis, investors in Edinburgh are busy preparing for the U.K. to be next.

buy PowerShares DB US Dollar Index Bullish Fund (UUP)

sell Rydex British Pound Sterling Trust (FXB)

sell iPath GBP/USD Exchange Rate ETN (GBB);

Check out how others are using ETFs to capitalize on this news or add your own opinion

Contango Can Kill Commodity ETF returns: ETFDESK Provides Alternatives

There is a great article from Index Universe today explaining the contango effect for future-based energy ETFs, USO and UNG.

Contango is a phenomenon in the futures market where, in simple terms, the price  to deliver a commodity in the future is higher than the spot price, or far future delivery is higher than shorter future delivery.  It is exemplified by a upward slowing forward curve.  The issue is magnified in future funds like USO, where contracts need to “rolled” into more expensive future contracts. 

Index Universe does a good job explaining this:

When markets are in contango, investors in futures or futures-based ETFs like the United States Oil Fund, USO, can lose money. It’s axiomatic, but we still get a surprising amount of e-mail from folks who simply think this is a myth. So let’s walk it through.

Let’s suppose that you (or the fund you own, such as USO) is holding the March oil contract (the “front month,” in futures terminology). As the expiration date approaches, you have to sell that contract. If you don’t, you’ll have to take delivery of physical oil inCushing, Okla.—and let’s be honest, no one wants to do that.

So you sell the March contract and buy the April contract. This is called “rolling” the position, and it’s what most traditional commodity ETFs, including USO, do.

Now suppose that “spot” oil is trading for $75/barrel. As the March contract approaches expiration, its price will converge with the spot price. That’s the way the commodities market works. But if the markets are in contango, the April contract will cost more; say, $80/barrel.

You don’t lose any money when you sell the March contract and buy the April contract; you simply own fewer contracts at a higher price. The trouble happens over the next month. If the spot price of oil stays flat at $75/barrel, the value of that April contract will slowly decay from $80/barrel to $75/barrel.

 

Contango has been present in most commodities this year, and Commodity ETF investors have suffered due to heavy contango.

The S&P GSCI Spot Index has outperformed the futures-based GSCI Total Return Index by 26%.

Source: Index Universe

As seen in the chart below, USO has underperformed spot Oil prices by 68%.

Source: Index Universe

Natural Gas has performed even worse with Spot Nat Gas prices rising 18% over the past year, while UNG has fallen 48%. 

Source: Index Universe

 

While we have written in the past that commodities can provide valuable portfolio diversification, one needs to tread carefully in these markets.  Looking out for contango and backwardation (the opposite effect of Contango which can actually enhance future based returns vs spot prices)  is neccesary when trading commodities, particulary volitile ones like Oil and NatGas. Index Universe notes that contango currently costs USO 6% before funds fees. Now obvisouly if you think Oil is set to rise more than 6%, it still may be a good bet.   However, for commodities in heavy contango, it might be advisiable to find commodity proxies, like holding companies that specialize in commodity products.  Now investing in equity alternatives have seperate risks and should be duly noted. However, one of the benefits of holding an ETF is that some of the individual company risk can diversified out by holding an entire sector opposed to one firm.  In times of heavy contango Commodity Corporations might be viable alternatives.

The performance of  FCG  (First Trust ISE-Revere Natural Gas Index Fund which is an index of NatGas producation and service companies) over UNG over the past year when NatGas prices were in heavy contango is astounding:  FCG was up %59 while UNG was down 43%.

source: ETFDesk.com

OIH (Oil Services HOLDRS) outperformed USO by about 7% over the past year.

source: ETFDesk.com

Daily “Ways-to-Play” The News Before the Moves 2/10/2010

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RBS: The next leg of the great bear market has begun…

. . . so says Bob Janjuah, chief strategist at RBS, who is convinced — now more than ever — that the policy-sponsored excess liquidity-enabled buy fest is over.
buy PowerShares DB US Dollar Index Bullish Fund (UUP)

buy UltraShort S&P 500 ProShares (SDS)

sell S&P 500 SPDR (SPY)

sell streetTRACKS Gold Trust (GLD)

buy Ultra ProShort S&P500 ProShares (SPXU);

Check out how others are using ETFs to capitalize on this news or add your own opinion

THE ZWEIG TOTAL RETURN FUND, INC. DISCLOSES SOURCES OF DISTRIBUTION

THE ZWEIG TOTAL RETURN FUND, INC. DISCLOSES SOURCES OF DISTRIBUTION

buy Zweig Total Return Fund (ZTR);

Check out how others are using ETFs to capitalize on this news or add your own opinion

Do Commodities Still Provide Portfolio Diversification?

Do commodities still provide adequate diversification with the equity market? It is an interesting question, especially in today’s context. Since the financial crisis began in 2008, we’ve seen many asset classes move largely in tandem. In particular, commodities and equities have moved in near lock step for the past year and a half. Both fell sharply in late ‘08 and early ‘09, only to rebound for much of the rest of ‘09 and now stay largely flat since the start of the fourth quarter of 2009.

buy PowerShares DB Commodity Index Tracking Fund (DBC)

buy iShares S&P GSCI Commodity-Indexed Trust (GSG)

buy iPath Dow Jones-AIG Commodity Index Total Return ETN (DJP);

Check out how others are using ETFs to capitalize on this news or add your own opinion

Chart of the Day Feb. 1 2010

Great chart from ZeroHedge via BofA:

I’m more in the “Bail-Out” camp

regardless of where you are in this matrix, it appears the Euro will contiune to be under serious pressure:

short FXE, long EUO

Rosenberg: Commodities are still in a secular bull market.

From Rosenberg’s daily note:

My overall views continue to evolve but what has not changed are my opinions
regarding the secular bull market in raw materials (hard assets) and income. At
least now we are getting a better buying opportunity with the recent giveback in
most commodity prices, and by extension, the Canadian dollar. I still emphasize
that what investors get in Canada that they do not get in many other areas,
specifically the United Sates, is exposure to the resource sector, and despite
China’s recent restraint measures, and undoubtedly more will be coming, the
country is unlikely to relapse back into a downturn any time soon from what I
can see.

So long (FXC)  Rydex Canadian Dollar Trust , (DBB)  PowerShares DB Base Metals Fund , (XLB)  SPDR-Materials


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