Martin Kronicle

I met Eike Batista at the Milken Institute’s Global Conference in May and I think he’s one of the smartest minds in the commodity space. He’s not someone I’d bet against.

The paper has taken a short-sighted look at his business yet the world is starving for commodities and will continue to be so for the next two decades.

For the long term investor, who cares about short term blips?

I thought you would be interested in the following story from The Wall Street Journal.

Brazil’s Eike Batista Takes Big Hit

The two main functions of commodity markets are risk transference and price discovery.

I think it’s easier to understand the former than the latter when you think of it in terms of hedging and speculating.

This WSJ article points to a great example of price discovery and how it’s used. All the market participant’s activity is reduced into a single price each day, every day.

Those prices signal to those in the industry where they should be allocating their resources and because there are many expirations months during the years, when they should do it.

This article discusses “double cropping” which is the result of price discovery, one of the least spoken about but vitally important aspects of the commodity futures markets and their impact on the economy.

I thought you would be interested in the following story from The Wall Street Journal.

Farmers Hop on Soybean Bandwagon

Last week I mentioned that higher corn prices should not surprise anyone in my post Bake Sale?

http://martinkronicle.com/2012/06/20/bake-sale/

Now, it seems that Corn is limit up for the second day in a row. Yikes!

http://www.agrimoney.com/news/corn-futures-jump-7percent-lifting-wheat-prices-too–4679.html

This probably excites new traders and many probably have their calculators out figuring how much they could have made. But run ups in prices end poorly and you may see the first sell off Limit Down once truer numbers on the yield come in.

I’d prefer you use options in environments like these. If the market reverses, you can calculate your max loss at the moment you put the trade on.

If China has any shortfall in pork, and they come calling the US, you’ll see lean hogs limit up for days. I’d use long dated calls.

I thought you would be interested in the following story from The Wall Street Journal.

Hogs Shrink, Futures Swell

I like the idea of higher collateral. Two, I don’t know any retail investor who regularly makes money trading with margin.

1) Lending investors money is a huge profit center for B/Ds.

2) Traders buy more stock and thus pay higher commissions.

3) Losses mount up faster as inexperienced traders are reluctant to take consistent small losses.

4) Excessive debt is at the heart of every blowup and meltdown in history.

If you don’t know how to trade, by god stay away from margin. You’ll lose your grubstake much faster than otherwise.

Brokerages Cry Foul Over Higher Deposits