Martin Kronicle

I interviewed Todd Harrison about his new book at his office in NYC last week. He is the current CEO of Minyanville Media and former President of Cramer Berkowitz.

The book is called The Other Side of Wall St. and it’s an amazing memoir about a guy who had to carve it out of stone.

Interesting deck on the cotton industry courtesy of Wired.

After speaking with Jim McTague at the Milken Institute’s Global Conference about his book Crapshoot Investing: How Tech-Savvy Traders and Clueless Regulators Turned the Stock Market into a Casino, it became clear to me that Gary Gensler is more concerned with one-upping Mary Shapiro and garnering all the attention and political capital he can grab.

The CFTC has had all the time in the world to put the rules into place and they haven’t. That means that the Lobbyists are probably hard at work while Gensler and his croonies are doing what they do best: jawbone to an ignorant public, and sometimes, ignorant press.

I read a Bloomberg article last week called Oil Speculation Curbs Would Aid Market Diversity that re-affirmed what Jim and I spoke about at Milken.

“The CFTC plans later this month to publish historical data on changes in positions in the futures market, he said. As much as 80 percent of volume in some futures markets is conducted by day trading or a type of trade known as a calendar spread, he said.”

“This means that only about 20 percent or less of the trading is done by traders who bring a longer-term perspective to the market on the price of the commodity,” Gensler said.

Wow. Calendar spreads are long-term by nature…the term “calendar” should give it away, Spreading is not a form of day trading either. Spreads are concurrent long and short positions that you can hold for weeks or months. Spreads bring a long term and seasonal understanding to the commodity markets and they certainly are for advanced or professional traders and investors.

Trading curbs are not going to change anything. Like water, capitalism will find it’s own level. The Socialists can dodge and weave, but they’ll never stop me or anyone else from trading. There are trading position limits in place. No one can force an investor nor a hedger into the marketplace.

Historically, less that 2% of all contracts are delivered against. They are offset before delivery takes place.

The July – December corn spread is in an intermediate-term uptrend. In the corn market, this spread is known as the old crop / new crop spread.

Corn has been inverted — meaning the near months are higher than the deferred months. That screams of delivery. The market is penalizing storage, and you can see that in the chart. The December contract is about 80 cents below July, or about $4,000 per contract.

If the difference between the contracts were positive – a carry charge market – you’d expect the market to encourage storage if there were ample supplies of corn in the near term. That is not the case now.

Although volatile, the spread has been widening (getting more positive). When you think this is going to occur, you are inclined to purchase the spread. In corn, that is done by purchasing the deferred month of the spread (December) and selling the front month (July) against it. The July contracts expire on July 14.

For some perspective, that small leg down at the very end of the chart that is approaching the trend line was about a $750 pull back in the spread.

(click for larger and clearer image)

I wrote about coffee selling off last week. According to Jerry Toepke at Moore Research (MRCI), this is a seasonal tendency for coffee over the last 15 years.

Maybe the move has just started or maybe we’re just getting underway as the seasonal pattern suggests. You can get a 14-day risk free trial of Moore Research Center for yourself and take a look at how this trade is handled.