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.
Last week I mentioned that higher corn prices should not surprise anyone in my post Bake Sale?
Now, it seems that Corn is limit up for the second day in a row. Yikes!
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.
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.
Maneet Ahuja has written a great book called Alpha Masters. It delves into the lives of some of the best hedge fund managers in the world and what it took for them to get there.
Maneet was able to spend a great deal of time with these managers who include Ray Dalio, Jim Chanos, John Paulson, and Boaz Weinsten to name a few. She met them in their offices and in some cases traveled with them. In the process, she gained their trust and got an insiders, behind the scenes view that few of us are afforded.
They eventually let their guard down and opened up to her and you get that feel in the book. That’s pretty amazing given that this is her first attempt at writing a book. I’m impressed with Alpha Masters as a book and Maneet’s writing.
I believe that new and sophomore traders alike will get a lot of wisdom from this book because they’ll be able to relate to the upbringing of her subjects. These guys are pretty easy going at the end of the day, and they speak to her with a great deal of candor. They all seem to have a great deal of humility for all their success…and assets under management.
I think that this is a very gutsy book for Maneet to write, not because she’s so young and talented (she’s 27), but because she took a format that’s all but owned by Jack Schwager and she made it her own. Moreover, after having written a book of my own that took all of 18 months to write on a full-time basis, I was blown away by the fact that Maneet wrote this book while holding down her seemingly ’round the clock position as a producer for CNBC.
Readers will invariably compare this book to Jack Schwager’s books, but Alpha Masters is an entirely different book and it has a different feel. Maneet deliberately brings more biography into her book. In Jack’s books, the biographical content comes through the interview but it seems to be incidental. Integral to each chapter is the manager’s upbringing: what made the manager so great…what did he have to endure…how did he grow up. Those are items that I think readers can relate to and it’s why I thought it was a great read.
Other managers featured in the book are Peirre Lagrange and Tim Wong, Marc Lasry and Sonia Gardner, David Tepper, and Bill Ackman.Continue Reading...