Comments on: Have commodity prices bottomed? http://www.creditwritedowns.com/2009/03/have-commodity-prices-bottomed.html Finance, Economics and Markets Fri, 10 Feb 2012 00:37:00 +0000 hourly 1 By: Edward Harrison http://www.creditwritedowns.com/2009/03/have-commodity-prices-bottomed.html#comment-4266 Edward Harrison Wed, 11 Mar 2009 03:01:33 +0000 http://www.creditwritedowns.com/?p=6934#comment-4266 kynikos, thanks for your input. I had called a lowof $25 for oil but I think that's not in the cards for oil unless we see a complete economic collapse. And with China about to do some heavy lifting on the infrastructure front, metals will have a floor on them I suspect. Some good thoughts on oil contango and the recent rally at Alphaville as well: http://ftalphaville.ft.com/blog/2009/03/10/53404/contango-smashing/ Dennis Gartman summed up my thinking here and makes me nervous about rolling forward a short contango position: <blockquote> "Those who bought crude in the front, took delivery, had the crude stored in ships or tanks or rail cars et al, and who sold the back months to hedge in the huge carrying charges that were on offer two and three months ago are now sitting upon huge profits. Indeed, the only thing that shall keep crude oil prices from moving rather sharply higher shall be the reemergence of this stored crude oil back to the market as the shifting term structure demands that that crude put into storage be drawn out."</blockquote> Either direction is fraught with great risk right now. kynikos,

thanks for your input. I had called a lowof $25 for oil but I think that’s not in the cards for oil unless we see a complete economic collapse. And with China about to do some heavy lifting on the infrastructure front, metals will have a floor on them I suspect.

Some good thoughts on oil contango and the recent rally at Alphaville as well:

http://ftalphaville.ft.com/blog/2009/03/10/53404/contango-smashing/

Dennis Gartman summed up my thinking here and makes me nervous about rolling forward a short contango position:

“Those who bought crude in the front, took delivery, had the crude stored in ships or tanks or rail cars et al, and who sold the back months to hedge in the huge carrying charges that were on offer two and three months ago are now sitting upon huge profits. Indeed, the only thing that shall keep crude oil prices from moving rather sharply higher shall be the reemergence of this stored crude oil back to the market as the shifting term structure demands that that crude put into storage be drawn out.”

Either direction is fraught with great risk right now.

]]> By: kynikos http://www.creditwritedowns.com/2009/03/have-commodity-prices-bottomed.html#comment-4264 kynikos Wed, 11 Mar 2009 00:32:01 +0000 http://www.creditwritedowns.com/?p=6934#comment-4264 One could short a commodity index fund such as USO. I suppose the contango losses from the negative 2.0% roll yield per month you become your gain if you short it. I still do not like the contango on commodities though, but since commodities such as oil and energy have high "beta" now, I suppose they might benefit in a bear market rally. The contango for metals does not seem as bad though. One could short a commodity index fund such as USO. I suppose the contango losses from the negative 2.0% roll yield per month you become your gain if you short it. I still do not like the contango on commodities though, but since commodities such as oil and energy have high “beta” now, I suppose they might benefit in a bear market rally.

The contango for metals does not seem as bad though.

]]> By: Edward Harrison http://www.creditwritedowns.com/2009/03/have-commodity-prices-bottomed.html#comment-4259 Edward Harrison Tue, 10 Mar 2009 23:12:46 +0000 http://www.creditwritedowns.com/?p=6934#comment-4259 kynikos, I understand you statement to mean you think we are in a volatile period where things could head either way. That seems to be accurate, but wouldn't you consider the risk/reward of getting long here a whole lot better than remaining short? kynikos,

I understand you statement to mean you think we are in a volatile period where things could head either way. That seems to be accurate, but wouldn’t you consider the risk/reward of getting long here a whole lot better than remaining short?

]]> By: kynikos http://www.creditwritedowns.com/2009/03/have-commodity-prices-bottomed.html#comment-4258 kynikos Tue, 10 Mar 2009 23:05:39 +0000 http://www.creditwritedowns.com/?p=6934#comment-4258 I do not know if it would be a good time to long commodity indices, although I still think the contango will not make the risk/reward attractive. Long or short does not have an attractive risk reward. I do not know if it would be a good time to long commodity indices, although I still think the contango will not make the risk/reward attractive. Long or short does not have an attractive risk reward.

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