Many Hedge Funds Still Shorting Financials and Going Long Commodities

Posted by Patrick O'Connor on 8/26/08 1:07 pm

Hedge funds that stayed the course in July by betting against financials and in favor of commodities appear to be well positioned, according to a Reuters article.

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Commodities Having Best Week in 33 Years

Posted by Louis Navellier on 8/21/08 12:34 pm

If the Reuters/Jefferies CRB Index stays flat tomorrow, it will ring up its best weekly gain since 1975.  The index of 19 commodities surged more than 3.3% today and it’s up almost 6% for the week.  Obviously, strong fundamentals don’t stay out of favor for long.  Many investors who plowed into financials a few weeks ago, thinking the coast was clear, are now realizing they should have stayed focused on companies that are benefitting from inflation.  Commodity-related stocks are rebounding impressively as a result.  Read More.

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CRB Commodities Index Suffers Biggest Loss Since March

Posted by Louis Navellier on 8/4/08 1:17 pm

The Reuters/Jeffries CRB Index of 19 commodities today suffered its biggest one-day loss since March.  One of my traders reported to me there was a rumor that a commodity-based hedge fund was forced to liquidate positions, forcing a commodity sell off, especially in crude oil.  Whatever the case, this commodity “crunch” is grossly oversold, in my opinion.

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Survey Reveals Which Countries are Gaining and Losing Mutual Fund Allocations

Posted by Patrick O'Connor on 6/19/08 1:16 pm

A recent Merrill Lynch survey of 204 fund managers from around the world exposed which countries are gaining mutual fund assets and which ones are losing them.  The big surprises were that many emerging powers in Asia were the big losers, the U.S. had received its biggest allocation since 2001, and a record number are now underweight European equities.

Fund managers reduced their net weightings in China to -58% in June from -14% in May, and India fell to -63%.

The general theme of the survey showed that managers are pulling assets from countries that need to import commodities (oil, food, metals, etc.), and diverting the money toward countries that are exporting commodities.

That’s why Russia and Brazil are still gaining inflows.  In fact, Russia’s inflows accelerated in June from May.

Fund managers are increasing allocations (net +23%) in the U.S., mostly for safety precautions, and reducing them in Europe, due to profit concerns.

“The [U.S.] Fed has eased dramatically, but the ECB hasn’t eased at all.  It intends to tighten regardless of the consequences on growth.  This is what is eating away at confidence in Europe,” said David Bowers, the organizer of the survey.

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Lawmakers Targeting Commodity Trading Rules

Posted by Patrick O'Connor on 5/20/08 11:27 am

What happens when commodity prices hit all-time highs during a presidential election year?  We get more political grandstanding, more regulation, and probably no price relief.

Today Senator Claire McCaskill (D-MO) told the Commodity Futures Trading Commission’s Chief Economist at a hearing in Washington that Americans “are about to pick up pitchforks” because of soaring food and energy costs.  Ms. McCaskill suggested that Congress needs to consider tighter commodities regulation.  Read More

More regulation is not going to solve the global supply and demand issues that are largely responsible for today’s commodity inflation.

How about offering more commodity shorting instruments to the public to counterbalance the predominantly available long-only choices, increasing incentives to citizens and companies that conserve energy, and coming up with some creative solutions that address the negative impacts ethanol mandates have put upon food prices?

More regulation is not a cure-all, Washington.

We want to hear your thoughts!  Comment to this post by clicking the ‘comments’ link below.

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Cargo Container Shortage Slows Exports, Contributes to Inflation

Posted by Patrick O'Connor on 5/14/08 12:38 pm

U.S. exporters are running into serious bottlenecks at shipping ports.  Not only is there a shortage of ships, there’s also a major scarcity of shipping containers.
As a result, U.S. exporters that are trying to take advantage of the weak dollar cannot meet orders.  This is affecting prices for agricultural producers and anyone else who is shipping goods overseas.

“We could export a good 20% more in agricultural products from this country if there was the capacity to handle it,” said Peter Friedman, general counsel for the Washington-based Agricultural Transportation Coalition.

Read the Los Angeles Times article “U.S. exporters face cargo container shortage at ports” by Ronald D. White.

How can investors take advantage of this?  After all, there aren’t any publicly traded shipping container companies in the U.S., and most of the shipping lines are foreign, too.
You have to go overseas to invest in these sectors.  However, our International Growth portfolio has some positions that are benefitting from these shortages.  Learn More; Watch Video

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Are Investment Instruments Creating a Commodity Crisis?

Posted by Patrick O'Connor on 5/13/08 2:49 pm

During the past few years there has been an explosion of new investment instruments that have allowed investors to participate in the commodity markets unlike ever before.  This new source of buying pressure on the long side (about $250 billion) is causing most of the commodity inflation we’re experiencing today, according to the article “The Looming Commodity Crisis” by Jeff Korzenik at MarketWatch.

Here are some quotes from the article:

“The problem is that the investment capital is too large relative to the size of the underlying commodity markets.”

“A recent move by pension giant Calpers to commit to raise their commodity exposure to $7 billion (from less than $400 million) underscores this growing trend.  All this money is directed to roughly two dozen futures contracts.”

Mr. Korzenik suggests that regulatory intervention is needed to fix the imbalance.  I respectfully disagree.  Instead, I think there should be more shorting instruments made available to put downward pressure on many of these commodities.  That’s a solution that would limit much of the one-sided investing that’s going on.

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Fed Cuts Rates to 2.0%, $ Strengthens, Commodities Sell Off

Posted by Louis Navellier on 4/30/08 12:09 pm

As widely expected, the Fed lowered the fed funds target rate by a quarter percent to 2.00% today, and indicated the cut could be its last in this cycle.  “The substantial easing of monetary policy to date, combined with ongoing measures to foster market liquidity, should help to promote moderate growth over time and to mitigate risks to economic activity,” the central bank said in its statement.

Since this could be the last rate cut, the dollar strengthened and several commodities sold off as a result.  Oil plunged another $2 today before recouping some of its losses.

It’s important to point out that if the Fed is done cutting rates (this will depend on incoming data whether the Fed likes it or not), it does not mean the Fed will soon start increasing rates.  The more likely scenario is the Fed keeps short rates at 2% for several months. Watch my Fed Video (filmed 4/16/08).

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