Two Commodity Aphorisms

1. "Good crops get better."
2. "Bad crops get worse."

I heard those a few years ago and have noticed they tend to be true more often than not. So the wheat crop has problems after the freeze and with all the rain hurting the harvest, so I'm long wheat (December, Chicago). I figured the chance of a bearish surprise is more than a bullish one. And the wheat crops in Ukraine & Russia are in real trouble. And the world needs to restock its wheat stockpiles after last year's crop problems in various places, including the US.

You DO have to WAIT for the crop to become "good" or "bad". Neither corn nor soybeans are there yet - they won't be until July.

In a way, these two fundamentally based aphorisms are reasons why trend speculation in commodities can work.

Water

I am really getting annoyed at the large number of STUPID comments I hear about water.

WATER STILL FALLS FROM THE SKY FOR FREE !!!!!!!!!!!!!

Unlike oil, most "uses" of water simply make it impure. The water molecule is extremely difficult to actually destroy. So the water is cleaned either in the treatment plant or in the biosphere or sea. The biosphere uses and produces water.

People DO use water stupidly. For example, a town upriver from mine pumps water out of the river [ aka watershed ] for use by citizens, and then its sewers [ after treatment ] empty into the sea. So the water is removed from the watershed for all downstream users & wildlife. That causes problems. And they have the votes, unfortunately.

That's the issue. Stupid uses that deprive others of "potable" water.

Waking Up Tired

We had a sick dog last night - Krypto must have eaten something disgusting outside. I didn't get a lot of sleep; Mrs. B got less. Krypto's fine this morning after purging her system :-((

Not much news today. Some pop in the grains overnight, not sure why. The USDA crop progress and conditions reports looked in line. Next Monday there's a USDA crop report to update the USDA expectations on this year's crops. That might be big.

Lol, speaking of crop reports, I watched that movie, Trading Places. The last 1/2 was pretty funny - when they caught onto how they were being manipulated. The first half sucked - I could have never gotten through it without guessing the happy ending.

I really don't like movies without happy endings. Normally I just stay away or turn them off. I've been through enough sadness in reality to not need to see sadness or unhappiness in my entertainment.

I'll post some "PS's" later - right now I need breakfast.

PS: I closed my sugar marker position just now. I lost hope that it can turn around. My entry was too early.

PPS: I don't think the Brazilian coffee will get a freeze near term. I'm closing my coffee marker for a small gain. I didn't like the lack of follow-thru yesterday.

P^3S: My commodity account is now at 1x leverage, pricing all the contracts at full value. I think corn, cocoa, hogs & natural gas offer the best profit prospects. I'm long all of those & will add if favorable.

P^4S: I see some research that palm oil was up big overnight in Malaysia, dragging soybean oil [hence soybeans] along. I still think I'll get a chance to re-buy soybeans later at better prices - the beefers are pretty long & might want to book some profits. If not, "that's trading".

Monday Morning Rambles

Can someone explain this: Russia threatens Europe because some Europeans want to help defend Europe and the US against Iranian missiles & future nuclear blackmail from Iran. Sort of sounds like Russia wants a submissive & compliant Europe. Thinking ................

Paris Hilton goes to a special celebrity jail for 23 days for probation violation. The South Park parody of her was pretty accurate :-)

Check out Sunday's post regarding "Time Diversification" IIFF you have a pile of uninvested cash.

Bunker investing is working well:
Krypto Fund +6.58% ytd (passive, diversified index funds & gold);
Alpha Fund +36.3% ytd (selected stocks in certain sectors);
Commodities +35.6% ytd (more active, week/month trades).

The main driver of Bunker investing is lots of thinking and some reading. I do very little short term trading anymore as (a) the return for effort expended and (b) $ risk of bad trades seems out of whack when larger sums are deployed.

PS: I bought some August Lean Hogs. I remember that last August the heat was thought to have hurt breeding [ ;-) ]. Of course corn prices hurt feeding them, too. So this August there might be fewer hogs with less weight. The chart looks like a bottom, too.

PPS: I closed my soybean long - good one. I'll re-buy on a correction, if one happens.

P^3S: Natural gas is moving - those hot weather forecasts are working. I have August now (rolled my July contracts - btw, I trade the e-minis only). A close over 8.4 in July or August seems to be a break out of an ascending triangle. CHK stock working well, too.

P^4S: Coffee has moved a lot recently, on Brazilian price support program and freeze worries. Not adding yet. That bleeding marker position is green now, though. Coffee is a tough market. I hate losing a couple $K on those markers - was down about $2K on coffee for awhile. Sugar marker still red.

Time Diversification

So the S&P 500 just completed three consecutive days of closes over the old all-time high from March 2000. And you are sitting with a pile of uninvested money. What to do ???

I had a finance class at MIT Sloan School around 1980 with Fischer Black, who was one of the great financial market experts of the 20th Century. He taught us about "time diversification" on one day in his famous course.

Time Diversification:
One can mathematically prove that under fairly broad assumptions about the market and its distribution of returns that by making partial investments over time you will reduce your risk considerably while not reducing your expected returns. Once considered, it's almost obvious, being a form of the well-known statistics result that the variance of an average of multiple samples is less the variance of a single sample. The "sample" is your return on investment over a long period of time.

This investing theorem extends the concept of diversification to the time dimension, compared to the well known, and famous "free lunch" of diversification of investing across a portfolio of many stocks. In simple terms, you reduce your risk of investment by breaking your total investment dollars into several pools and spreading out the TIME when you make those investments. In more exotic terms, this theorem is analogous to part of Einstein's famous relativity theory that merged time & space into one four vector - here investment time and the space of stocks are merged into a single investment tactic.

You need to diversify across BOTH the space of stocks AND time to obtain the lowest risk for your return on investment.

So here is the answer of "What to do???"

Break your investment dollars into a few parts- perhaps three.
1. Invest one part (1/3 of the total) NOW.
2. Invest the next part on the earlier of a significant pullback (after the dust settles) or in a few months.
3. Then invest the last part in the late fall.

You're thinking, "why don't I just wait for the "significant pullback ?"
Because it might NOT happen for a long time, or when it does happen, the news that might have created it will then scare you into not investing even then. For example, if you were that smart, why didn't you invest everything in early March on THAT pullback? It was too scary then, that's why. But if you are putting only 1/3 to work, you might be able to pull the trigger on a pullback.

And your thinking, "Bunkerman, if you're so smart, why aren't you doing your Einsteinian time diversification ??"

D'uh, I'm smart enough to know I'm not perfect. I DID and AM doing this NOW. In late November, 2006, I had a large pile of new money to invest. I put 1/3 to work at once, even though the market was "extended" in the eyes of some gurus. And in March, I gave Mrs. B 1/3 to start her "Sky Fund" - I posted that. And on Monday morning, I'm giving Mrs. B the last 1/3 for her Sky Fund to invest immediately. We are now in the Elysian Fields of investing, the "Blue Sky" area when all prior resistance levels have been taken out and all known overhead supply is gone.

It's a bull market until something changes. The trend is your friend.

Leaky Banks

I received a new credit card from a bank last week - it replaced another card & had a new card number & larger credit line [yes, I've been spending a lot]. So I verify it from my home phone & put it in my wallet & never took it out. Not once. Didn't use it online, either. Nothing.

So this AM I get a fraud alert call. There was a $5 charge somewhere in CA a few days ago and early this AM, multiple $39.90 charges at a "retail store". Not me, I haven't done anything. So I deny them (& the bank wasted 20 minutes of my time with disconnections & time on hold, etc.) The guy in India was polite, though. So I'll have to sign some papers they send. And they'll send a new card.

D'uh - where do you suppose the leak of that card data came from ???

The ONLY two possibilities are the bank itself or a low bid subcontractor.

My free time gets wasted because the bank is too CHEAP to have good security or use a more reliable subcontractor to issue the cards. Grrrrrrr. What a world!

Investor's Soliloquy

To sell, or not to sell – that is the question:
Whether ‘tis nobler in the mind to suffer
The slings and arrows of bear raids
Or to make some sales from a sea of green stocks
And by selling save them. To sell, to hold—
No more – and by a sale to say we save
The heartache, and the thousand small hits
The P&L is heir to. ‘Tis a consummation
Devoutly to be wished. To sell, to hold—
To hold – perchance to survive: ay, there’s the rub,
For in that calm hold what dreams may come
When we have shuffled off this bear raid
Must give us pause. There’s the respect
That makes huge gains of so long holding.
For who would bear the whips and scorns of bears,
Th’ hedgie’s wrong, the perma-bear’s contumely
The pangs of despised shorts, the move’s delay,
The insolence of gurus, and the spurns
That patient merit of th’ unworthy takes,
When he himself might close his longs
With the “Sell All” button? Who would burdens bear,
To sigh and sweat before a blinking screen,
But that the dread of something after selling,
The undiscovered roaring bull, till such end
Much gold is made, puzzles the will,
And makes us rather bear those stocks we have
Than fly to cash that we know gives little?
Thus fear does make sitters of us all,
And thus the native hue of resolution
Is sicklied o'er with the pale cast of thought,
And enterprise of great pitch and moment
With this regard their currents turn awry
And lose the name of action. -- Soft you now,
The fair Ms. Market! -- Nymph, in thy prayers
Be all my stocks remembered.

PS: For the not-so-literate or non-native English speakers out there, the above post is adapted from the famous Hamlet's Soliloquy written 500 years ago by William Shakespeare.

PPS: Check out the old 1948 movie, Hamlet, with Laurence Olivier for a fine performance of that play. I recommend it highly.

P^3S: See comments for today's VERY BULLISH data on the core PCE inflation.