Croker-Rhyne Co., Inc.

Main Page  |   Philosophy  |  Current Recommendations  |  Newsletter Archives
Contact Us

February 18, 2005

Buy July Cotton

July Cotton closed up 1.35 cents ($670 per futures contract) this week and is now 3.21 cents off last week's low. I look at this and think, "nothing has really happened". There was no particular news this week, just up Monday & Tuesday, then sideways, then a good strong close today...To me, Cotton looks like it COULD just blow out of here.

I believe we are in the beginning stages of a MAJOR bull market driven by overwhelming worldwide demand. When that demand is combined with the expectation today's low prices will result in reduced worldwide acreage, I believe Cotton could become the  commodity bull market of 2005....My price outlook does not even take into consideration the potential for weather scares (or the real thing) here, in China, or wherever....There is also President Bush's plan to reduce farm subsidies, which, if passed, will forcefully impact cotton growers and absolutely will result in cotton acreage disappearing in this country.

I may be the dumbest guy to ever trade a futures contract, but, excepting some sort of planet wide economic calamity, I DO NOT SEE HOW COTTON CAN BE ANYTHING BUT SUBSTANTIALLY HIGHER (20 to 30 cents, at least) A YEAR FROM NOW.

Relative to how big a "typical" cotton move easily can be, I believe there is a tremendous amount of leverage to be had in slightly out-of-the-money options in the July contract. As I keep repeating, for the past 30 years, cotton has averaged close to a 20 cent range between January 31st and expiration, and, all things considered, I just don't think much, if any, of this year's range is going to be on the southside of where we are now....Obviously, I may be wrong, and investing in this idea could mean losing all or part of what you have put on the table. 

If you have been reading these newsletters and have any interest in this idea, call me. We have "drifted" three cents higher the past two weeks....I don't think "drifting" is what this market will be doing much longer, at all, and if you have the money, as well as the temperament for this sort of risk taking, I'd strongly advise making your move now.

Chart follows...

2-18-05julycotton.gif (17348 bytes)


Buy Treasury Bonds

Since first recommending Treasury Bonds on January 5th, I have not devoted much time to writing about the idea. Why? Public opinion is so unanimously certain that long term rates have to go up, and Bonds go down, that the trade is just about impossible to sell to anyone. Nevertheless, since January 5th, Bonds prices have been moving higher and long term rates lower, which, as he testified this week, has confused even Mr. Greenspan...Concurrent with his testimony before Congress this week, followed by an "unexpectedly" high Producer Price number this morning, Bonds have backed off about 3 points over the past seven trading days....My guess is that all the traders (by which I mean "everybody") who have forever been wrongly predicting a bear market in Bonds, are sure we have now seen the top in this market.....Maybe I'm wrong. Maybe I am an idiot, but I think this last sell off is the one that turns up AGAIN (see chart below), and this time, moves up harder, and faster than it has at any time since Bonds started up almost a year ago.

There are various ways I would recommend using to buy this market, running anywhere from $3,000 to $4700 per "unit". This is the perfect place for the both sides strategy, as, if I am wrong from here, I think I will be very wrong and bonds should quickly be trading 3 to 4 points lower. If this is the case, the 113 puts mentioned as insurance on the chart below, would, by themselves, be worth between $3500 and $4500 dollars each....

If you want my reasons for why I think long term rates are going lower (and bonds going higher), they can be found beginning with my January 5th newsletter: 

2-18-05junebonds.gif (19903 bytes)


Thanks....Give me a call.

Bill Rhyne



Main Page   |  Philosophy  |  Current Recommendations  |  Newsletter Archives 
Contact Us