July 19, 2013
Evidently my illustrious newsletter has not been reaching some recipients for the past few months. If you are used to getting it, and have not seen it recently (and want to), all of my previous letters are available on the website archives via the following link: http://www.crokerrhyne.com/newsletters/index.htm
There are 3 markets with specific recommendations covered here---Corn, Soybeans and Treasury Bonds...but first a comment on the Stock Market.
After selling off about 1000 points, the Dow Jones has now recovered completely and lately made new highs. Equities are definitely attracting a lot of attention right now, with enough media doubt being present to incline me towards buying again…but at the same time there seems to be a bit too much of the sentiment, “You gotta be a buyer here!” , for me to be comfortable doing so…So I will stay on the sidelines. For me, the big picture is absolutely UP, and in a big way, but for now, I can easily imagine a lot of back and forth, up and down, going nowhere for maybe the next few months.
I am a buyer.
I look for a 12-15 point rally ($12k-$15k per futures contract)
In my mind, the ONLY thing that could really drive long term rates higher (and bond prices lower) would be some sort of truly out-of-control inflation…which just isn’t going to be the case. I’ve heard those same perpetually wrong voices presenting their case for hyperinflation for the past 30 years…and it has yet to appear…and for a multitude of reasons, I seriously doubt it’s going to suddenly (finally) appear now. In a nutshell, the ages old argument that every time Federal Reserve Banks supply excess funds to this system it axiomatically results in inflation has been nothing short of bogus…and will continue to be.
If you are a long time reader here, you will know that I could easily fill 20 pages with bond market commentary (it’s the only market I will ever make the statement, “I DO understand how it moves”, which is not to say I am always right about it) but it’s late on a Friday and I’m just going to keep this to the quick minimum.
While I see a lot of mixed opinion about Stocks, most of what I hear about Bonds is totally one sided. Seems like 99 out of 100 of analysts and brokerage house suits are dead certain “The 10 Year is headed for 4%!” (from its current 2.5%), which I think is just as totally, totally absurd.
I AM BUYING BOTH THE TREASURY BONDS AND THE TEN YEAR NOTE CONTRACTS. I THINK THEY BOTH HAVE ALREADY BEGUN WHAT I THINK WILL BE QUITE LARGE RALLIES OVER THE NEXT 3-4 MONTHS.
There are a number of option possibilities…Here’s just one of them….
Or here is another option using the 10 Year notes…
Corn and Soybeans
Right now it’s all about the weather…
As written in my last newsletter (http://www.crokerrhyne.com/newsletters/07-15-13.htm), December Corn and November Soybeans have a long history of quite a lot of volatility between now and expiration. This does not mean the same will be repeated this year, but with both these crops having had late planting difficulties, and the perverse aspects of weather we seem to be experiencing, I am definitely now willing to bet on the buy side in these two markets.
Keeping it brief…It’s no secret…Get ANY degree of weather problems during the next month and I think Corn and Soybeans could explode to the upside. And whether they will, or won’t, I certainly believe this is the letter perfect time and price to use some form of the both sides strategy (see charts below).
To me, this business is about being right or being wrong, about leverage, about educated guesses and calculated risks…and I think this is as good as it gets.
I may be dead wrong, but in these two markets, I think the last thing we are going to see, going immediately forward, is sideways. I say they are both going to go hard, one way or the other, and from here, I want my money on the upside.
Here are a few ways to do it…I say you get a little of both Soybeans and Corn…and if there are indications it is working (right now it would be most likely accompanied by HOT, DRY weather), you get some more. As I have noted over the years, in futures, there is generally nothing that compares to what happens when you combine bad weather and the Corn or Soybean markets.
You can just buy the calls….
Or, buying both sides costs more but does give you the chance to get your money back if the market goes the wrong way…
And here are the same two approaches in Corn…I would add my recommendation are all for two month Corn or Soybean options (October) as I think weather factor will have mostly played out by then…However, you can even buy less time (30 days) which is cheaper…or more time (90 days) which is more expensive. I like the October options because they give me a little of both---a little more leverage and a little more time.
And the smarter, but more expensive, way to do it…
Except to say that what I write here, as well as all the strategies I end up actually putting in front of you, are not specifically known to me until I actually sit down and think, “What do I want to say?” (usually a LOT more than I write), and, “What options do I REALLY like at current levels?”. In other words, this thing is kind of born as I plunk through getting it done…and the truth is, there are times when I finish one of these letters, look at what I have produced, and think to myself, “These are better than average numbers. This IS a killer setup.”, and such is definitely the case here. It absolutely does not mean they will work, but I LOVE the 2 & 1 in both these markets…I see a lot of leverage and I see the very strong possibility of getting back 100% if I am dead wrong. Again, I think the last thing we are about to see is sideways…
Give me a call if you have any interest or questions whatsoever…
And as always, if you know anyone who might also be interested, please do feel free to pass it along…
The author of this piece currently trades for his own account and has financial interests in the following derivative products mentioned within: Corn, Soybeans