Connect with us


Trading the Decline in Commodity Prices and Volatility




The commodity markets were designed for commodity producers and commodity end line consumers to limit the volatility and risk in their business models. Producers are only willing to keep producing when they can sell their production at a profit and end line commodity processors are only willing to buy them if they can realize a profit upon selling the goods they’ve finished. The creation of commodity trading floors provided a singular location for these transactions to be recorded along standardized times and qualities. Unfortunately, commodity producers only want to sell at high prices and commodity consumers only want to buy at low prices. This created the market makers, floor traders and speculator categories that have come into the markets to provide liquidity by providing bids and offers in between the producers and end users. This week, we focus on the creation of the commodity indexes and Exchange Traded Funds created by the banking sector and what effect the current period of low volatility and declining prices is having on the very banks that created them.

The evolution of the markets created an expanding network of commodity related jobs via the personnel required to run the trading firms and direct the standardization of commodity contracts, storage and processing. The off exchange businesses like the storage, shipping and financing sectors had always been seen as ancillary to the primary purpose of ensuring raw material availability to the end line users. Following the tragic events of September 11th the U.S. Federal Reserve board began adopting easier financing terms to just about anyone. The cheap money made it more favorable to borrow the money and build a commodity storage facility to either fill yourself or to rent space as storage for others. This process was partially responsible for the commodity rally of 2008. The ensuing 6 years of sideways to lower price action coupled with forecasts of growing supplies on the horizon has crashed the profitability of this model and is now contributing to the commodity slump just as it did the price spike of ’08.

The two commodity sectors that took the most heat during this period were the grain and energy markets. Food and fuel, life is sometimes that simple. These are also some of the easiest markets in which to hoard the physical commodity itself. The large commodity companies like, ADM, Cargill and Monsanto took a ton of heat from the public at large for what was essentially, business as normal (albeit at higher prices) practices. However, the JP Morgan’s, Deutsche Bank, UBS, Morgan Stanley, Barclay’s etc used their banking experience to tap into the commodity revenue stream. Originally, they participated indirectly through a practice of swapping physical for future risk of the underlying commodity and acting as the middlemen in the brokerage process. Many of these firms took it to the next level as they became involved in physically holding and distributing commodities across the globe as the start up financing became a negligible cost of doing physical business in a Zero interest rate world.

The wild volatility, cheap interest rates and generally high commodity prices attracted more players than ever into the commodity markets. It became the party no one wanted to miss. It appears as though its last call for many of these late comers and they’re quickly scrambling out the door as the lack of inflation, lower commodity prices in general and increased regulation suck the profitability out of this once low hanging fruit. Currently, Barclays, Deutsche Bank, Chase and Bank of America are all curtailing their commodity interests or exiting the sector completely amidst tougher regulations and slow, declining markets. According to Bloomberg, commodity related profit for the top ten banks in 2013 was around $4.5 billion compared to the high water mark of $14.1 billion in 2008.

We’ve posted several charts to illustrate this point as well as the true commercial traders’ effectiveness in trading in the current climate. The commodity markets are returning to their previous mode of trading which should benefit the true commodity traders quite a bit and leave the exiting banks with time to lick their wounds before they miss the next big rally in the commodity markets.

One of the primary business models the banking sector introduced to commodities was the ETF (Exchange Traded Fund). ETF’s like COW (Cattle) and OIL (Oil) were designed to keep banking clients within the firm rather than letting them participate directly in the commodity markets through a commodity broker of the customers’ own choosing. More specifically, the banking sector created non margined, long only index funds that customers assumed would behave like the commodity they were built to track. Not only do most of these funds fail to track their underlying counterparts all that closely but they block the customer from the two primary advantages of exchange traded futures. First of all, commodity futures utilize margin. This allows a market participant to put up a fraction of the face value of the contract while using their excess cash as operating currency. Secondly, the ETF’s do not allow short positions, which effectively eliminate 50% of the opportunities to profit. The end result is that the banks place margin with the exchange while lending out the customers’ excess reserves. Finally, the bank takes the other side of the clients’ trades creating the bank’s own short position as the market falls and clients exit the market.

I apologize for the long-winded and basic nature of the opening but it’s must have background to discuss the current state of the markets. Referring back to the six charts we’ve posted you can see a general cross section of the economy as a whole. We’ve posted crude oil, copper, soybeans, corn, gold and 10-year Treasury Notes which have all traded sideways to lower and done so with a general steadiness and absence of chop. These are the charts that the news is referring to when it talks about the, “decline in commodity volatility.” Furthermore, their declining prices have cut the profit potential of the storage facilities bought or built by the big banks. All and all, the markets fairly orderly and deflationary trading has ruined many of the big banks’ commodity business models.

Our business is commodity trading. It started more than 150 years ago when the first Waldock’s came over from Herfordshire, England as hog farmers. Our trading philosophy has always been an attempt to ascertain the true value of something using whatever tools were made available to us at the time. My grandfather used to tour the country East of the Mississippi with a briefcase full of cash and a gigantic pistol (at least it was gigantic as a kid) and conducted each of his buys in person. My father used ticker tape and hotlines to establish prices across different regions of the country. Now, I use the Commitment of Traders Reports along with a neural network to determine not only the size of the commercial traders’ actions but also their eagerness to act at given price levels.

This brings us to the recent sell-off in commodity prices and the exiting of the commodity markets by many of the world’s largest banks. Referring to back to the charts, commercial trader momentum is the bottom histogram. Red is negative and blue is positive. It’s clear that the major market sell-off is placing these markets within the value area of commercial long hedgers. The typical pattern is for commercial long hedgers to continue to buy as the raw material input costs fall to expand the profitability of future finished goods production. Looking at the charts tells us that refiners are stocking up on crude oil below $98 per barrel, soybeans and corn below $12 and $4.50 per bushel respectively and copper below $3.15 per pound and finally gold below $1,300 per ounce. The decline in prices coupled with a corresponding decline in volatility across multiple sectors – grains, basic materials, precious metals and energy paints a very solid picture of range bound markets for the expected future.

These types of range bound, ebb and flow type markets that are increasingly absent of index and speculative trading respond exceptionally well to the negative feedback model that commercial traders typically employ. This means that the farther out of balance a market falls, the more the commercial hedger (long or short) will add to their position as they make appropriate production estimates of their firm into the future at the market’s new price levels. This can clearly be seen on the charts as short-term market movement continues to press the market in one direction; you can see the commercial position grow in a nearly equal and definitely opposite direction. This is also called, “mean reversion trading.” The market’s rallies are sold and declines are bought based on the anticipation that the market will return to recent levels to provide us with a profit.

The commodity market decline in price and volatility had to occur simply because the legislation of easy money forced the market to find a loophole to exploit for excess returns. That loophole became the swaps, storage and distribution possibilities in the commodity sector. In many ways, the general business of the last ten years has been very similar to one long trend trade. Those who were in early obviously had the greatest ability to profit, meanwhile, those who stayed late find themselves competing for profits at the expense of declining margins and increasing regulation, not to mention higher interest rates on the horizon. I’m proud of the value based trading style we’ve developed over the years and grateful for the ancestry that has always taught me that the market is always right.


Source by Andy Waldock


Where to Find Those Efficient and Hardworking Affiliates?




Everyone wants a hardworking affiliate, employee, associate, partner, or even spouse, and why not? It’s the next best thing to doing the work yourself. However with the massive outbreak of work and income opportunities available online, how can you beat everyone else and find that one (or more) ideal person who will make your online business explode with success? Here are some of the most ingenious and uncommon ways to snag the idea affiliates for your affiliate program

Direct Sales Agents

Direct sales people are really one of the most enterprising, hard-working individuals in business. They mostly work on commissions or rebates and are willing to literally go door-to-door offering their products to anyone and everyone they bump into. Imagine how much easier their job would be if they could be an affiliate and simply work via the Internet and a mobile device or desktop.

Also, most direct sales people tend to carry more than one brand in their product arsenal so signing up as an affiliate would be almost the same type of work but using a different approach.

Colleges and Universities

Many college kids would be interested in a part-time income opportunity if it would mean funds to help pay for their education, loan, or partying. All you have to do is make sure to offer them products they can endorse as a student.


Did you know that the U.S. Census Bureau’s latest annual report show that 75% of U.S. businesses used freelancers in 2011? Freelancers earned a whopping US$990 billion in 2011 which is a 4.1% increase from the previous year. The only industries where the number of freelancers decreased were in insurance, finance, and construction. Most probably your affiliate program isn’t a part of these 3 industries.

Furthermore, online business and finance experts are predicting the growth to increase incrementally every year even with an economy that is improving. People just want income security and more control over their earnings. With the spate of lay-offs, it’s understandable why many would prefer to work as an affiliate than as an employee.

Scout For Them At Affiliate Conventions

There are annual affiliate conventions held in different cities around the country. You should try to catch one when it is held somewhere near your location. The average turn-out for these types of conventions has increased regularly over the years. Last year, many of them were sold out weeks before the event.


The US Census Bureau has said that as of 2012, 15% of Americans are poor, 43% of young adults depend on their parents to some extent for money. Even more surprising is that the median income of young adults in 1982 was $31,583 and last year it was $30,604 for the same age group! Income is dropping and people are looking for ways to earn additional income outside of their 9 to 5 jobs. That’s where you can come in playing the hero and helping others realize their dream income.

Finally, go online and talk about your product. Make the affiliate marketers come to you and have the luxury of picking the best candidates. You will need some help in marketing your affiliate program so target a marketer who’s experienced in affiliate program and SEO.


Source by Lina Stakauskaite

Continue Reading


Recession Is Here… Six Costly Mistakes Home Sellers Make During Recessions And How To Avoid Them




The U.S. is officially in a recession. What is a recession? A recession is a business cycle contraction or general economic decline due to significant drop in spending and other commercial activities. Most pundits and politicians will blame Covid-19 crisis for the recession, but even pre-Covid-19 the proverbial writing was on the wall.

The U.S. had over 120 months of economic growth, which was the longest expansion in the modern history. Other indicators, such as negative yield spread on treasuries (long term bonds having lower interest rates than short term T-notes), were pointing to an imminent change of the economic cycle and an impending recession. The only real question was: when and how bad?

Then Covid-19 came… If the cycle was going to change anyway, Covid-19 acted as a huge and unexpected accelerant to make the recession much more immediate and severe.

Inevitably during recessions all classes of real estate, including residential homes and condominiums, will be negatively impacted as lower consumer spending and higher unemployment rates affect real estate prices and marketing times.

Here are the six costly mistakes home and other real property sellers make during recessions and how to avoid them:

Mistake #1: This will pass and real estate market will be hot again soon

First thing to remember is that real estate cycles are much longer than general economic cycles. Even if the general economy recovers, which eventually it always does, a typical real estate cycle takes as long as 10 to 15 years. The cycle has four key stages: Top, Decline, Bottom and Rise.

Let us consider the last real estate cycle, which lasted approximately 14 years:

  • 2006 – Prices hit the Top
  • 2006 to 2012 – Prices Decline
  • 2012 – Prices hit the Bottom (Trough)
  • 2012 to 2019 – Prices Rise*
  • 2020 – Prices hit the Top
  • 2020 to? – Prices Decline

*NOTE: In 2016 the national residential real estate price index reached its pre-recession 2006 peak levels. It took 10 years for the real estate market to recover.

The way to avoid this mistake is to recognize that real estate cycles take years to run and plan accordingly. Additionally, nobody knows for sure when the prices will hit the top or bottom until after the fact.

Mistake #2: Low interest rates will make the economy and real estate market rebound

Between 2006 and 2011 the interest rates (Fed Funds) were continuously cut by the Federal Reserve Board and went from low 5% to almost 0%. However, that did not stop the real estate recession and depreciation of property values.

Undoubtedly, low interest rates made the economic decline and real estate recession less severe and saved some properties from foreclosures, but it still took six painful years for the real estate market to hit the bottom and then four more years for the prices to go back to their pre-recession levels.

Some markets had never fully recovered. For example, residential home prices in some parts of California, Arizona and Nevada are still below their 2006 highs.

To avoid this mistake, one needs to realize that although low interest rates help stimulate the economy and the real estate market, they do not cure them.

Mistake #3: I don’t need to sell now, so I don’t care

If you do not need to sell until the cycle plays out, which typically is over ten years, then you will not be as affected, especially if you have a strong equity position, limited mortgage debt, and solid liquid assets.

However, it is good to keep in mind that “life happens” and either professional or personal circumstances can change and we may need to sell property before the downturn runs its course.

Furthermore, if a property has a mortgages and its value declines to the point being “upside down,” meaning the mortgage loan balance exceeds the value of the property, then the options of selling, refinancing or even obtaining an equity line of credit, will be significantly limited.

This does not mean that everybody should be rushing into selling their real estate if there is no need to do so, just keep in mind that circumstances may and often do change and property options will be affected, so plan in advance. As one wise proverb says: “Dig your well before your thirst.”

Mistake #4: I’m selling, but I won’t sell below my “bottom line” price

This is a common and potentially very costly mistake. Generally speaking, every seller wants to sell for the highest price and every buyer wants to pay the lowest price. That’s nothing new. When selling real estate, most sellers want to achieve a certain price point and/or have a “bottom line.”

However, it is important to understand that the market does not care what the Seller, or his/her Agent, think the property value should be at. The market value is a price a willing and able buyer will pay, when a property is offered on an open market for a reasonable amount of time.

Overpricing property based on Seller’s subjective value or what is sometimes called an “aspirational price,” especially in a declining market, is a sure first step to losing money. When a property lingers on the market for an extended period of time, carrying costs will continue to accumulate and property value will depreciate in line with the market conditions.

Additionally, properties with prolonged marketing times tend to get “stale” and attract fewer buyers. The solution is to honestly assess your selling objectives, including the desired time-frame, evaluate your property’s attributes and physical condition, analyze comparable sales and market conditions, and then decide on market-based pricing and marketing strategies.

Mistake #5: I will list my property for sale only with Agent who promises the highest price

Real estate is a competitive business and real estate agents compete to list properties for sale which generate their sales commission incomes. It is not unusual that Seller will interview several agents before signing an exclusive listing agreement and go with the agent who agrees to list the property at the highest price, often regardless if such price is market-based.

Similarly to Mistake #4, this mistake can be very damaging to Sellers, as overpriced properties stay on the market for extended periods of time costing Sellers carrying expenses such as mortgage payments, property taxes, insurance, utilities and maintenance.

Furthermore, there is the “opportunity cost” since the equity is “frozen,” and it cannot be deployed elsewhere till the property is sold. However, the most expensive cost is the loss of property value while the real estate market deteriorates.

During the last recession, we have seen multiple cases where overpriced properties stayed on the market for years and ended up selling for 25% to 40% below their initial fair market values.

The solution is to make sure that your pricing strategy is based on the market, not empty promises or wishful thinking.

Mistake #6: I will list my property only with Agent who charges the lowest commission

Real estate commission rates are negotiable and not set by law. A commission usually represents the highest transactional expense in selling real properties and is typically split between Brokers and Agents who work on the transaction

Some real estate agents offer discounted commissions, in order to induce Sellers to list their properties with them. But does paying a discounted commission ensure savings for the Seller? Not necessarily.

For example, if the final sales price is 5% to 10% below property’s highest market value, which is not that unusual, due to inadequate marketing, bad pricing strategy, and/or poor negotiation skills, it will easily wipe out any commission savings and actually cost the Seller tens of thousands of dollars in lost revenues.

The solution is to engage an agent who is a “Trusted Advisor,” not just a “Salesperson.” A Trusted Advisor will take his/her time and effort to do the following: 1) Perform Needs Analysis: listen and understand your property needs and concerns; 2) Prepare Property Analysis: thoroughly evaluate your property and market conditions; 3) Execute Sales and Marketing Plan: prepare and implement custom sales and marketing plan for your property; and 4) Obtain Optimal Results: be your trusted advocate throughout the process and achieve the best possible outcome.

Finding such a real estate professional may not be always easy, but it certainly is worth the effort and will pay off at the end.

In conclusion, this article has outlined six costly mistakes real estate Sellers make during recessions and how to avoid them. The first mistake is not understanding that real estate cycles are long and take years. The second mistake is a misconception that low interest rates alone will create a recovery. Another mistake is not realizing that circumstances may change and not planning in advance. Mistakes number four, five and six pertain to understanding the market value, proper pricing and selecting the right real estate professional.

By understanding and avoiding these mistakes, real estate Sellers have significantly better chances of minimizing the negative impact of a recession while selling their properties.


Source by Robert W. Dudek

Continue Reading


Useful Tips To Build The Best Gaming Computer




Every gamer will want their computer to be the best gaming computer among their peers. Sometimes, with a little knowledge and tips and tricks, it is possible to build the best gaming computer and show it off to your peers. This article will show you how:

1) You can’t get the best gaming computer from computer retailers

If you want to get the best gaming computer, you have to build your own. Different gamers have different requirement for their gaming machine. Unless you are willing to pay a high price, you will not be able to buy a commercial computer that fulfills all your gaming needs. The only option you have is to build your own gaming computer.

2) You don’t have to be rich to build the best gaming computer

It is not necessary to burn a hole in your pocket to build the best gaming computer. With some due diligence, do some market research and compare prices around the marketplace. Merchant such as TigerDirect and NewEgg give regular discount to their products and you could save a lot of money if you catch them during their promotional period.

3) Most expensive parts do not have to be the best part

Sometime, the latest model or the most expensive model does not have to be the best part for your computer. It requires various components to work together to form the best computer system. When choosing a computer part, what matters is how well it can integrate with the rest of the components. Compatibility is more important than individual performance. What use is there if you spend lot of money on the latest quad-core processor and find that your motherboard doesn’t support it?

4) You don’t need to change the whole PC to own the best gaming computer

It is a misconception that you have to change the whole gaming machine to build the best gaming computer. If you already have a good barebone system, what you need to do is to upgrade the necessary parts and your gaming computer can roar back to life instantly.

5) Brand is important

Unless you want to see your computer system malfunction every few days, it is important that you purchase the parts from branded manufacturers with strict quality control. Motherboard brand such as Gigabyte, ABIT, ASUS are some quality brands that you can consider

If you follow diligently to the tips stated above. You will be on your way to build the best gaming computer. While price can be an issue, it is better not to scrimp on important computer parts such as motherboard, CPU, RAM and graphics card as it will cost you more to upgrade in the future.


Source by Damien Oh

Continue Reading


Live Statistics