Sorry, I'm behind on blogging... So as you know I bought a puny amount of FAS at $12.55. It's probably a good thing my mistake happened, since FAS has since plummeted.
When I realized my mistake, I removed my stop, because I didn't want to pay commissions on such a small trade... I didn't really care what happened with it.
Then yesterday with the markets way down in the morning, I bought a proper amount of FAS at $10.01. I set a stop at $8.50 (for a max 15% loss). I thought this was a steal of a deal and was expecting a rally since it was Obama's inaugaration day. But FAS easily hit my stop and plummeted to $7.60, and incredible 40% drop from the previous day's close! It's still hard to believe these 3x ETFs... 40% in one day -- amazing.
Anyway, so I'm feeling pretty crappy about that trade, but still felt there's got to be a rebound here with such large drops. So today, with the markets up, I waited for the first sign of a rally in the afternoon, and I bought in again, getting in around $8.50 -- basically where I previously exited. It was a pretty bad price since it was much lower earlier in the day. But the rally was strong to the close, and FAS finished at 9.90.
It's nice it finished so strong, so that now I can put a stop just above my entry point and not lose any more.
Man, I think it's a little too stressful to trade FAS/FAZ -- you practically need to be a day trader.
Wednesday, January 21, 2009
Thursday, January 15, 2009
Trade Update - FAS
Okay, I'm stupid...
I planned to buy FAS (3x bull financials) to catch a short rebound, since the markets have been mostly down the last 5 days in a row including being down sharply (3%) this morning.
I bought almost perfectly at the bottom at 12.55 before lunch and it immediately shot up to $15.00 before I realized my mistake: I was in such a hurry, I entered 1/10th the number of shares I meant to (because I was used to buying SKF which is in the $100's, not the $10's), so I ended up hardly owning anything. I can't make enough on this to even cover the commissions now, so I'm not sure what to do. I'll probably just wait till tomorrow to see. I think it's too risky to buy right now. If the markets drop again, I'll try to get into it again in the $12 range, this time with a proper number of shares, but I'm probably too late. Bah - so much for my perfect trade.
Lesson: Always review the trade confirmation page to make sure the total order amount makes sense before you click OK.
I planned to buy FAS (3x bull financials) to catch a short rebound, since the markets have been mostly down the last 5 days in a row including being down sharply (3%) this morning.
I bought almost perfectly at the bottom at 12.55 before lunch and it immediately shot up to $15.00 before I realized my mistake: I was in such a hurry, I entered 1/10th the number of shares I meant to (because I was used to buying SKF which is in the $100's, not the $10's), so I ended up hardly owning anything. I can't make enough on this to even cover the commissions now, so I'm not sure what to do. I'll probably just wait till tomorrow to see. I think it's too risky to buy right now. If the markets drop again, I'll try to get into it again in the $12 range, this time with a proper number of shares, but I'm probably too late. Bah - so much for my perfect trade.
Lesson: Always review the trade confirmation page to make sure the total order amount makes sense before you click OK.
Wednesday, January 14, 2009
Trade Update - SKF
I stuck with the plan and sold my SKF today at 138.10 (bought at 106), for a nice 30% gain in about 5 weeks.
Friday, January 2, 2009
Oil up
Oil closed up at $46 today, probably mainly due to the conflict in the Gaza strip. More details here.
In the last 5 days DXO has gone from $2.20 to $3.13 -- up over 50%! It just goes to show how much money could be made or lost with this ETN depending on your timing.
It looks like the Palestinian conflict could get worse, meaning oil could climb more. If oil gets above $55, I may sell off half of my DXO. Why? Well, while I still believe oil will go much higher long-term, I had obviously underestimated how much the economic downturn would affect it in the shorter term and how low it could go. If the current price is just being propped up by the recent conflict, it may be prudent to sell off some while it's high in order to be able to buy back in at a lower price. Also, I've got too much of my portfolio weighted in it right now since I kept averaging down as it dropped lower.
In the last 5 days DXO has gone from $2.20 to $3.13 -- up over 50%! It just goes to show how much money could be made or lost with this ETN depending on your timing.
It looks like the Palestinian conflict could get worse, meaning oil could climb more. If oil gets above $55, I may sell off half of my DXO. Why? Well, while I still believe oil will go much higher long-term, I had obviously underestimated how much the economic downturn would affect it in the shorter term and how low it could go. If the current price is just being propped up by the recent conflict, it may be prudent to sell off some while it's high in order to be able to buy back in at a lower price. Also, I've got too much of my portfolio weighted in it right now since I kept averaging down as it dropped lower.
Wednesday, December 31, 2008
2008 - Year in Review, Look Ahead
Summary: 2008 sucked, The U.S. is in a recession depression and they are screwed for the next few years, Canada is starting a recession, and so good luck with 2009!
The numbers coming out on everything are just staggering, no matter what you're looking at -- jobless claims, housing starts, housing price declines, commercial real-estate values, vacancy rates, auto sales, etc. Just look at the news headlines I highlighted in my last post. I don't think people really realize just how incredibly bad the data is. I don't want to be a doomsdayer, but all signs are pointing to things getting worse before they get better. Everything I could want to say on this and more is captured in Eric Sprott's latest Markets At a Glance article. Please read it and re-read it:
Eric Sprott's Markets at a Glance - Dec. 2008: "Surviving the Depression"
You didn't read it, did you :) Go back and read it...
So the U.S. is screwed, but what about here in Calgary? With oil at all-time crazy prices, our oil industry here has kept salaries and spending high. But oil has dropped from $140 to $40, Oil & Gas companies are halting tons of projects, we're starting to hear the stories of the lay-offs, and the construction boom has ground to a halt. The problems in the U.S. will also eventually affect us, but no-one knows how much. So we are definitely going to start to notice a change here. Housing prices here dropped 14% in 2008, and we all know that a house is still pretty much unaffordable if your family isn't making $100K+. I cannot see anything but house prices in Calgary dropping further in 2009. If you're looking to buy a house, I'd wait another year. If you own a house, there's nothing you can really do and I wouldn't stress about it. If you have a good job, don't expect a raise, but be thankful for your job.
Investing -2008
In 2008, world markets fell by an average of 45%, the U.S and Canada by about 35%. I was concentrated in gold and energy stocks through Sprott mutual funds, which were hit very hard, and so I lost about 50% this year. Losing half of your life savings is still really tough for me to accept. While my Sprott investments were making about 25%/year the 5 years before, this now brings that down to an average of only 8% per year over the last 6 years.
The past 10-year return for U.S. market indices is slightly negative, and Canada is slightly positive. In other words, if you're a typical investor who started investing in the stock market 10 years ago, you've basically made nothing over that whole period!
As for my stock trading that I started doing again in October, and which this blog is mainly about, it's been mixed for me. For my small trades, mostly of SSO, DIG, and UYG/SKF, I averaged about a 12% gain over the last 2.5 months. Not bad, but nothing to brag about.
My biggest investment though has been in oil, via DXO. My average purchase price is about 3.68, and DXO is currently at 2.55. I bought in way too early as oil was dropping and now am suffering the consequences -- I'm currently down 30%. I will only break-even with oil around $55, and oil is currently at $43. Just a few days ago oil was down to the low $30's and DXO hit $1.80. I so badly wanted to buy more, and I would've made a killing in just a few days, but I had already spent all my money. I'm just going to have to wait it out.
Investing 2009
So what's the plan for 2009? I have no idea what I'd recommend to anyone. The thing is, the markets are often irrational. I think the economy is only going to get worse, but the markets could stage some big rally after dropping so much, no matter how little sense that makes given the current economic data. So I have no recommendation on what to buy or sell. For me, I'm just going to try to play the swings in the market.
Long-term I think oil, gold, and agricultural commodities will do well, at least preserving their values if not rising, so the ETNs for these might be a safer place to be than the general stock market. You can read my past posts on why I'm mainly moving into oil (DXO).
I guess that's about all I have to say, so good luck to everyone in 2009!
The numbers coming out on everything are just staggering, no matter what you're looking at -- jobless claims, housing starts, housing price declines, commercial real-estate values, vacancy rates, auto sales, etc. Just look at the news headlines I highlighted in my last post. I don't think people really realize just how incredibly bad the data is. I don't want to be a doomsdayer, but all signs are pointing to things getting worse before they get better. Everything I could want to say on this and more is captured in Eric Sprott's latest Markets At a Glance article. Please read it and re-read it:
Eric Sprott's Markets at a Glance - Dec. 2008: "Surviving the Depression"
You didn't read it, did you :) Go back and read it...
So the U.S. is screwed, but what about here in Calgary? With oil at all-time crazy prices, our oil industry here has kept salaries and spending high. But oil has dropped from $140 to $40, Oil & Gas companies are halting tons of projects, we're starting to hear the stories of the lay-offs, and the construction boom has ground to a halt. The problems in the U.S. will also eventually affect us, but no-one knows how much. So we are definitely going to start to notice a change here. Housing prices here dropped 14% in 2008, and we all know that a house is still pretty much unaffordable if your family isn't making $100K+. I cannot see anything but house prices in Calgary dropping further in 2009. If you're looking to buy a house, I'd wait another year. If you own a house, there's nothing you can really do and I wouldn't stress about it. If you have a good job, don't expect a raise, but be thankful for your job.
Investing -2008
In 2008, world markets fell by an average of 45%, the U.S and Canada by about 35%. I was concentrated in gold and energy stocks through Sprott mutual funds, which were hit very hard, and so I lost about 50% this year. Losing half of your life savings is still really tough for me to accept. While my Sprott investments were making about 25%/year the 5 years before, this now brings that down to an average of only 8% per year over the last 6 years.
The past 10-year return for U.S. market indices is slightly negative, and Canada is slightly positive. In other words, if you're a typical investor who started investing in the stock market 10 years ago, you've basically made nothing over that whole period!
As for my stock trading that I started doing again in October, and which this blog is mainly about, it's been mixed for me. For my small trades, mostly of SSO, DIG, and UYG/SKF, I averaged about a 12% gain over the last 2.5 months. Not bad, but nothing to brag about.
My biggest investment though has been in oil, via DXO. My average purchase price is about 3.68, and DXO is currently at 2.55. I bought in way too early as oil was dropping and now am suffering the consequences -- I'm currently down 30%. I will only break-even with oil around $55, and oil is currently at $43. Just a few days ago oil was down to the low $30's and DXO hit $1.80. I so badly wanted to buy more, and I would've made a killing in just a few days, but I had already spent all my money. I'm just going to have to wait it out.
Investing 2009
So what's the plan for 2009? I have no idea what I'd recommend to anyone. The thing is, the markets are often irrational. I think the economy is only going to get worse, but the markets could stage some big rally after dropping so much, no matter how little sense that makes given the current economic data. So I have no recommendation on what to buy or sell. For me, I'm just going to try to play the swings in the market.
Long-term I think oil, gold, and agricultural commodities will do well, at least preserving their values if not rising, so the ETNs for these might be a safer place to be than the general stock market. You can read my past posts on why I'm mainly moving into oil (DXO).
I guess that's about all I have to say, so good luck to everyone in 2009!
Thursday, December 11, 2008
News Headlines
Hmmm....Let's take a look at today's news headlines, and you tell me if it looks like things are getting better:
GOP Stands Firm, Putting Auto Bailout in Doubt
By DAVID M. HERSZENHORN and DAVID E. SANGER WASHINGTON - The prospects of a $14 billion government rescue of the American auto industry seemed to vaporize on Thursday morning as the Senate Republican leader, Mitch McConnell of Kentucky, ...
Recession seen worsening
Reuters - 4 hours agoBy Jim Christie SAN FRANCISCO (Reuters) - The "nasty" US recession will tighten its grip next year as unemployment rises and weak home and stock prices imperil consumers, finance firms and debt-laden businesses, a UCLA Anderson Forecast report released ...
US Household Net Worth Fell Most on Record in Third Quarter
Bloomberg - 1 hour agoBy Shobhana Chandra Dec. 11 (Bloomberg) -- US household wealth fell from July to September by the most on record as property values and stock prices tumbled, Federal Reserve figures showed.
Foreclosure Storm Will Hit US in ‘09 Amid Job Loss (Update1)
Bloomberg - 1 hour agoBy Dan Levy Dec. 11 (Bloomberg) -- US foreclosure filings climbed 28 percent in November from a year earlier and a brewing “storm” of new defaults and job losses may force 1 million homeowners from their properties next year, RealtyTrac Inc. said.California has highest total number of foreclosure filings in November Bizjournals.comForeclosures dip - but hold the applause CNNMoney.com
Jobless claims jump to 573000, a 26-year high
MarketWatch - 4 hours agoBy Rex Nutting, MarketWatch WASHINGTON (MarketWatch) -- The US labor market weakened further last week, with the number of first-time filings for state unemployment benefits jumping by 58000 to a 26-year high of 573000, the Labor Department reported ...
US Exports Fall More Than Two Percent
Washington Post - 3 hours agoBy Howard Schneider US exports tumbled in October as a collapse in global demand for goods and services undermined what in recent months has been an important prop for an otherwise shrinking economy.Trade Deficit in US Widens as Exports Decrease (Update1) BloombergDeficit of $57.2 billion is wider than forecasts; oil imports jumped MarketWatch
KB Toys Files Bankruptcy, Citing ‘Sudden’ Sales Drop (Update2)
Bloomberg - 38 minutes agoBy Steven Church and Heather Burke Dec. 11 (Bloomberg) -- KB Toys Inc., the 86-year-old toy retailer, filed for bankruptcy with plans to shut its 277 stores, citing a “sudden drop” in sales.
Costco Doesn't Expect To Meet Analysts' 2Q Profit Estimate
2nd UPDATE: Lilly Sees Slower 2009 Sales Growth, Big 4Q Charge
Krispy Kreme Q3 loss widens
Ciena Posts Loss as Customers Push Back Orders
This is why I'm short the market. Maybe SKF wasn't the best thing I could've bought to accomplish this since it's limited to just the Financial sector, but I guess it's good enough. It's already up to $120 from $106 when I bought 2 days ago.
The U.S. dollar is finally starting to drop, so gold is starting to recover. Currently it is at $820. This means my Sprott funds are finally recovering a bit.
Oil shot up to $49 to day on the US dollar drop and expectation that OPEC will announce a big production cut in their Dec.17th meeting. Also, the International Energy Agency's latest monthly report said that they actually expect global oil demand to rise in 2009 by 500,000 barrels a day, going against the recent U.S. goverment Energy Information Administration's forecast that demand would drop by that same amount in 2009.
GOP Stands Firm, Putting Auto Bailout in Doubt
By DAVID M. HERSZENHORN and DAVID E. SANGER WASHINGTON - The prospects of a $14 billion government rescue of the American auto industry seemed to vaporize on Thursday morning as the Senate Republican leader, Mitch McConnell of Kentucky, ...
Recession seen worsening
Reuters - 4 hours agoBy Jim Christie SAN FRANCISCO (Reuters) - The "nasty" US recession will tighten its grip next year as unemployment rises and weak home and stock prices imperil consumers, finance firms and debt-laden businesses, a UCLA Anderson Forecast report released ...
US Household Net Worth Fell Most on Record in Third Quarter
Bloomberg - 1 hour agoBy Shobhana Chandra Dec. 11 (Bloomberg) -- US household wealth fell from July to September by the most on record as property values and stock prices tumbled, Federal Reserve figures showed.
Foreclosure Storm Will Hit US in ‘09 Amid Job Loss (Update1)
Bloomberg - 1 hour agoBy Dan Levy Dec. 11 (Bloomberg) -- US foreclosure filings climbed 28 percent in November from a year earlier and a brewing “storm” of new defaults and job losses may force 1 million homeowners from their properties next year, RealtyTrac Inc. said.California has highest total number of foreclosure filings in November Bizjournals.comForeclosures dip - but hold the applause CNNMoney.com
Jobless claims jump to 573000, a 26-year high
MarketWatch - 4 hours agoBy Rex Nutting, MarketWatch WASHINGTON (MarketWatch) -- The US labor market weakened further last week, with the number of first-time filings for state unemployment benefits jumping by 58000 to a 26-year high of 573000, the Labor Department reported ...
US Exports Fall More Than Two Percent
Washington Post - 3 hours agoBy Howard Schneider US exports tumbled in October as a collapse in global demand for goods and services undermined what in recent months has been an important prop for an otherwise shrinking economy.Trade Deficit in US Widens as Exports Decrease (Update1) BloombergDeficit of $57.2 billion is wider than forecasts; oil imports jumped MarketWatch
KB Toys Files Bankruptcy, Citing ‘Sudden’ Sales Drop (Update2)
Bloomberg - 38 minutes agoBy Steven Church and Heather Burke Dec. 11 (Bloomberg) -- KB Toys Inc., the 86-year-old toy retailer, filed for bankruptcy with plans to shut its 277 stores, citing a “sudden drop” in sales.
Costco Doesn't Expect To Meet Analysts' 2Q Profit Estimate
2nd UPDATE: Lilly Sees Slower 2009 Sales Growth, Big 4Q Charge
Krispy Kreme Q3 loss widens
Ciena Posts Loss as Customers Push Back Orders
This is why I'm short the market. Maybe SKF wasn't the best thing I could've bought to accomplish this since it's limited to just the Financial sector, but I guess it's good enough. It's already up to $120 from $106 when I bought 2 days ago.
The U.S. dollar is finally starting to drop, so gold is starting to recover. Currently it is at $820. This means my Sprott funds are finally recovering a bit.
Oil shot up to $49 to day on the US dollar drop and expectation that OPEC will announce a big production cut in their Dec.17th meeting. Also, the International Energy Agency's latest monthly report said that they actually expect global oil demand to rise in 2009 by 500,000 barrels a day, going against the recent U.S. goverment Energy Information Administration's forecast that demand would drop by that same amount in 2009.
Tuesday, December 9, 2008
SKF
I bought some SKF (2x inverse financials) yesterday at $106.00.
Here's what the 3-month chart looks like:
Here's what the 3-month chart looks like:
There's still no good news in sight, so I see no reason for a continued rally in the financials or the rest of the market. (You never know though, because at some point here, probably early next year, people will become optimistic and start investing again. This may happen with Obama coming into power and people just generally thinking we must be near a bottom.)
I still expect more bad news in December and even just looking at the chart from a technical perspective, this trade looks like a good risk/reward trade. I mean, SKF went from $280 to $100 here in less than a month, so I think the odds of a bounce are good. I hope to sell around $140.
Thursday, December 4, 2008
Oil
Oil hit $43 today. I just bought another chunk of DXO at 2.78. I can't really afford to buy any more. I think my break-even is around 3.70 now (requiring oil to be around $55, or higher the more that oil drops lower in the interm -- I'll cover the reason for this in another post sometime).
If Oil goes to $25 like some are predicting, I guess I'll be holding for a while longer than expected :) Oil will eventually go back up though, so again, no real worries. The one risk with ETNs are that if the issuer (Deutsche Bank in this case) goes under, you likely won't see any of your money again. This Credit Risk is something that differentiates ETNs from ETFs. So as long as Deutsche Bank stays healthy, which it looks like it should from what I've read up on it (although you never know), then I still see an easy 100% return on this investment.
If Oil goes to $25 like some are predicting, I guess I'll be holding for a while longer than expected :) Oil will eventually go back up though, so again, no real worries. The one risk with ETNs are that if the issuer (Deutsche Bank in this case) goes under, you likely won't see any of your money again. This Credit Risk is something that differentiates ETNs from ETFs. So as long as Deutsche Bank stays healthy, which it looks like it should from what I've read up on it (although you never know), then I still see an easy 100% return on this investment.
Monday, December 1, 2008
Oil - $48
Holy cow: Oil just went below $48 tonight. If it stays that low, DXO will open below $3. I may have to just sell more of my Sprott funds off or try to to borrow some money so I can make another big investment here :)
OPEC is meeting again on Dec.17th, and will likely announce another production cut, but I don't know if that will do anything for the price of oil.
I'm wondering if I just try to play the swings in oil with some money. Just buy DXO on the dips (e.g. around $3.00) and sell it off whenever I'm up 20-50%. This would be a good strategy if it takes a year for the oil price to take off again.
OPEC is meeting again on Dec.17th, and will likely announce another production cut, but I don't know if that will do anything for the price of oil.
I'm wondering if I just try to play the swings in oil with some money. Just buy DXO on the dips (e.g. around $3.00) and sell it off whenever I'm up 20-50%. This would be a good strategy if it takes a year for the oil price to take off again.
Recession Confirmed
Market crash again today. Glad I got out of SSO and UYG! Apparently it was the biggest one-day point drop in the TSX since crash of '87. Like that even means anything any more. I think the media can stop giving stats like "the biggest x day point/percentage drop since xyz." Every day it's some new record; the volatility is just crazy. So just stop it with the stats unless it's something really major.
I was wanting to switch over to SKF (2x short financials, basically the opposite of UYG), but was waiting for it to go below $130. It didn't quite make it, and it shot up 30% today -- gah! Missed out again. There's so much opportunity to play these market swings, it's just impossible to time the peaks and valleys.
Oh, and the big news today was that yes, the U.S. is in a recession and it officially started in December of 2007. Well, no duh. I think it's so stupid that it took a whole year to "confirm" the recession. But I guess everyone's definition of the term recession is different anyway. According to the most commonly used rule of thumb, you have to have 2 consecutive quarters of negative GDP growth to be in a recession, which has not happened yet. Obviously that is not a very reliable indicator. I hated how the question in the news throughout 2008 was always "Do you think we're in a recession?" Why wasn't every single economist jumping up and down saying, "Yep, it sure looks like it!" No, no-one would ever admit it. You can never be negative... wouldn't want to spook investors and have the markets drop or something.
Of course Mr. Eric Sprott was right as usual, saying back in January and February of 2008 that it looked like the recession had finally begun. It's always interesting to go back to Sprott's Markets at a Glance articles from late 2007 and early 2008 to see how accurately they predicted the whole mess that is now happening.
I'm obviously more bearish on the markets than bullish, but I keep feeling I'm missing out on the short opportunities and then I end up going long when I think there might be a temporary bottom. And I could see myself trying to grab a short-term bounce again soon, buying back into UYG if it hits the $3.xx range over the next week. We'll see...
I was wanting to switch over to SKF (2x short financials, basically the opposite of UYG), but was waiting for it to go below $130. It didn't quite make it, and it shot up 30% today -- gah! Missed out again. There's so much opportunity to play these market swings, it's just impossible to time the peaks and valleys.
Oh, and the big news today was that yes, the U.S. is in a recession and it officially started in December of 2007. Well, no duh. I think it's so stupid that it took a whole year to "confirm" the recession. But I guess everyone's definition of the term recession is different anyway. According to the most commonly used rule of thumb, you have to have 2 consecutive quarters of negative GDP growth to be in a recession, which has not happened yet. Obviously that is not a very reliable indicator. I hated how the question in the news throughout 2008 was always "Do you think we're in a recession?" Why wasn't every single economist jumping up and down saying, "Yep, it sure looks like it!" No, no-one would ever admit it. You can never be negative... wouldn't want to spook investors and have the markets drop or something.
Of course Mr. Eric Sprott was right as usual, saying back in January and February of 2008 that it looked like the recession had finally begun. It's always interesting to go back to Sprott's Markets at a Glance articles from late 2007 and early 2008 to see how accurately they predicted the whole mess that is now happening.
I'm obviously more bearish on the markets than bullish, but I keep feeling I'm missing out on the short opportunities and then I end up going long when I think there might be a temporary bottom. And I could see myself trying to grab a short-term bounce again soon, buying back into UYG if it hits the $3.xx range over the next week. We'll see...
Wednesday, November 26, 2008
Trade Update - UYG, SSO
The markets were up again, so I sold my UYG for a very nice 30% gain in 1 week. While that sounds sweet, I had such a small amount invested in it that it really didn't do much for my portfolio.
SSO finally climbed back up to my purchase price, and I exited my position. At one point on Friday I was down a whopping 40% on this trade, and that scared me enough to get out while I could today without a loss. I can't tell which way the markets are going to go. Is this just the beginning of a much larger rally? I'm too chicken to take any chances, especially after having being down so much, and now with the markets being up 4 days in a row. So I'm happy to get out now even if it continues to rally.
Trades (Nov.26):
Sold UYG @ 6.00 (bought on Nov.19 @ 4.62), a 30% gain.
Sold SSO @ 5.80 (bought on Nov.12 @ 5.65), a 2% gain.
P.S. I should note that with the current crazy commissions I'm paying, you can usually subtract about 5% off the posted trade gains to arrive at what I really made. E.g. I actually took a very small loss on the SSO trade. The variations in the CAD/USD exchange rate over the length of a trade also affects what I really make on these ETFs that trade on the american exchanges.
SSO finally climbed back up to my purchase price, and I exited my position. At one point on Friday I was down a whopping 40% on this trade, and that scared me enough to get out while I could today without a loss. I can't tell which way the markets are going to go. Is this just the beginning of a much larger rally? I'm too chicken to take any chances, especially after having being down so much, and now with the markets being up 4 days in a row. So I'm happy to get out now even if it continues to rally.
Trades (Nov.26):
Sold UYG @ 6.00 (bought on Nov.19 @ 4.62), a 30% gain.
Sold SSO @ 5.80 (bought on Nov.12 @ 5.65), a 2% gain.
P.S. I should note that with the current crazy commissions I'm paying, you can usually subtract about 5% off the posted trade gains to arrive at what I really made. E.g. I actually took a very small loss on the SSO trade. The variations in the CAD/USD exchange rate over the length of a trade also affects what I really make on these ETFs that trade on the american exchanges.
Monday, November 24, 2008
Bounce
Well the markets finally bounced, with big gains at the end of Friday and today, Monday. You could make a killing in this volatile environment if you could time the bottoms and tops. For example, UYG is up 50% from its lows 2 days ago (Friday), mainly due to bank stocks surging today. Unfortunately, since I bought back on Wednesday, I was already down about 28% by the time it hit the lows on Friday, so the huge +52% gain from there only brings me to about +10% as of today. So I need the rally to continue in order to actually make any reasonable amount of gains on it.
Thursday, November 20, 2008
Ouch!
Ouch! The market plummeted again today. S&P down almost 7%. UYG down 19%. I should've known not to try to catch a falling knife. Oh well.
And Oil finally went below $50. I should've stuck to my plan to wait until oil went this low before buying more DXO, but even when blogging about it I couldn't force myself to stick to the plan.
I'm sure tomorrow will be interesting.
And Oil finally went below $50. I should've stuck to my plan to wait until oil went this low before buying more DXO, but even when blogging about it I couldn't force myself to stick to the plan.
I'm sure tomorrow will be interesting.
Wednesday, November 19, 2008
Trade Update - UYG, DXO
The market has continued to drop, and so has oil. I made a bit of a gamble trade today, buying UYG (2x financials) at 4.62 at the end of the day, after it had dropped 20% today alone, and is down 50% from 2 weeks ago. It feels wrong to me buying long ETFs when the market is crashing, and I may regret this (I feel like I'm starting to rationalize like I was in the dot-com bust). It could easily plummet a lot more this week as the DOW breaks the 8000 mark, but again, I'm still just looking for a short-term bounce to make a quick 20% after such a large drop.
I also bought some more DXO (2x oil) at 3.68 today while oil was down around $53, to add to what I bought at 4.85 when oil was $59. I don't know why I can't be more disciplined and wait for oil to drop to $50 so I don't spend all my cash too early... I got too impatient and gave in. This trade doesn't worry me at all though. Who cares if oil goes to $40 short-term. In a few months it will be back up. I won't lose money on this trade; I just may not make as much as I could have if I waited to buy in lower. I plan to make a minimum of 100% on this within a year.
I'm still holding my SSO even though it's down 15% now.
Trades:
-bought more DXO @ 3.68
-bought UYG @ 4.62
I also bought some more DXO (2x oil) at 3.68 today while oil was down around $53, to add to what I bought at 4.85 when oil was $59. I don't know why I can't be more disciplined and wait for oil to drop to $50 so I don't spend all my cash too early... I got too impatient and gave in. This trade doesn't worry me at all though. Who cares if oil goes to $40 short-term. In a few months it will be back up. I won't lose money on this trade; I just may not make as much as I could have if I waited to buy in lower. I plan to make a minimum of 100% on this within a year.
I'm still holding my SSO even though it's down 15% now.
Trades:
-bought more DXO @ 3.68
-bought UYG @ 4.62
Thursday, November 13, 2008
Trade Update - SSO
Yesterday I bought some SSO (2x S&P500) at 25.65. Why? The S&P was around 870, almost at the lowest point it had reached in recent times back on Oct.27. There has been a lot of recent market negativity and continued bleak news reports, but it was the 3rd day in a row of quite significant market losses. With that alone I thought/hoped it was due for a short-term bounce, possibly before the end of the day. Also, I noticed theMarketSpeculator was buying too, which gave me some confidence.
Well, it continued dropping yesterday after I bought. Then the markets dropped more today -- at one point I was down 10% on the trade. But the markets took off like crazy out of nowhere at 1 pm and finished up a whopping 6%. DOW ended +550 at 8835, the 3rd largest 1 day point gain. What's crazy is that from 1pm to the 4:30 close the Dow gained almost 1000 points from it's midday low! Talk about volatility. Within that time frame my SSO holding went from being -10% to +9% ($28.10 close)-- almost a 20% swing in 3 hours. crazy.
Side note: I never know where I should place stops. I didn't place a stop on this trade and I'm glad I didn't. If I had placed one at say 10% below my entry, or at a support level around $24, I would've been stopped out at the lowest point today right before it took off.
I may place a stop now around break-even, and don't know when I'll sell.
Trades:
Nov.12,2008 - bought SSO @ 25.65
P.S. Google Finance links are now broken for many ProShares ETFs that moved to another exchange. Yahoo Finance works. Hopefully Google will fix it soon.
Well, it continued dropping yesterday after I bought. Then the markets dropped more today -- at one point I was down 10% on the trade. But the markets took off like crazy out of nowhere at 1 pm and finished up a whopping 6%. DOW ended +550 at 8835, the 3rd largest 1 day point gain. What's crazy is that from 1pm to the 4:30 close the Dow gained almost 1000 points from it's midday low! Talk about volatility. Within that time frame my SSO holding went from being -10% to +9% ($28.10 close)-- almost a 20% swing in 3 hours. crazy.
Side note: I never know where I should place stops. I didn't place a stop on this trade and I'm glad I didn't. If I had placed one at say 10% below my entry, or at a support level around $24, I would've been stopped out at the lowest point today right before it took off.
I may place a stop now around break-even, and don't know when I'll sell.
Trades:
Nov.12,2008 - bought SSO @ 25.65
P.S. Google Finance links are now broken for many ProShares ETFs that moved to another exchange. Yahoo Finance works. Hopefully Google will fix it soon.
Friday, November 7, 2008
3x Leveraged ETFs
I knew these were coming down the pipe, but my brother just notified me that eight 3x Leveraged ETFs from Direxion are now available -- the first of their kind. Crazy!
See this SeekingAlpha article for the details.
So for example, instead of buying DIG for 2x performance of an energy index, you could buy ERX for 3x the performance.
Since the 3x performance is applied daily, some weird, unintuitive behaviour can occur over multiple days (usually in a bad way)... but that's for another post. In the meantime, proceed with extreme caution! It'll be interesting to watch these to see what kind of volume these get and how they perform over time.
See this SeekingAlpha article for the details.
So for example, instead of buying DIG for 2x performance of an energy index, you could buy ERX for 3x the performance.
Since the 3x performance is applied daily, some weird, unintuitive behaviour can occur over multiple days (usually in a bad way)... but that's for another post. In the meantime, proceed with extreme caution! It'll be interesting to watch these to see what kind of volume these get and how they perform over time.
Thursday, November 6, 2008
Trade Update - DXO
Well, what people were saying actually came true for once: that when Europe cut rates today, that would boost the dollar, and oil would drop. I was a little worried with oil at $70 2 days ago, but sure enough oil has dropped to $60. DXO went under $5, so I bought a whole bunch. Unfortunately, now I have to sell a bunch of my Sprott funds to pay for the trade :(
Oh, and Please stay above $60, oil, so I can sleep the coming nights :)
Unrelated note: I plan to do a couple of posts on ETFs, ETNs, ETFs vs ETNs (now that I finally understand much better), some info on changes in the Sprott funds, as well as talk about something most people have never heard of: MICs.
Trades:
Bought DXO @ 4.85. Will be selling an equivalent amount of my Sprott Canadian Equity fund to pay for this.
Oh, and Please stay above $60, oil, so I can sleep the coming nights :)
Unrelated note: I plan to do a couple of posts on ETFs, ETNs, ETFs vs ETNs (now that I finally understand much better), some info on changes in the Sprott funds, as well as talk about something most people have never heard of: MICs.
Trades:
Bought DXO @ 4.85. Will be selling an equivalent amount of my Sprott Canadian Equity fund to pay for this.
Monday, November 3, 2008
Shift Investments to Oil? Part 3
In Part 1, I talked about the various leveraged commodity ETNs and their potential gains. It looked like the ETN for Oil, symbol DXO, had the greatest potential, since oil has moved by a larger amount than the other commodities. Going forward, it seems to me that this will continue. For example, it seems easier or more likely for the price of oil to double from $60 to $120, than for, say, the price of gold to double from $720 to $1440. While both may move up, it seems that the potential for oil to move up more is greater.
In Part 2, I talked about the argument for the price of oil going up, and why oil was such a great investment in the long run.
In Part 3, the last post on this, I'm only going to talk about DXO and its risk/reward to help determine if it is a good investment.
I put together a chart showing some observed values of DXO at certain prices of Crude Oil.
One thing that is interesting is that the DXO line is a curve, not a straight line that follows "y = 2x + c". After reading up on how the ETN gain is calculated (which appears to be monthly), it seems this effect is due to compounding over time. For example, say the price of oil keeps going up 10% each month, compounding, for 7 months. This ends up being a 95% gain (1.10^7 - 1)*100%. You might expect the 2x ETN to gain double that, or 190%. However, if the 2x ETN goes up double the amount that the price of oil went up each month -- that is, 20% each month -- for 7 months, this works out to (1.20^7 - 1)*100%, or a 258% gain in the end. Notice this ends up being over 2.5x the oil price's percentage gain over the same 7 month period. Because the compounding effect varies a lot depending on whether the commodity is trending or whipsawing back and forth a lot over the year, we can't totally rely on the chart above for a prediction of the ETN price based on what the price of oil is, but it should give us a rough idea.
Reward:
Looking at the chart, we see we can make HUGE gains if oil goes up even a small amount. For example, with oil at $64/barrel right now, DXO is around $5. If oil reaches $88/barrel, DXO should be around $10. That is a 100% gain. If oil reaches $105/barrel, DXO should be around $15. That's a 200% gain, or an increase of 3x in your investment! And imagine if you were to get into DXO at a price below $5? How long until oil is over $88/barrel again?
Risk:
The bad news is that a small drop in oil price is a huge drop in DXO. Extrapolating the price data, if oil were to go down from its current $65/barrel to $50/barrel, DXO could drop to around $2.70 -- you'd lose almost 50% of your investment right there. If oil were to go down to $30/barrel, DXO could be around $0.80 -- meaning you've lost... well, most of your investment. So you will lose a lot with any drop in the oil price.
The good news is that oil is not like the stock of some company, where the company could go bankrupt and the price goes to zero. Oil cannot go to zero. We know oil is going to be in demand for a while yet, and as pointed out in the last post, all signs point to an increased oil price in the long term. So as long as you're willing to hold on, the risk of losing any money in this investment seems extremely low, as oil will eventually rise above its current price.
So, can you handle losing 50% or more of your investment for a few months... a few years, in the unlikely event it takes that long?
I guess one other risk I should mention is the risk that the ETN could shut down if the price gets too low, and you'd end up losing most of your money. I read somewhere that this happened to some ETFs (I'm too lazy to find the links for this).
The question for me is really just how low will oil go in the short term? While it's hard to imagine oil at $20 again, you only have to go back to 2003 to see oil in the $20's. That's scary to me. Losing 50% of an investment with a small drop in oil is scary to me. So what's a good entry point? Should I really care, especially if I believe that oil is guaranteed to go over $100 at some point in the future? Imagine what will happen when we see some of the production numbers and decline rates from the big reserves a year from now?
Another random thought: What effect is the election result going to have tomorrow?
I don't really know how to summarize this post. DXO's risk/reward ratio looks great if you're planning 5 years out from now, but in the short-term the risk is quite high. But again, the type of risk is mainly that you'd lose money on paper, and only temporarily too, and as long as you hold on you'd be virtually guaranteed making money on the investment. There is still some risk of you actually losing money; this would happen if the ETN shuts down while at a low price, or if you are forced to sell due to some other personal financial situation. So I wouldn't put your life savings in something like this, but the risk/reward ratio is too good to pass up not investing in this.
So what am I going to do? I'll strongly consider selling some of my Sprott funds and buying DXO at $4, meaning oil has to touch below $60 again, which I think it could do this week. If it doesn't look like that will happen, I may buy at $5. If oil drops even further to $50 (and thus DXO goes under $3), then I'd probably actually borrow some funds and buy a whole lot more, as crazy as that may sound.
In Part 2, I talked about the argument for the price of oil going up, and why oil was such a great investment in the long run.
In Part 3, the last post on this, I'm only going to talk about DXO and its risk/reward to help determine if it is a good investment.
I put together a chart showing some observed values of DXO at certain prices of Crude Oil.
One thing that is interesting is that the DXO line is a curve, not a straight line that follows "y = 2x + c". After reading up on how the ETN gain is calculated (which appears to be monthly), it seems this effect is due to compounding over time. For example, say the price of oil keeps going up 10% each month, compounding, for 7 months. This ends up being a 95% gain (1.10^7 - 1)*100%. You might expect the 2x ETN to gain double that, or 190%. However, if the 2x ETN goes up double the amount that the price of oil went up each month -- that is, 20% each month -- for 7 months, this works out to (1.20^7 - 1)*100%, or a 258% gain in the end. Notice this ends up being over 2.5x the oil price's percentage gain over the same 7 month period. Because the compounding effect varies a lot depending on whether the commodity is trending or whipsawing back and forth a lot over the year, we can't totally rely on the chart above for a prediction of the ETN price based on what the price of oil is, but it should give us a rough idea.
Reward:
Looking at the chart, we see we can make HUGE gains if oil goes up even a small amount. For example, with oil at $64/barrel right now, DXO is around $5. If oil reaches $88/barrel, DXO should be around $10. That is a 100% gain. If oil reaches $105/barrel, DXO should be around $15. That's a 200% gain, or an increase of 3x in your investment! And imagine if you were to get into DXO at a price below $5? How long until oil is over $88/barrel again?
Risk:
The bad news is that a small drop in oil price is a huge drop in DXO. Extrapolating the price data, if oil were to go down from its current $65/barrel to $50/barrel, DXO could drop to around $2.70 -- you'd lose almost 50% of your investment right there. If oil were to go down to $30/barrel, DXO could be around $0.80 -- meaning you've lost... well, most of your investment. So you will lose a lot with any drop in the oil price.
The good news is that oil is not like the stock of some company, where the company could go bankrupt and the price goes to zero. Oil cannot go to zero. We know oil is going to be in demand for a while yet, and as pointed out in the last post, all signs point to an increased oil price in the long term. So as long as you're willing to hold on, the risk of losing any money in this investment seems extremely low, as oil will eventually rise above its current price.
So, can you handle losing 50% or more of your investment for a few months... a few years, in the unlikely event it takes that long?
I guess one other risk I should mention is the risk that the ETN could shut down if the price gets too low, and you'd end up losing most of your money. I read somewhere that this happened to some ETFs (I'm too lazy to find the links for this).
The question for me is really just how low will oil go in the short term? While it's hard to imagine oil at $20 again, you only have to go back to 2003 to see oil in the $20's. That's scary to me. Losing 50% of an investment with a small drop in oil is scary to me. So what's a good entry point? Should I really care, especially if I believe that oil is guaranteed to go over $100 at some point in the future? Imagine what will happen when we see some of the production numbers and decline rates from the big reserves a year from now?
Another random thought: What effect is the election result going to have tomorrow?
I don't really know how to summarize this post. DXO's risk/reward ratio looks great if you're planning 5 years out from now, but in the short-term the risk is quite high. But again, the type of risk is mainly that you'd lose money on paper, and only temporarily too, and as long as you hold on you'd be virtually guaranteed making money on the investment. There is still some risk of you actually losing money; this would happen if the ETN shuts down while at a low price, or if you are forced to sell due to some other personal financial situation. So I wouldn't put your life savings in something like this, but the risk/reward ratio is too good to pass up not investing in this.
So what am I going to do? I'll strongly consider selling some of my Sprott funds and buying DXO at $4, meaning oil has to touch below $60 again, which I think it could do this week. If it doesn't look like that will happen, I may buy at $5. If oil drops even further to $50 (and thus DXO goes under $3), then I'd probably actually borrow some funds and buy a whole lot more, as crazy as that may sound.
Sunday, November 2, 2008
Shift Investments to Oil? Part 2
The main arguments for the price of oil going through the roof are:
1) Decreased Supply due to Peak Oil. If you haven't heard about Peak Oil Theory, read through the Wikipedia entry and Eric Sprott's Market at Glance articles.
2) Increased Demand. World demand for oil is expected to increase about 35% by 2030. China's consumption has been increasing about 8% a year.
I was going to post a few choice quotes from Eric Sprott in regards to oil from the recent Sprott Webcast, but since everything he talks about is quite interesting and you probably won't watch the webcast, I'm just going to post the whole transcription of the part of his speech on Oil here and bold some notable parts.
Sprott Webcast, Eric Sprott from 30:30 - 36:30 :
"Hold on," you say. What about the decrease in demand with this whole world recession we're entering, which has already caused the price of oil to drop from $145 to $60? Eric gets asked that question later on, and this is what he says (at 47:45 - 49:00):
Makes sense to me.
I feel like I'm reading too many articles that make it seem obvious the only way for oil to go is up. Long-term, there aren't many people who see oil not going up. Criticisms of the Peak Oil Theory are far and few between (there's one small section on the Wikipedia entry). Am I being deluded by Peak Oil proponents? Could oil drop to $20 due to new discoveries and weakened demand in this recession? I can't really find any articles from this year predicting that oil would go that low and stay there for very long. So with oil being around $65, it seems like one of the best 'guaranteed' good investments in a long-term horizon -- something that would be good for an RRSP.
So we now see that Oil is a great place to be long term, and next post I'll show how an investment in DXO can reap huge rewards with even a mild increase in the oil price.
1) Decreased Supply due to Peak Oil. If you haven't heard about Peak Oil Theory, read through the Wikipedia entry and Eric Sprott's Market at Glance articles.
2) Increased Demand. World demand for oil is expected to increase about 35% by 2030. China's consumption has been increasing about 8% a year.
I was going to post a few choice quotes from Eric Sprott in regards to oil from the recent Sprott Webcast, but since everything he talks about is quite interesting and you probably won't watch the webcast, I'm just going to post the whole transcription of the part of his speech on Oil here and bold some notable parts.
Sprott Webcast, Eric Sprott from 30:30 - 36:30 :
I like near the end when Eric says that over the longer run, the price of oil "will do nothing but go up. Forever. It's a forever trade...".
Peak Oil. Okay. I just like going to this chart, which shows the rate of discovery and the rates of production. As you all know, M. Hubbard King back in 1956 was working with Shell Oil, said that in 1970, U.S. conventional production lower 48 states would peak. Sure enough, 14 years later after making the prediction, it peaked, and it's gone down ever since. And the same petro-physicists... have suggested that in this decade, oil peaks and forever goes down. And the data on conventional oil production -- when I say conventional, I'm excluding tarsands and ethanol and other forms of energy that don't come from normal hydrocarbons... -- but the data tends to suggest that in December of '05 we *have* peaked: that conventional production of oil in the world is going down.
I wanted to give you some examples here. And probably the most glaring example: There's a field in the gulf of Mexico called the Cantarell, and in 2004 it produces 2.4 million barrels. It was just announced that their production in August (2008) -- I've heard 2 numbers, either 974,000 or 950,000. It doesn't matter much. But from '04 to '08 it fell by 1.4 million barrels.
Now, you live in Canada. You know what it costs to produce a tarsands plant to produce 100,000 barrels a day. It probably costs at least -- It's $10 to $15 billion -- to get 100,000 barrels a day. And it takes you 5 years and stresses the system out. Imagine if we were building 15 plants today just to offset this one field. And that is going down *so* fast.
And most of the prognosticators on oil that the general public is forced to listened to have massively had their head in the sand on oil production and what's likely to happen. And I will forewarn you, that the International Energy Agency back in May said, "Uhh, we're going to look at our formula again on oil production. In November, we'll probably come out with a new forecast, because we may have the depletion rates wrong." And I know what the forecast is going to be, because they do have the depletion rates wrong. When you see a field like Cantarell falling 36% year over year... Imagine if all fields fell at 36%. But even that one, because it's one of the biggest in the world.
And of course one of the bigger fears is Ghawar field [the largest oil field in the world] in Saudia Arabia that produces over 4 million barrels a day. And the same guys who predicted -- I can tell you they predicted back in 2001-02 -- they all talked about Cantarell. I talked about Cantarell back in 2004 and said it's likely to be a problem. But they all talk about Ghawar too. Ghawar's 4 million barrels a day. And they sustain production by pumping in 6 million barrels of water every day to keep production up. Well you know what? Someday that water's going to get up there and you're going to be producing water, not oil. And when it declines, I'd predict it'll decline real fast.
And we all know how difficult it is. We have investments in oil and gas stocks in Canada. We don't use the word 100,000 barrels a day. We're happy if -- If a guy has a well in Canada that produces 1,000 barrels a day, we're kind of happy. A thousand. What does *that* do for you? We have 86 million barrels a day of [worldwide] production, and I think the accepted decline rate today is around 8%. So we have to find 7 million barrels of oil -- new oil -- a year. Well hey, I would certainly predict that we won't.
We have other charts of different countries and their production, and you can see most of them have [gone down] -- Oh hey, there's one that's going up! [said with mock surprise]. Oh, that's 'cause it's consumption - sorry! (Laughter from audience). [Displayed is a chart showing China's consumption over the last few decades, which looks like it has been roughly doubling every 10 years, 4 million barrels per day in 1998 vs almost 8 million barrels a day in 2008].
I don't often talk about consumption. I really don't. I just look at supply and say it's a problem. God forbid that *that* [pointing to China consumption] keeps going. I mean that is a big problem. I don't even talk to it, because I just don't think it can. In fact, if I had to make a prediction, U.S. consumption has to fall by probably 50% in fairness to the world. I mean, here we have 4-5% of the population and it consumes 30% of the world's energy? I mean, it's just anomolous. It's ridiculous. And I'm sure you're going to hear some thoughts about that from some people who need oil, who have bigger populations. And I don't know, maybe the mechanism is just jacking the price up by -- I have no idea what it is -- but this is a problem.
So, we are great believers in peak oil, and that the price of oil, certainly over the longer run, will do *nothing* but go up. Forever. It's a forever trade, trust me, [at least] in your lives. See, I'm probably the oldest guy here...
But it's going to be a problem. I mean, you go and try to find some oil. Look at Pearl Petro-Can in their UTS project, when they said that the cost, which was estimated at $19 billion last year, against which they've already spent something, has now gone to $28 billion. That's what it costs to get oil out of the ground. They probably won't even break even at $100 oil with those kind of costs. And that is just this year's estimates, don't forget. We [still] have next year's estimates.
"Hold on," you say. What about the decrease in demand with this whole world recession we're entering, which has already caused the price of oil to drop from $145 to $60? Eric gets asked that question later on, and this is what he says (at 47:45 - 49:00):
That's a great question. The question was, "How does demand destruction affect the oil price". You know, we're not naive. We're the guys predicting the economic contraction, so we all know there will be some demand destruction in energy. One of the great things about energy though, is demand is incredibly inelastic. You know, we all have to heat our homes, we all theoretically have jobs and we have to work, the subway has got to run. There's only so much you can cut back on. So I think that energy is one of the most inelastic demand cycles you can be involved in. There is some demand destruction going on now, and I've always imagined that we will see that, but ultimately when this Peak Oil cuts in, it will way more than offset any
demand destruction. So that's our thesis.
Makes sense to me.
I feel like I'm reading too many articles that make it seem obvious the only way for oil to go is up. Long-term, there aren't many people who see oil not going up. Criticisms of the Peak Oil Theory are far and few between (there's one small section on the Wikipedia entry). Am I being deluded by Peak Oil proponents? Could oil drop to $20 due to new discoveries and weakened demand in this recession? I can't really find any articles from this year predicting that oil would go that low and stay there for very long. So with oil being around $65, it seems like one of the best 'guaranteed' good investments in a long-term horizon -- something that would be good for an RRSP.
So we now see that Oil is a great place to be long term, and next post I'll show how an investment in DXO can reap huge rewards with even a mild increase in the oil price.
Shift Investments to Oil? Part 1
I've been thinking a lot about what to invest into next, from the point of view of "where can I make the greatest amount of money (both short-term and long-term), with minimal risk." And I'm coming to the conclusion that the place to be is: Oil.
Commodities vs Stocks:
From the risk perpective, I've been looking at ETFs comprised soley of commodities -- that is, the commodities themselves (e.g. oil, gold, corn, wheat) that trade on the futures exchange, not stocks of companies that are involved with such commodities (the latter of which most commodity-related ETFs actually hold, e.g. DIG). The risk of a further drop in the stock market is quite possible, and it's even more possible that after a brief rally, the recession/depression in the U.S. keeps the markets from gaining that much for the next few years. We've already seen gold stocks lose 50% of their value while the price of gold has gone up, so in a volatile market in the middle of a recession, stocks are a risky place to be. The prevailing consensus is that most commodities can only go up in the long term, especially energy and agricultural related commodities due to the double-whammy of increased consumption (due to world population increases and the rapid development in countries like China and India) and declining production (running out of resources, getting harder and more expensive to grow or extract resources).
Now, unless you're buying actual futures contracts, which often have a leverage of 10:1, it used to be that stocks related to the commodities would go up by a much larger percentage than the percentage increase in the commodities themselves. So while I'm interested in commodities, I still want something that will increase a lot when the commodity goes up. We'll get to this later...
Which Commodity?
While Sprott and others believe gold will go to $2000, there seems to be some risk that that may not happen, or it may take a while. I've noticed the guys at Sprott seem to talk more about energy and oil than gold. I'll be pointing out some quotes from the recent Sprott Webcast that talk about the Oil situation a little later in this post. There seems to be less downside risk in Oil to me, but maybe I just haven't read enough views about how bad the current and upcoming (short-term) decrease in demand could affect things and how low oil could go. Then there are other commodities, such as agricultural ones, which don't get much attention and which I honestly haven't looked into that much. World population and increased standard of living in China in India are going to mean we'll need more and more food (whether to feed the people or to feed the animals that the people will eat!). It's hard to say which commodity has the most potential and least risk, but lets see what's happened with some of the commodity ETNs the last little while...
Commodity ETN potential performance:
The only 2x leveraged pure commodity ETFs I know of are the ones from from Deutsche Bank (who is known for their PowerShares series of ETFs). Their pure commodity plays are actually ETNs (Exchange-Traded Notes), which don't seem much different from ETFs to me. Their list of commodity ETNs can be found here. They haven't been around that long, but most began trading just before the peaks in commodities that occurred around March 2008 or end of June 2008. Let's look at the difference in price now from their peak, in order to see the potential gains we would make if they went back to their peak price...
Gold 2x ETN: DGP (comprised of Gold futures):
- Current price: $12-14 Peak Price: $28 Difference: 2x
Agriculture 2x ETN: DAG (comprised of corn, wheat, soybeans, and sugar futures)
- Current price: $8-11 Peak Price: $29 Difference: 3-4x
Base Metals 2x ETN: BDD (comprised of Aluminum, copper, and zinc futures)
- Current price: $7-8 Peak Price: $28 Difference: 4x
Oil 2x ETN: DXO (comprised of Oil futures)
- Current price: $4-6 Peak Price: $29 Difference: 5-7x
Commodity 2x ETN: DYY (just a mix of everything, specifically: wheat, corn, oil, heating oil, gold, and aluminum)
- Current price: $8-10 Peak Price: $35 Difference: 4x
So any of these look pretty good -- a chance to make 2 to 7 times your investment if the commodities go back to their peaks. Now you could argue that that scenario is unlikely, as the commodity boom was fueled by a lot of speculative traders. However, Sprott and others are arguing that the commodity boom will continue, especially with oil and gold having nowhere to go but up.
Looking at the above numbers, we can see that oil has had the greatest drop, and maybe the greatest potential to reach it's previous highs again. Can you imagine making 500% (6x) your investment in a few years if oil hits the $140's again? What is the risk? Could Oil go back down to $30 or $20 again?
Anyway, that's all for this post, which just touched on the potential for gains in the commodities -- specifically oil. In the next post, I'll mainly talk about what Eric Sprott talked about in the latest webcast, and then look in more detail at investing in DXO.
Commodities vs Stocks:
From the risk perpective, I've been looking at ETFs comprised soley of commodities -- that is, the commodities themselves (e.g. oil, gold, corn, wheat) that trade on the futures exchange, not stocks of companies that are involved with such commodities (the latter of which most commodity-related ETFs actually hold, e.g. DIG). The risk of a further drop in the stock market is quite possible, and it's even more possible that after a brief rally, the recession/depression in the U.S. keeps the markets from gaining that much for the next few years. We've already seen gold stocks lose 50% of their value while the price of gold has gone up, so in a volatile market in the middle of a recession, stocks are a risky place to be. The prevailing consensus is that most commodities can only go up in the long term, especially energy and agricultural related commodities due to the double-whammy of increased consumption (due to world population increases and the rapid development in countries like China and India) and declining production (running out of resources, getting harder and more expensive to grow or extract resources).
Now, unless you're buying actual futures contracts, which often have a leverage of 10:1, it used to be that stocks related to the commodities would go up by a much larger percentage than the percentage increase in the commodities themselves. So while I'm interested in commodities, I still want something that will increase a lot when the commodity goes up. We'll get to this later...
Which Commodity?
While Sprott and others believe gold will go to $2000, there seems to be some risk that that may not happen, or it may take a while. I've noticed the guys at Sprott seem to talk more about energy and oil than gold. I'll be pointing out some quotes from the recent Sprott Webcast that talk about the Oil situation a little later in this post. There seems to be less downside risk in Oil to me, but maybe I just haven't read enough views about how bad the current and upcoming (short-term) decrease in demand could affect things and how low oil could go. Then there are other commodities, such as agricultural ones, which don't get much attention and which I honestly haven't looked into that much. World population and increased standard of living in China in India are going to mean we'll need more and more food (whether to feed the people or to feed the animals that the people will eat!). It's hard to say which commodity has the most potential and least risk, but lets see what's happened with some of the commodity ETNs the last little while...
Commodity ETN potential performance:
The only 2x leveraged pure commodity ETFs I know of are the ones from from Deutsche Bank (who is known for their PowerShares series of ETFs). Their pure commodity plays are actually ETNs (Exchange-Traded Notes), which don't seem much different from ETFs to me. Their list of commodity ETNs can be found here. They haven't been around that long, but most began trading just before the peaks in commodities that occurred around March 2008 or end of June 2008. Let's look at the difference in price now from their peak, in order to see the potential gains we would make if they went back to their peak price...
Gold 2x ETN: DGP (comprised of Gold futures):
- Current price: $12-14 Peak Price: $28 Difference: 2x
Agriculture 2x ETN: DAG (comprised of corn, wheat, soybeans, and sugar futures)
- Current price: $8-11 Peak Price: $29 Difference: 3-4x
Base Metals 2x ETN: BDD (comprised of Aluminum, copper, and zinc futures)
- Current price: $7-8 Peak Price: $28 Difference: 4x
Oil 2x ETN: DXO (comprised of Oil futures)
- Current price: $4-6 Peak Price: $29 Difference: 5-7x
Commodity 2x ETN: DYY (just a mix of everything, specifically: wheat, corn, oil, heating oil, gold, and aluminum)
- Current price: $8-10 Peak Price: $35 Difference: 4x
So any of these look pretty good -- a chance to make 2 to 7 times your investment if the commodities go back to their peaks. Now you could argue that that scenario is unlikely, as the commodity boom was fueled by a lot of speculative traders. However, Sprott and others are arguing that the commodity boom will continue, especially with oil and gold having nowhere to go but up.
Looking at the above numbers, we can see that oil has had the greatest drop, and maybe the greatest potential to reach it's previous highs again. Can you imagine making 500% (6x) your investment in a few years if oil hits the $140's again? What is the risk? Could Oil go back down to $30 or $20 again?
Anyway, that's all for this post, which just touched on the potential for gains in the commodities -- specifically oil. In the next post, I'll mainly talk about what Eric Sprott talked about in the latest webcast, and then look in more detail at investing in DXO.
Friday, October 31, 2008
Trade Update - DIG
Guess I didn't need to worry. Sold a lot of my DIG off today at $36 and $37 today, for about a 37% gain on those trades!
Trades:
Account 1: sold all the DIG bought at 26.07 for $36.02 (+38%). So I need to start looking at what to buy next.
Account 2: sold another 1/3 of DIG (bought at 27.20) for $37.00 (+36%). I'll probably hold onto the remaining 1/3 longer term, maybe selling off around $50.
Trades:
Account 1: sold all the DIG bought at 26.07 for $36.02 (+38%). So I need to start looking at what to buy next.
Account 2: sold another 1/3 of DIG (bought at 27.20) for $37.00 (+36%). I'll probably hold onto the remaining 1/3 longer term, maybe selling off around $50.
Thursday, October 30, 2008
too busy
I wanted to sell off some DIG today, but I'm starting a new project at work and have been too busy to monitor the markets. When I was able to briefly check near the end of the day, I thought about putting in a sell order at $35 (which probably would have gotten filled), but then I got pulled away with work anyway. Tomorrow things will likely pullback, and of course I'll regret not selling once again :)
Wednesday, October 29, 2008
Today
The markets were up again today -- especially energy stocks. I wasn't able to watch the markets at all today, so in the morning I just put in a sell order for DIG at 36.00, hoping it would get hit, but it didn't quite make it. It was up to the low 35's, up over 15%, near the end of the day, and then everything dropped in the final few minutes, with the DOW and S&P actually ending up in the red.
Tomorrow, Exxon Mobile (XOM) has it's 3rd quarter earnings release. XOM makes up about 30% of DIG, so it could really have an effect on it (and all energy stocks)... which is why I wasn't sure if I still wanted to be holding lots of DIG at this point. The earnings are going to look stellar because oil was between $100 and $150 during that time period; however, everyone is expecting this and thus the price has been pushed up in advance. After the last 2 days of great gains, it could easily be sold off tomorrow. I'll just have to wait and see what happens.
Tomorrow, Exxon Mobile (XOM) has it's 3rd quarter earnings release. XOM makes up about 30% of DIG, so it could really have an effect on it (and all energy stocks)... which is why I wasn't sure if I still wanted to be holding lots of DIG at this point. The earnings are going to look stellar because oil was between $100 and $150 during that time period; however, everyone is expecting this and thus the price has been pushed up in advance. After the last 2 days of great gains, it could easily be sold off tomorrow. I'll just have to wait and see what happens.
Tuesday, October 28, 2008
Sprott Webcast
There's a new Sprott webcast from Oct.1 here.
The first 52 minutes are Eric Sprott. I love listening to him talk, especially when he gets fired up a couple of times about a few things that drive him nuts (like talk of 2-5% inflation when he says it's more like 20-25%). In the talk, of course he speaks to the incredibly poor performance of the funds, even though they completely predicted what was going to happen. He's quite convincing as usual in conveying that they are in the right positions, know what they are doing, and it's only a matter of time before they're proven right. He paints a pretty scary picture of the US financial system, and makes a convincing case for energy and gold/silver (their 2 main holdings). His opinions seem a little extreme sometimes compared to what everyone else is saying, but he's a contrarian, right? And how can you not believe this guy when he's always right... eventually. And thats just the problem -- he seems to predict things about a year or two early, and so you never know when the predictions are going to come to fruition.
The next 8 minutes are John Embry (who I love listening to as well), who makes very strong accusations about the gold market being completely manipulated by the government and banks. It will sound very conspiracy-theoristy to most people, but the evidence is quite clear. He makes bold predictions about gold going over $1000 shortly and never returning below that... ever... ever. The new gold guys at Sprott are saying gold at $2000 and silver at $40 within 4 years. It's just very hard to reconcile these views with what's been happening, but you feel the breakout in gold/silver is indeed about to occur, especially with the disparity between the lagging paper market and the current physical market that has the crazy demand and prices we're hearing about. I don't want to miss out on the ride up, so how can I not hold on?
I didn't watch the next 1.5 hours or so.
In sum, they've done a good job of convincing me to hold on to most of my Sprott holdings. I say "most" because I'm considering selling some, after what I saw today. Check this out: Today, U.S. indices up 11%, TSX up 7%, HUI/XAU (Gold stock indices) up 12%, gold & silver bullion pretty much flat. How did the Sprott funds do, you ask? They should be up at least 5%, right? Here are the results... Canadian Equity Fund: -0.1% . Energy Fund: +2.7%. Gold & Precious Metals Fund: +1.07%. What. The. Heck. How is that even possible? I'm too lazy to lookup today's performance of their individual top 10 holdings to see what happened (e.g. one stock down -20% or something). My first thought was that they must have freaked out and have gone to 30+% cash in their funds, but after listening to the webcast today it seems pretty clear they haven't changed their strategy in any way. So I don't know what happened. Today's pathetic, unexplainable performance alone makes we want to sell some to put the money to better work myself... I mean, they can't even make money in their gold & energy funds when the HUI/XAU and energy stocks go up 12%, come on. I don't want to sell too much though, thinking I can invest better than Sprott, because I'm sure I'd be proven wrong within a year.
The first 52 minutes are Eric Sprott. I love listening to him talk, especially when he gets fired up a couple of times about a few things that drive him nuts (like talk of 2-5% inflation when he says it's more like 20-25%). In the talk, of course he speaks to the incredibly poor performance of the funds, even though they completely predicted what was going to happen. He's quite convincing as usual in conveying that they are in the right positions, know what they are doing, and it's only a matter of time before they're proven right. He paints a pretty scary picture of the US financial system, and makes a convincing case for energy and gold/silver (their 2 main holdings). His opinions seem a little extreme sometimes compared to what everyone else is saying, but he's a contrarian, right? And how can you not believe this guy when he's always right... eventually. And thats just the problem -- he seems to predict things about a year or two early, and so you never know when the predictions are going to come to fruition.
The next 8 minutes are John Embry (who I love listening to as well), who makes very strong accusations about the gold market being completely manipulated by the government and banks. It will sound very conspiracy-theoristy to most people, but the evidence is quite clear. He makes bold predictions about gold going over $1000 shortly and never returning below that... ever... ever. The new gold guys at Sprott are saying gold at $2000 and silver at $40 within 4 years. It's just very hard to reconcile these views with what's been happening, but you feel the breakout in gold/silver is indeed about to occur, especially with the disparity between the lagging paper market and the current physical market that has the crazy demand and prices we're hearing about. I don't want to miss out on the ride up, so how can I not hold on?
I didn't watch the next 1.5 hours or so.
In sum, they've done a good job of convincing me to hold on to most of my Sprott holdings. I say "most" because I'm considering selling some, after what I saw today. Check this out: Today, U.S. indices up 11%, TSX up 7%, HUI/XAU (Gold stock indices) up 12%, gold & silver bullion pretty much flat. How did the Sprott funds do, you ask? They should be up at least 5%, right? Here are the results... Canadian Equity Fund: -0.1% . Energy Fund: +2.7%. Gold & Precious Metals Fund: +1.07%. What. The. Heck. How is that even possible? I'm too lazy to lookup today's performance of their individual top 10 holdings to see what happened (e.g. one stock down -20% or something). My first thought was that they must have freaked out and have gone to 30+% cash in their funds, but after listening to the webcast today it seems pretty clear they haven't changed their strategy in any way. So I don't know what happened. Today's pathetic, unexplainable performance alone makes we want to sell some to put the money to better work myself... I mean, they can't even make money in their gold & energy funds when the HUI/XAU and energy stocks go up 12%, come on. I don't want to sell too much though, thinking I can invest better than Sprott, because I'm sure I'd be proven wrong within a year.
Trade Update - DIG
Monday was a bad day, with DIG down 10%, but today (Tuesday) the markets took off in the last 2 hours of the trading day, with the DOW having it's 2nd biggest point gain ever -- 889 points, almost 11%. DIG followed suit, although 2x the gain of course, closing up almost 22% at 30.10. I decided I would take some profits near the end of the day. Since it was skyrocketing towards the close, I just waited and waited until the final 2 minutes, before finally selling my portion at 30.27, pretty much the day's high.
If DIG continues to rise, I'll probably look to sell at least 1/2 around $36, and the remainder at $40+, if it looks like it will get that high.
Trade Status:
Sold 1/3 of the DIG I recently purchased at 27.20, sold at 30.27 (+11% gain).
Note: Still also holding the original DIG I bought in another account at 26.07.
If DIG continues to rise, I'll probably look to sell at least 1/2 around $36, and the remainder at $40+, if it looks like it will get that high.
Trade Status:
Sold 1/3 of the DIG I recently purchased at 27.20, sold at 30.27 (+11% gain).
Note: Still also holding the original DIG I bought in another account at 26.07.
Sunday, October 26, 2008
The Market Speculator
I stumbled upon a great blog by a seemingly very succesful trader here:
http://themarketspeculator.blogspot.com/
Very detailed, informative posts, updated daily.
http://themarketspeculator.blogspot.com/
Very detailed, informative posts, updated daily.
Friday, October 24, 2008
Freaky Friday
Well today was interesting. I woke up early only to find that the overseas markets had plummeted again, oil dropped from $68 to $63 after OPECs decision to cut 1.5 million barrels per day -- about the expected amount (so I guess it was buy on rumour sell on news... bah!) -- and Pre-market futures had dropped so low they hit their max limit for the day (-550 points for the DOW), and of course another load of bad news was released. People were panicking and there was speculation of the DOW opening down 1000 points and how it was going to be complete anarchy. It turned out to be not so bad, considering the oversees market performance and dismal news, and the DOW ended down only (yes, "only") 300 points.
On open, Energy stocks were down the most at about -10%, meaning DIG opened about -20% in the $23-$24 range. The markets didn't open as low as everyone expected and started rising. I was a little freaked out of course (I shouldn't have woken up early to see the news) and I had my finger on the trigger to sell. As I saw the market rising a bit, I was considering just trying to get out of DIG at a small loss around $26, especially when it finally hit that. I was nervous about the market tanking mid-day.
But then I imagined I wasn't invested in anything right now and thought about what I would be doing in that scenario. And I realized I would probably be wanting to buy DIG immediately while it was low, and I wouldn't be that nervous about it. After all, oil was down to $63 now, the markets were way down and starting to rise, and it was at the same price I had previously purchased it at when everything was higher. I realized that I quite commonly tend to freak out when I've bought something that goes up and then comes back down to the price I bought it at, even if I would be happily buying it again if I had never bought it.
So I decided to hold on. DIG rose quite a bit (thanks to Exxon Mobil doing a little better than the average energy stock) and finished -8% today at 27.56, above my average purchase price.
Gold also hit a low of around $680 and then shot up to $740, ending up in the 730's. I really think $680 is the bottom for gold. I'm hoping that with it so low and people finally being spooked enough with the continued selloff of the markets and bleak outlook, they'll finally start to flock to gold again. I don't think the rise in the US dollar will last much longer, and then gold should shoot up to the $800's.
On open, Energy stocks were down the most at about -10%, meaning DIG opened about -20% in the $23-$24 range. The markets didn't open as low as everyone expected and started rising. I was a little freaked out of course (I shouldn't have woken up early to see the news) and I had my finger on the trigger to sell. As I saw the market rising a bit, I was considering just trying to get out of DIG at a small loss around $26, especially when it finally hit that. I was nervous about the market tanking mid-day.
But then I imagined I wasn't invested in anything right now and thought about what I would be doing in that scenario. And I realized I would probably be wanting to buy DIG immediately while it was low, and I wouldn't be that nervous about it. After all, oil was down to $63 now, the markets were way down and starting to rise, and it was at the same price I had previously purchased it at when everything was higher. I realized that I quite commonly tend to freak out when I've bought something that goes up and then comes back down to the price I bought it at, even if I would be happily buying it again if I had never bought it.
So I decided to hold on. DIG rose quite a bit (thanks to Exxon Mobil doing a little better than the average energy stock) and finished -8% today at 27.56, above my average purchase price.
Gold also hit a low of around $680 and then shot up to $740, ending up in the 730's. I really think $680 is the bottom for gold. I'm hoping that with it so low and people finally being spooked enough with the continued selloff of the markets and bleak outlook, they'll finally start to flock to gold again. I don't think the rise in the US dollar will last much longer, and then gold should shoot up to the $800's.
Thursday, October 23, 2008
Trade Update - DIG
With the cash from selling SSO, I loaded up on a lot more DIG today at 27.20. Oil is sitting around $68. This is somewhat of a gamble if I'm not willing to hold long-term, because it could move way down tomorrow depending on what OPEC does tonight. But again, the potential short-term upside is huge too.
Edit: DIG shot up 10% at the end of the day, closing at 30.00, on expectations of OPEC's cut. Let's just hope this isn't "buy on rumour, sell on news".
Edit: DIG shot up 10% at the end of the day, closing at 30.00, on expectations of OPEC's cut. Let's just hope this isn't "buy on rumour, sell on news".
Wednesday, October 22, 2008
Trade Update: SSO, DIG
The market plummeted today, and energy and gold stocks got hit the worst. I got stopped out of the rest of my SSO at 29.02 today, which was right around my break-even, for an average of +7% on that trade. I never did end up placing a stop on DIG like I said I would to lock in 30% gains, and now it's only about 3% above where I bought.... oh well. Stops are great, and I really should start using them on all my trades since I can't pay attention to the markets throughout the day, and even if I could, I have a tendency to not be able to force myself to sell :)
I have no idea what's going to happen tommorrow, but I'll probably hold on to DIG even if it drops more, because I don't have too much in it, and I believe the upside potential to be huge.
Trade Status:
SSO - stopped out of the rest at breakeven, with first half +15% = +7% average gain over 5 days.
DIG - holding on...
I have no idea what's going to happen tommorrow, but I'll probably hold on to DIG even if it drops more, because I don't have too much in it, and I believe the upside potential to be huge.
Trade Status:
SSO - stopped out of the rest at breakeven, with first half +15% = +7% average gain over 5 days.
DIG - holding on...
Tuesday, October 21, 2008
OPEC's tough decision
Two articles on OPEC's upcoming decision on Oct.24th:
http://www.nytimes.com/2008/10/22/business/worldbusiness/22oil.html?ref=worldbusiness&pagewanted=all
http://seekingalpha.com/article/100839-opec-expected-to-decide-on-production-cuts-friday?source=article_lb_themes
I'm curious what they're going to do and how much it will actually affect the oil price. I'm betting they'll announce a significant production cut and oil prices will rebound a bit to $80, unless the markets drop more this week + U.S dollar rising, which will just bring oil down. But that's just a wild guess -- no one really knows.
http://www.nytimes.com/2008/10/22/business/worldbusiness/22oil.html?ref=worldbusiness&pagewanted=all
http://seekingalpha.com/article/100839-opec-expected-to-decide-on-production-cuts-friday?source=article_lb_themes
I'm curious what they're going to do and how much it will actually affect the oil price. I'm betting they'll announce a significant production cut and oil prices will rebound a bit to $80, unless the markets drop more this week + U.S dollar rising, which will just bring oil down. But that's just a wild guess -- no one really knows.
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