<short-term argument based on sentiment>
For me, it's not just sentiment, it's how the players are positioned, AND, that the evidence indicates to me that liquidity is being ratcheted down. Add in that fundamentally I consider both China and the US (the basis of much commodity trading) to be just one enormous maladjusted casino on a pirate ship, and you have the ingredients for some meltdown fireworks. Not enough to create a deflation (unless the authorities actually contract more, right now they are normalizing), but enough so that all the many crowded Bubbles created from the 2004 15% liquidity growth up channel, will start to get punctured.
And because of the leverage in things and financial instruments there's a lot of risk in being long about everything. Given the combination of all that, for my money I don't want to get too cute, even though brief spiking blowoff action in commodities like grains, copper, and energy can't be ruled out. Now I'd rather be short stuff, or buying puts (probably not any commodity yet, because of religious beliefs).
The Train Wreck phase is a difficult one to be long in, even in our preferred resources plays, because the shortages cross current with sudden drops in activity (not exactly demand, not the correct term for this). The activity falls as enterprises are put under. Imagine or game it out it as war time rationing. Then visualize what a busted global supply chain looks like. I just don't think many people understand these dynamics, and even those who do, will have extreme difficulty guessing at the timing. I'll bet you start to see lots of strange unexpected divergences develop now. There is increasing evidence of contraction already too.
Message 21128236
The global boom story is about to be yesterday's papers, if it isn't already. It's true because of shortage, some commodities might not correct as much. That's legitimate, but I'd rather take note of the larger picture as a precaution. I still have corn futures (sold a fourth on Friday at 2.24 1/2, and likely more at next resistance 2.29), and have names like NTO just based on it's parabolic strong chart, but I'm increasingly nervous. I feel much more comfortable holding long puts in RTH, XLY, XLF, FXI, QQQQ, SPY, or writing calls in the different high IV names I mention on occasion. |
