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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: Haim R. Branisteanu who wrote (11258)	4/3/2004 7:21:06 AM
From: Wyätt Gwyön	Read Replies (1) \| Respond to of 110194

did you account for the price of carry - e.g. storage, interest expenses etc.? i wasn't aware that a futures contract needed to be stored anywhere but on a computer hard disk. i think you are confusing the future with holding physical inventory. nor are there interest expenses in my case at least. obviously, though, there is an opportunity cost of holding a non-interest-bearing asset vs. cash. but thanks to Greenspan, the amount of interest gained on cash is basically zero.

To: Haim R. Branisteanu who wrote (11258)	4/3/2004 7:57:39 AM
From: Wyätt Gwyön	Read Replies (1) \| Respond to of 110194

what will be your cost of holding the contract as compared a (so called risk free) 5 year treasury note i think yesterday showed the 5y T-Note is anything but risk free. it lost more than a point on the day. risk-free would be 90-day Bills, or basically a yield of nada. thinking about the "price of carry" again, those are expenses borne by the counterparty (seller of the contract). but i doubt the counterparty is buying crude at spot for $34, storing it for 5.5 years with all attendant costs, and then agreeing to sell it for $27.70. i hope they are not that stupid. more likely they are expecting a huge drop in crude price, which is what backwardation implies. and maybe they do some delta hedging in the interim. the original point is that if you want to know where the market thinks crude is going, you don't need to look at the OSX. just look at the futures and you will see exact prices which are the market's opinions. with backwardation, their current opinion on crude price direction in the coming years can be summarized in one word: DOWN.