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MARCH 17 , 2006
Calling a spade a spade...
I have basically been sitting on
three ideas for six months, two which have gone sideways (Cotton
& Treasury Bonds) and one that has mostly gone dead against me
(Copper). Having owned options in all three, as a
consequence, my clients have been steadily losing money...I hope
I am not being bullheaded, but, nevertheless, my opinion remains
the same in all three of these markets...I think they all have
large profit potential or I would not continue to recommend
them...and I would also say the fact I have been wrong for six
months does not mean I will continue to be so.
Still see Cotton as a MAJOR trade...
By now I have certainly said it all as to my expectations for a
bull market in Cotton. Exports sales are setting records. West
Texas, the biggest Cotton producing area in the country still
remains bone dry (Texas accounts for about 1/3 of U.S.
production)....And Cotton remains in an unbelievably long, tight
consolidation that just screams to me that something BIG is
coming, sooner or later.
With July having a 4.36 cent range since January 31st, and
having averaged almost a 20 cent range between January 31st and
expiration during the past 30 years, I cannot help but expect
that BIG move to get started any day now....Although the move
could be to the downside, I just can't imagine this to be the
case...I continue to see all of the action since July
2004 as a major base from which Cotton is going to, at some
point, lift off and go a long, long way on the upside, most
likely do so for several years at least.
I consider the recent 3-4 cent decline in both July
and December to be an excellent opportunity to buy slightly out-
of-the-money calls in both months. I may be dead
wrong and cotton could be going south, or even more incredibly
sideways, but if I am right (and I strongly believe I am),
what's coming is not likely to be some tiny sort of move.
There is an old market adage, "Big consolidations are usually
followed by equally big moves"...Futures are
inherently volatile and I firmly expect that adage to be
validated once more in the Cotton market...This trade
has worn me (and many of you) out but I still think it's coming,
and again, in a BIG way.
Copper still at historical highs...
All I can do here is show you the charts and reiterate Copper's
history has been one of outright collapses when the top finally
is in. After climbing steeply into December, Copper traded
sideways for several months, but is now making new highs as I
write and whether these new highs will lead to a further "leg
up" remains to be seen...I have seen any number of roaring bull
markets do just what Copper is doing, that being, briefly
consolidate at stratospheric levels, then "break out" into new
highs and look like a rocket...then stop dead in their tracks. I
certainly have no idea if this will be the case here but I do
have to respect the new highs and therefore have no immediate
recommendation to make. But it is going to stop somewhere, and
when I see some evidence of a failure, I fully intend to
re-recommend establishing new shorts. When this pays,
I think it will be big.
Buy Treasury Bonds
In spite of the fact bonds have recently come back to their last
November lows, I am still very bullish. I continue to believe
the oil driven inflation bulge ended last year and that the
Fed's almost two year tightening campaign is having (or will
have) its desired counter-inflationary effect. As I have said
for some years now, I think there are no real sellers in the
fixed income market, that anyone owning quality long term paper,
bought, for example, in the past 10 years and paying 6,7, or 8%,
has zero interest in selling it. Conversely, the demographics of
the Baby Boom represents a steady influx of fixed income buyers
for many years to come.
I also believe the world has returned to an era of
generally lower interest rates on all fronts, as it was during
the 1950's and early 1960's, when long term rates were as much
as 2% below today's 4 3/4 % 30 Year Treasury.
The bond market has had everything in the world thrown at it
during the past few years (Fed tightening, inflation, budget
deficit, etc.) yet yields are still actually lower than they
were when the Fed started raising short term rates....Through
all of that, if Bond prices haven't gone down (or long term
rates gone up), I don't know why they should start now....
I am still a buyer in Treasuries and still look for,
to begin with, a 10-12 point rally.
Give me a call if you have an interest... Bill Rhyne |
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