March 28, 2011

 Risk vs. Reward

Between the Middle East revolutions, the crisis in Japan, the ongoing fiscal problems in Europe (Greece, Ireland, Spain, etc.), and, our own economic issues here in the USA, I don’t think I have ever seen so many major issues hitting the markets at the same time…And I certainly can’t sit here and tell you, “This is what will happen and here is what the ramifications will be”, in, specifically, any of those situations. Cumulatively, however, I don’t see how all these events, taken collectively, can be viewed as anything other than ultimately quite disruptive from an economic standpoint, which, contrary to what the stock market has been doing lately, would seem to argue for some degree of weakness in equities, and with it the same thing in a number of international commodity markets…In that same vein, declining stock and commodity prices would also then usually mean a rally in the Treasury Bond market…which is exactly what I think we are seeing now.

My bottom line is I DO continue to believe a number of commodity markets are in the process of beginning SHARPLY LOWER, LARGE PERCENTAGE, DOWN MOVES and continue to aggressively recommend short positions in Corn and Soybean Oil as well as long positions in the Treasury Bond market.

Here are some current charts and specific recommendations in all of the markets in which I am currently involved….

The “title” of this newsletter (Risk vs. Reward), refers to one of the first things that hits me every time I look at some of the long term commodity charts that follow here…Sure, any market can go higher than you might ever imagine, but there is no commodity chart in history that hasn’t eventually turned from a bull to a bear, and the entirety of my commodity “senses” now tell me that the best risk, versus the best reward, is DEFINITELY to be had on the short side…As ever, maybe I am dead, dead wrong, which means losing money, but I am looking for fairly enormous collapses in some of these commodities…and with it potentially fairly enormous profits…That being said, if you find yourself in agreement, I encourage you to do something about it NOW…while we are still relatively close to the highs…and NOT 2-3 months from now when the “surprising” decline in crop prices is all over the newswires.

“Exhibit 1”…    Short Corn

 Short Soybean Oil...

The last 4 months are either a consolidation...or a top...And what we get next, I believe, is either a move into new highs...or  this thing gets HAMMERED. As such, this is the perfect set up for the "2 &1".

It is important to note that If I am wrong, and the next move is up, at around 63 cents we would sell everything and reinstate the same short position using something like 61 puts and 63 calls...And STAY SHORT.

Here’s another approach…

This next chart is just an example of what can and does happen in futures…If you follow any commodity news at all, you will have been hearing all sorts of weather related news in the Wheat market…that crops have been decimated all over the world (most notably in the Ukraine and Australia)…and same as all the current hype in Corn and Soybeans, we are supposed to be dealing with massive wheat shortages that can ONLY mean ever higher prices…Nevertheless, take at look at this chart.

One thing you HAVE to remember in this business is: We are trading the Future. Not the present. And if you take positions based only on what has already become “known”, you are trading on old information…and oftentimes that information has already been long ago discounted by the market…This, amazingly, is why so much very expert analysis is so often “surprised” by the markets…And this is exactly where I think we are in a number of commodities in which the talking heads are all so bullish…

Short Gold... 

Short Silver...

Risk versus Reward? At these levels, Silver is either a Buy or a Sale...It WON'T go sideways...So you either think this is going to $60-$70 (or more)…or it's going in the tank...Silver at $37 an ounce, to me, is the absolute height of insanity in my 30 years in this business. Maybe I’ll end up looking stupid as this market soars ever higher…But I STILL FIRMLY BELIEVE SILVER IS GOING TO TOTALLY RAPE ANYONE WHO THINKS IT IS “SAFE” TO BE IN THIS MARKET…As I’ve said before, I’ve seen some truly amazing declines in this market (at MUCH lower levels) and, with no exaggeration, I think you will see a day when investors will be wanting to get out…but the bid will be something crazy like 10 bucks under the market…In other words, you might own it at $37, and think you’ll pull the plug if it trades through $35, but then you find there are no buyers until you get to $27.

Still Buying Treasury Bonds

Bonds put most people to sleep as a market but they ARE a great mover, as evidenced by their recent approximately $8000 per contract bull move in just six weeks…According to the all the interest rate talking head “gurus” (which are by far the biggest sheep in the markets), “Interest rates have got to go higher”, which means they are all looking for Treasury Bonds to go lower…I think they have it so dead, dead backwards (as usual) and maintain that US Treasuries (the highest quality, most liquid, long term paper on the planet) are going up…A LOT…and the 8 point rally we’ve already seen is just the beginning…I won’t waste any time on reasons. If you want them, go to the website archives… http://www.crokerrhyne.com/newsletters/index.htm ... and look for any newsletter that lists Treasury Bonds as a subject…Suffice it to say I think Bonds, which have backed up about 3 ½  points in the last few weeks, are a screaming, roaring buy…I also know I’ll get no takers on this, and I’m now running low on the patience and energy it takes to express all this mumbo-jumbo, so I’ll just throw down the chart and a few numbers…

And Buy Cattle…

Don’t ask me why. As I’ve said before, I think this “little” market has a shot at becoming the next Cotton…Here’s a chart. I’m fried and want to wrap this up…

Thanks for the read…As always, give me a call if you want to talk about anything here…I continue to think there are some tremendous opportunities right now…

Bill Rhyne

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