Martin Kronicle

Another great role model in the global macro space is Bruce Kovner of Caxton Associates, LP. New York magazine called him George Soros’s Right-Wing Twin…

Frankly, I don’t care for that moniker, but the article is very thorough and worth a read.

Kovner is considered to be one of the greatest intellects in the world. He originally interviewed at Commodities Corporation to be an assistant for Michael Marcus, who was so blown away by Kovner’s intellect during the interview, Marcus called CC founder Helmut Weymar and said, “Helmut, I have in my office the next president of Commodities Corp.”

Bruce Kovner studied and worked with Michael Marcus. Who do you have?

There is an opportunity for 15 of you to study with a legendary Market Wizard in person. Change Your Life.

Must have been a hell of an interview…they hired him on the spot as a trader and they all made history.

Here are a few words from Kovner himself, as they appeared in Absolute Return + Alpha in 2008.

Here’s something that I posted at the Ludwig von Mises Institute (LvMI) recently, called Green Movement, Incompetence Proving Very Expensive For California.

“California consumes 3 times as much energy as it produces, and as MacDonald states, “when oil and natural gas prices rise, states like Colorado see a cascade of earnings, revenues, and royalties flow into their state. Whereas states like California see a cascade of capital flow out of state.” This seems emblematic of how LA and California in general are run: the state and local economic policies seem to chase otherwise great businesses out of the state, rather than trying to attract them or get them to stay.”

The commodity trading coverage at Business Insider is not as good as the rest of the blog. I am hopeful the spread between the rest of the blog and their commodity coverage narrows because I genuinely enjoy the blog.

In the recent post Soft Commodities Are In A Permanent Downtrend: This is Fact, Not Opinion, the author has gotten a bit twisted up.

Soft commodities are in a permanent long-term downtrend since technology is in a permanent long-term uptrend.

Here are a few clarifying points:

Softs are coffee, sugar, and cocoa (and sometimes cotton) because of how the data was gathered and transferred by the former CSCE, Coffee Sugar Cocoa Exchange. Frozen Concentrate Orange Juice found its way in there sometimes too. The article is supposed to be about Softs according to the title, but the contents seem to be about Grains and Oilseeds as the author mentioned corn and wheat by name.

Technology may have an impact and lower labor costs, but if commodities become too cheap, farmers will rotate crops to produce higher financially yielding crops.

New technology tends to be more expensive too. Farmers are reluctant to spend/finance new technology in the face of lower revenues.

Coffee, Sugar, and Cocoa (softs) are not grown too much in the US. We are net-importers of sugar cane, coffee, and cocoa for the most part. We can produce sugar from beets and corn though, for example.

Commodity traders and investors can readily sell short for months to years in advance. There is no lending mechanism to hold them up. There is no prime broker who’ll lend only to big HF clients. There is no immediate demand from the actual owner who wants to take possession of his/her certificates. There are no dividends to pay. (There are no rebates either :) )

Permanent long-term uptrends or downtrends or sideways trends notwithstanding, there will still be seasonal relationships between old crop and new crop spreads that can yield profits. These are called intra-commodity spreads.

There will always be trade-offs and indifference prices between some of the grains that feedlotters use to fatten up the livestock, because they watch what they pay for the actual percent of protein they garner from the grain itself. That is a weight issue, not volume (grains are priced by volume/bushels), feedlotters think in how many pounds of protein do I need to bring the steers to market. These spreads go under the chapter on inter-commodity spreads.

USD and foreign currency fluctuations can have an impact on commodity prices, and net imports/exports, for every country.

Interest rates affect carry charges, as do shipping and insurance rates, and those are reflected in commodity prices.

Acts of god are facts of life in my world.

The video of David Faber and Marc Faber drew some interesting comments about all the parties involved in the video clip. One response was so well-written, that I thought it deserved it’s own space than to be relegated to the Comment section. I give it to you below in its entirety and unedited. — MM

By John Del Vecchio, CFA

The problem with a lot of people on CNBC is that they are preconditioned to think stocks go up, along with professors that write books about stocks over the long-term.

In reality, many of the individual stocks that comprise an index, under-perform the index over time. In the Russell 3000, it is nearly 2/3 of the stocks, with 20% falling 75% or more. The statistics for the S&P 500 are horrible in this regard.

Imagine it were 1979 and I told you that in 30 years GM, Kodak, Polaroid, Xerox, Bethlehem Steel, General Electric, etc would either be bankrupt, bailed out by the government, trading for less than it was in 1969 or with their competitive advantage seriously eroded. You would throw me right out of your office. But, that’s exactly what happened to those companies.

Stocks have had long periods of doing nothing. 1929-54, 1966-82, 2000-10. Individual stocks are relics. People lose quite a bit in real terms during flat markets.

We can have a deflationary bust, the USD can rise, Gold can rise, and stocks can fall. The notion that this is a typical post-war recession is absurd. After the war, everyone else was destroyed. It was an unfair competitive advantage that no longer exists.

You had a massive debt bubble, only a small fraction of which was wiped out in 2008. The U.S. then printed to offset the deflationary pressures, but the money never went anywhere. There is no bank multiplier. What small business can get a loan?!?!

Average workweek hours are down. Unemployment is really around 17%. There is tons of excess capacity out there. ALT-A and option ARMS are starting to reset. How can there be inflation?

If people think the USD is worthless, then what is the EUR worth? Their problems are far worse.

The USD can rally because it’s the funding currency for carry trades. When the @##$% hits the fan, those shorts will be covered and the USD will be bought. But what no one talks about is that not only is the USD the funding currency for carry trades, it is also the reserve currency of the world. So, you’ll have even added buying pressure in a crisis.

When the Yen was the funding currency there was a massive rally when the crisis hit. But, it was not also the reserve currency.

Gold is an asset class like anything else. It will have periods were it performs well and periods when it does not. My opinion is that now it is being viewed as a currency as opposed to a commodity to protect against inflation, which means it can go much higher than people think.

And, notice how the analyst poo-pooed gold but clearly has no problem being paid in dollars which has lost 90% of its value since 1913.

CNBC has it all wrong. I wouldn’t buy U.S. stocks with counterfeit money.

Eidtor’s Note: I wrote an article called Pain Spotting about John Del Vecchio for Trader Monthly.

The U.S. Securities and Exchange Commission’s top economist is leaving the agency after Chairman Mary Schapiro merged his office with another and passed short- selling rules that hedge funds said ignored financial analysis, according to an article in BusinessWeek.

James Overdahl, whose office reviews potential regulations to determine whether benefits outweigh costs, said in an e-mail today that he will step down March 31 to join NERA Economic Consulting. He joined the SEC in 2007 from the Commodity Futures Trading Commission, where he also served as the top economist.

I don’t short sell equities, but as far as regulation goes, this is political rule during a time when the Obama Administration needs a win. I wrote about the SEC Short Selling Rule and that something was rotten in the state of Denmark on March 2 with the 3 – 2 vote that was taken.

If there is going to be an introduction of a new regulation, the vote has to be unanimous.