Trade with Integrity

As we slowly shed the rotting skin of a dismal year a resolute optimism prevails and although hurdles lie ahead, we have nowhere to go but up.

A commonly expressed theme last week leading up to DEC 31 2008 was “Good Riddance”. Countless references on radio talk shows, news commentary and people in the street made it abundantly clear that the death of 2008 and subsequent birth of 2009 was the most welcome annual digit modulation in recent memory.

The economy is still in trouble, Wall Street remains unstable and credit is still tight, yet our attitude is soundly positive. The one blatantly obvious conclusion derrived from the derision that manifested in 2008 is that the financial markets, specifically the stock market is due for a major overhaul. It was avarice that formed the snowball and lopped it downhill, but apathy allowed it to reach crushing size and perilous momentum.

Our opportunity now is to apply what we learned during this corrective stage. Options writers suffered the most during the volatility but  Mutual Funds and Stock Market Funds sustained massive losses as well. Moving forward, however, requires  looking backward. Commodities were here before the stock market, and they’ll be here after.

Investments in commodities and managed futures, according to Marketwatch, Bloomberg and Barclays, are predicted to garner solid and substantial returns this year, particularly in agriculture and oil. Oil’s historic low combined with rising tensions in the Middle East make oil a solid bet. The recovering and still emerging economy in China combined with projected cutbacks in hog harvesting set agriculture up as a sure winner as well.

The popular cliche in investing is “Buy low, sell high.” Guess what? It’s low now. It’s time to get in.

If there was ever the faintest hint of the palest shadow of a doubt that an enormous correction is not taking place, simply look at the chart below:

My kids look into the sky and see shapes that become lions and faces and all kinds of imaginative things.  If you strip away the numbers and focus on the shapes in the graph above, you see a tidal wave.  The shape of that tidal wave indicates that we are about to get slammed because at this point, it’s still building.  You can interpret that as a bad thing, and it may be,  but it also means we are at the peak of this monstrous financial tsunami and soon this will all end.

Our attitude towards finance and the way in which many of us derive income is going to change.  It has to.  Greed, the usual suspect, had control of the wheel for the last several years and many warned of the tumult to come.  Many more chose to ignore the cries and bask in their artificial spoils, to only later watch them devalue seemingly with each hyperventilating exhale as the numbers continued the downward spiral.

There may be a few that are more appreciative than I to see this year die, but if so, it’s not by much.  In these moments before we are given yet another chance to start over, use the time wisely.

Reflect:

Look back and navigate the hows and whys of your current situation.  What decisions brought you here, what actions or lack thereof set the stage for the condition you find yourself in now?  Methodically retrace your steps and revisit the mindset you held in the time leading up to what devolved into an ultimate collapse.  Learn from your mistakes, but don’t dwell on them.

Readjust:

Discovering and contemplating how things went wrong can be enlightening.  Is it safe to say that a lack of flexibility or the unreceptive tendency towards new ideas contributed to our current sad state of affairs?  Once again September became the pivotal month when our world was altered to the extent that certain business models won’t survive unless changes in approach, structure and practice occur.

Renew:

A new year is upon us.  You are the only obstacle to your success.  Thomas Edison is credited with saying, “I learned 10,000 ways how not to create a light bulb.”  Imagine the fortitude required for that immense volume of reinvention.   We have new opportunities and fresh starts every day, but how many new years do we get.  Make a plan, stick with it, forge ahead.  Solid ethical business practices are a foundation, not a catch phrase.  It’s not always easy to take the high road, nor is it always the most profitable, initially.  However regardless of the outcome, it is the right thing to do and in this age of uncertainty, it’s your best strategy.

Happy New Year - Bring on 2009

David Kelsen - Marketing/IT, Integrity Futures Group, LLC

Excellent article from MarketWatch.  Of course to us it’s just preaching to the choir.

Managed Futures is one of only two positive performing sectors within the Credit Suisse Tremont Hedge Fund Index (”Broad Index”) this year, returning 11.99% year to date versus a loss of 15.54% for the Broad Index. The sector has grown from a weight of 3.5% of the Broad Index in January to 4.2% at the end of October and total assets under management for the sector are now estimated at $225.5 billion(1), representing a 22% increase over the past year.
The Managed Futures sector has continued to deliver despite adverse market conditions, generating positive performance and bolstering investor confidence in the strategy. While the hedge fund industry as a whole has experienced net outflows for the year, the sector has seen positive inflows every month this year, even during months of negative performance.

Managed Futures funds (also referred to as Commodity Trading Advisors or CTAs) typically employ a systematic approach to investing in futures contracts in global bond, equity, commodity futures and currency markets. Managers who have done well to- date this quarter have generally benefited from strong and sustainable trends across all asset classes, and have typically had short exposure to equities and commodities, and long exposure to treasury bonds and US dollar trades.

In general, funds in the sector operate in highly liquid markets, providing them the flexibility to quickly change course in order to capitalize on market trends. Managers employing a quantitative versus fundamental approach have generally displayed greater returns and have been able to quickly modify positions to avoid giving back profits during rallies, primarily in the equity and energy sectors. Conversely, managers relying on mean reversion and pattern recognition models have experienced losses due to high intra-day volatility and consecutive drawdowns in equity markets.

The Managed Futures sector also has had positive performance during two recent periods of market dislocation. The strategy demonstrated a +16% return during the collapse of Long Term Capital Management (August 1998 - August 1999) and +28% following the technology bubble burst/September 11th crisis (March 2001 - March 2003).
Certain information contained in this document constitutes “Forward-Looking Statements” (including observations about markets and industry and regulatory trends), which can be identified by the use of forward-looking terminology such as “may,” “will,” “should,” “expect,” “anticipate,” “target,” “project,” “estimate,” “intend,” “continue” or “believe,” or the negatives thereof or other variations thereon or comparable terminology. Due to various risks and uncertainties beyond our control, actual events, results or performance may differ materially from those reflected or contemplated in such forward-looking statements. Readers are cautioned not to place undue reliance on such statements. Credit Suisse has no obligation to update any of the forward-looking statements in this document.

(1) Source: Barclay Trading Group, Ltd. All data obtained from publicly available information and other third party sources are believed to be reliable. Credit Suisse has not sought to independently verify information obtained from public and third party sources and makes no representations or warranties as to accuracy, completeness or reliability of such information.

Madoff investor Thierry de la Villehuchet takes his own life amidst Ponzi theme scandal

Clarence the angel didn’t make it in time.  Rene Thierry Magon de la Villehuchet, co-founder of  Access International, a European victim of Bernie Madoff’s Ponzi scheme, ended his time here just as George Bailey wished to in “It’s a Wonderful Life”.  After spending several days and nights unsuccessfully trying to recover funds committed by his investors, Mr. Villehuchet took his own life in his Madison Avenue office Tuesday morning.

French newspaper la Tribune quoted relatives as saying Villehuchet, 65, “could not cope with the pressure following the outbreak of the scandal…This is a farewell from someone who had done nothing wrong.”

Paramedics responded at 7:50 AM and found Villehuchet, an apparent victim of suicide although official cause had not been determined as of this writing.

Access International lost as much as $1.4 billion in the fraud scheme.

Sources said Villehuchet was “devastated” by the scandal and feared clients would turn on him in court.

“Access was his whole life, and Madoff was a manager in whom he had complete trust. I lunched with him two weeks ago and he said, how lucky it was that Madoff was the only manager still doing well at the moment.”—AFP source

Thierry de la Villehuchet in happier times at Pinatel Trophy race at the CVP

Herd Cuts Spur Jump to 13-Year High

Bloomberg reported today that hog prices jumped 46 percent by June to the highest since May 1996.  The number of breeding sows has intentionally been cut to limit losses from rising feed costs.  Fewer pigs may boost the cost of everything from Spam to Jimmy Dean Sausage.

In the worst year for commodities in the last 50 years, hogs rose 6.6 percent, the second biggest gains on the Reuters/Jeffries CRB Commodity Index.  “We’re going to have 3 to 4 percent less pigs next year, and that should be very supportive to higher pork prices,” said Mark Greenwood, who manages about $1 billion of loans and leases to swine producers for AgStar Financial Services in Mankato, Minnesota. “There is the potential for producers to have a better year in 2009.”

Goldman Sachs Group Inc. has instructed clients to buy agricultural futures as the best “defensive” bet among commodities, citing global population growth.  Hogs are forecasted to jump 75 cents in the next 6 months.  Pork consumption is predicted to increase by 1.3 percent from this year and Chinese consumption may rise 2.9 percent raising worldwide consumption to 97.6 metric tons in 2009.

Tighter supplies sent corn on the Chicago Board of Trade to a record $7.9925 a bushel on June 27, triple the cost two years earlier. Feed costs remained high even after corn fell 52 percent in the second half because hog producers were locked into long-term contracts.

As the dark economic cloud continues to loom over us on a global level, and unemployment is still on the rise, pork represents a less expensive alternative to beef and chicken even with the projected increase.  Demand is expected to increase as hog farmers intentionally decrease supply which of course sets the stage for price increases in hog futures.