Con-tango

The tipping point

The 300 movie. Spartans pushing Persians off a cliff.
Source: gamespot.com

Reading Bloomberg’s headlines today brought a chill down my spine.

• China Calls U.S. Import Tariffs `Unacceptable,’ Affirms Right to Respond
   

• Dollar Falls Against Euro, Yen as U.S. Adds Tariffs on Imports From China

• U.S. Stocks Fall on Housing, Rate Outlook, Leaving Dow With Quarterly Loss

• European Stocks Decline on U.S. Economic Reports, Led by Axa and Lafarge

• U.S. Treasury 10-Year Notes Drop for Second Week on Concern About Economy

• European Government Bonds Drop for Second Week on Interest Rate Concerns

• Asian Stocks Fall This Week on U.S. Economic Outlook; Sony Leads Declines

• EU Calls For `Immediate’ Release of 15 U.K. Troops Seized by Iran in Gulf

• Bush Says the Democrats Are Pursuing `Reckless’ Tax, Spending Policies

Are we at the brink of a recession? Or worse?

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Hurricane forecast ignites crude prices

Hurricane Katrina. Courtesy: SkatterTech.

Accuweather’s forecast of a strong 2007 hurricane season for the Gulf Coast  ignites crude oil futures prices (CLK7) to spike to a little under $66, after 5:00 PM EST…

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The yellow submarine

The Yellow Submarine. Courtesy of Howie Green.

I’m loving this post already. So many fond memories…

First, the music,

Then, the lyrics, courtesy of sing365.com…

[…]

We all live in a yellow submarine,
Yellow submarine, yellow submarine,
We all live in a yellow submarine,
Yellow submarine, yellow submarine,

weird sounds

As we live a life of ease,
Everyone of us has all we need (has all we need)
Sky of blue (sky of blue) and sea of green (sea of green)
In our yellow (in our yellow) submarine (submarine. Blaha)

We all live in a yellow submarine,
Yellow submarine, yellow submarine,
We all live in a yellow submarine,
Yellow submarine, yellow submarine,

[…]

So appropriate for the subject at hand, the case of global market liquidity.

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Captain Morgan’s pirates

Morgan’s Rum. Courtesy of Don Maitz.

Continuing with my previous post, a salient feature which has allowed Morgan’s pirate traders to make trillions of USD is the fact that they have shown their abilities to navigate a deep sea of liquidity, with low volatility winds.

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How to become a billionaire

 

Japanese Yen.
Courtesy of Bank of Japan Currency Museum.
 

Ok,
so I mistakenly thought the US real GDP for 2006 was going to be lower,
2.5 %, and it surprised with a high of 3.4 %. Then, what was it that
compensated the loss of growth in the US housing slowdown? From the latest BEA report and
looking at the fine print (Table 2), we find that the relevant items
with contributions above the 2005 GDP are:

• The export of goods with a
  0.24 % contribution,
• government expenditures (mostly at the state
  level) with 0.23 %,
• and a surprising cleanup in US inventories to the
  tone of 0.56 % …

…Christmas sales went well… and the states helped with some extra spending.

But, looking around for an excuse to my… blindness, I ran into the whopping sums that the US financial sector is harvesting around the world
–which I found a lot more interesting.

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The Contango

Hilary Till, Principal Premia Capital Management, LLC

Continuing with Hilary Till’s study, the next interesting find is the roll yield embedded in the term structure of futures contracts. In her own words:

In the past, even if spot commodity prices declined, there was an additional way that a commodity investor could have a positive statistical expectation of profit, and that was through the “roll yield” embedded in certain commodity futures contracts.
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The $55 USD/barrel pact

Source: Stockcharts.com

I was quite annoyed the other day; oil prices had been steadily falling and had breached the $51 USD support. Suddenly, prices reversed, with unusual strength, recovering and climbing all the way to $55. Needless to say, I didn’t like it because I got caught on the wrong side of a strong move.

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