Black Swan Management, LLC

Investments and Strategies for the Future of Business

Archive for category commodities

How to benefit from rising interest rates.

Mar 26

Posted by admin in commodities, investing, mitigating risk, mutual fund, real estate, stocks | No Comments

If interest rates start to rise, there are ways you can benefit!


While interest rates have been at a record low, it has been hinted that those days are soon over. Typically, higher interests rates are dreaded, as they lead to lower stock prices and higher home costs. However, there are some investments that do actually benefit from rising rates. In these confusing and dire economic times, it is important to learn how to fluctuate in time with the economy.

If interest rates do actually increase, as had been hinted by Federal Reserve Chairman Ben Bernanke, one of the ways you can benefit is by boosting your short-term savings. When interest rates increase, there are better returns from your cash and other short-term investments. Putting funds in money market mutual funds invests in a mix of stable, short-term instruments and you can access your funds quickly. It can also benefit you to put funds in certificates of deposit (CDs) to ensure that your money is easily accessible to you.

If interest rates are going to rise, it is very important to try and pay as much of your debt off as possible. Because credit card debt is already at a high rate, it is probably best to start by paying that off. Next, work to pay adjustable rate loans off. If you have an adjustable rate mortgage, consider refinancing into a fixed rate loan because mortgage rates are very low currently and will most likely increase regardless.

In short, if interest rates increase, benefit from the rise by boosting your short-term savings and building up your emergency funds with money market funds and CDs. While reaping the benefits, make sure you lower your debts to avoid a rise in your monthly payments.

About the Author

*This article was contributed by consumer protection/bankruptcy Attorney Jonathan Ginsberg, our expert bankruptcy contributor whose website can be found at: http://www.thebklawyer.com/thebkblog/


Tags: , ,

Market Conditions

Mar 16

Posted by admin in commodities, investing, mitigating risk, mutual fund, real estate, stocks | No Comments

Money Market Recap and Forecast

Treasury prices took a tumble on the heels of the February employment report two Fridays ago.  Yields, which move in the opposite direction of prices, rose and remained high all of last week.

There were no reports to encourage buying in Treasuries.  And Wall Street was pretty quiet.  Bond traders were concerned about the $84 billion in government debt going on the auction block, but demand was very strong.  Nevertheless, worry persists that huge supply will water down demand.

Monday and Tuesday were void of reports, and there might as well not have been any on Wednesday, considering it was on wholesale inventories for January.  They went down 0.2%.

Thursday’s report on first-time unemployment claims for the week ended March 6 showed another decline.  Claims dropped by 6,000 to 462,000, which was slightly lower than the 460,000 forecast.  The four-week average, which smoothes volatility, rose by 5,000 to 475,000 — the highest level since November.  And continued claims, those collecting benefits for more than one week, rose to 4.56 million.  But there was little reaction in bonds, as traders focused on the 10-year auction.

The U.S. trade deficit shrank to $37.3 billion from a revised $39.9 billion, but trading was unaffected.

Friday’s better-than-expected report on retail sales spurred selling, pushing the yield on the 10-year note even higher.  Sales rose 0.3% in February versus a 0.5% gain the previous month.  Excluding autos, sales rose 0.8%, better than January’s 0.6% increase.

The Reuters/University of Michigan preliminary consumer sentiment report for March unexpectedly fell to 72.5 from 73.6, pushing the yield on the 10-year back down.  The final report showed business inventories for January were unchanged.

Although mortgage rates ticked up during the week ended March 5, the Mortgage Bankers Association said that purchase applications rose 5.7%, while refis were off by 1.5%.  Some believe purchases will stay healthy as home buyers rush to meet the new tax credit deadline.

Unlike last week, there are several reports coming out that could influence trade, for better or for worse.

This week begins with Monday’s NY Empire State index on manufacturing conditions for March.  It’s expected to fall to 23.45 from 24.91, which could encourage buying in Treasuries.

However, trading could be subdued as this is the day prior to the Fed decision on interest rates.  Although no rate hike is expected, the markets will be looking for any clues about when that might happen.  They especially want to know if rates will remain low “for an extended period.”  This phrase probably won’t be removed on Tuesday, but when it is a big sell-off will likely follow.

Earlier in the day, data on February housing starts/building permits are due, with declines expected in both categories.  Starts could fall to an annual rate of 587,000 units from 591,000, while building permits are expected to decline to an annual rate of 587,000 from 591,000.

Separately, industrial production in February is expected to come in flat versus a 0.9% increase in January.  Capacity utilization should dip to 72.3% from 72.6%.  These reports could energize buying in bonds.

Wednesday the producer price index, or PPI, which checks for wholesale inflation, is not expected to find any.  It should show a 0.1% decline for February — far better than the energy-induced 1.4% rise the previous month.  Likewise, the more closely watched core rate, which eliminates food and energy prices, is expected to climb by a tame 0.1% versus 0.2% in January.

Thursday’s consumer price index, which checks retail price inflation, should show similar results.  Both the index and the core rate are expected to rise 0.1%, which bond traders should like.

First-time claims for the week ended March 13 are unpredictable.

The Philly Fed index on March manufacturing conditions could affect trading if it moves sharply up or down, as it has lately.  Right now it sits at 17.6, so three or four points either way could move Treasuries.

Leading economic indicators for February should rise 0.2% — a little slower than the 0.3% increase in January.  This report, however, usually has little impact on trading — nor does business inventories for January, which could rise 0.1%.

No reports are scheduled for Friday.

Tags:

Legg Mason Fund Manager: How to Beat the Market

Mar 5

Posted by admin in business, commodities, investing, investment gurus, mitigating risk, mutual fund, stocks, strategies, warren buffett, wealth | No Comments

Everyone wants to beat the market.  Very few investors do.  Your friends at Black Swan Management, LLC are always on the lookout for information that will make the road to the riches a little bit smoother.

If the stock market doesn’t go up much, your index fund won’t bring big returns. Robert Hagstrom of investment firm Legg Mason says you should use actively managed funds.

Tags: , , ,

The Art of Not Losing Money

Jan 29

Posted by admin in business, business startup, commodities, investing, investment gurus, Leadership, mitigating risk, mutual fund, real estate, stocks, strategies, warren buffett, wealth | No Comments

The Art of Not Losing Money

Part One

“Rule No.1: Never lose money. Rule No.2: Never forget rule No.1”

–Warren Buffett

Follow these directions on your road to safety

Let’s take a moment and step away from technical analysis, stock tips, and high finance.  Let’s talk about something that’s not quite as ‘sexy’ but is infinitely more important in your day-to-day dealings as an investor.  Cash management and safety.

According to full-time trader and author Karl Denninger, “Return of capital is more important than return on capital.  Put another way, the first rule of investing is “don’t lose money!”  Everyone wants to chase a winner; this, unfortunately, is why most investors lose compared to the markets over time.”

The first thing an investor must master is The Art of Not Losing Money.

Most investors only focus on the possible gains to be made. Learning not to lose money sounds boring and we all want to make the big bucks when investing, but the fundamental skill that you must have as an investor is the ability to protect your capital and the patience to wait for the right opportunity in which to invest that capital.  Any full-time trader (or professional gambler for that matter) will tell you that it’s fine to have the know-how, but if you don’t have a bankroll—you’re out of the game!

Most investment books and magazines will have plenty of articles about investment strategies, investment gurus, and investment advice.  Few will tell you the naked truth—without something to invest, you will never be able to take advantage of the opportunities that come your way.

Karl Denninger feels that it’s “… fine to speculate with money you can afford to lose, but your core capital should never be exposed to a market that is trading on bubble economics unless you’re close to the door and can leave fast – and for most investors that’s not possible with their “long-term” funds.  The key to long-term outperformance (the real goal in any such portfolio) is to STAY OUT during times like this, and take advantage of long-term (and deferred) tax advantages during periods when the markets are trading on fundamental value.”

Think about this for a minute:  If you lose 50% in the market, you need to get a gain of 100% just to get back to even.  How often will the market go up 100%?  It will likely take many years.  But, if you lose 20% in the market, it only takes a 25% gain to get back to even.  20% is still a lot, but a 25% rebound in the market is certainly a reasonable expectation and can be achieved in one year’s time.


The Oracle of Omaha

Managing your cash really boils down to discipline.

Just remember that as an investor, your bankroll is your lifeblood. Without it you can’t invest – it doesn’t get any simpler than that. Despite this simple truth, many people don’t see mastering The Art of Not Losing Money as a skill of the same importance as being able to calculate ROI or analyze emerging markets. All the investment strategies and hot tips in the world don’t mean anything, though, if you don’t have money to invest.

About the Author

Anthony Sills, M.B.A. formerly traded FOREX from the Atlanta Financial Center and has worked for stock advisory services, brokerages, Fortune 100 companies, and national banks.  Mr. Sills is currently a licensed loan officer and freelance writer.  You can reach him at anthony@professionalpenwriters.com.





Tags: , , , , , , , , , ,

Hedging ? What Is It, And It’s Uses In Risk Management

Nov 19

Posted by admin in business, commodities, investing, stocks, wealth | No Comments

Second of a two part article
Before discussing the use of hedging to off-set risk, we need to understand the role and the purpose of hedging. The history of modern futures trading began in Chicago in the early 1800′s. Chicago is located at the base of the Great Lakes, close to the farmlands and cattle country of the U.S. Midwest making it a natural center for transportation, distribution and trading of agricultural produce. Gluts and shortages of these products caused chaotic fluctuations in price. This led to the development of a market enabling grain merchants, processors, and agriculture companies to trade in contracts to insulate them from the risk of adverse price change and enable them to hedge.

The first commodity exchange was the creation of the Chicago Board of Trade, CBOT in 1848. Since then, modern derivative products have grown to include more than the agricultural industry. Products also include Stock Indices, Interest Rates, Currency, Precious Metals, Oil and Gas, Steel and a host of others. The origins of the commodity and futures exchange was created to support hedging. The role of speculators is beneficial as they add trading volume and important volatility to what would otherwise be a small and illiquid market place.

A bona-fide hedger is someone with an actual product to buy or sell. The hedger establishes an off-setting position on the futures or commodity exchange, thereby instituting a set price for his product. Someone buying a hedge is known as being “Long” or “Taking Delivery”. Someone selling a hedge is known as being “Short” or “Making Delivery”. These positions known as “Contracts” are legally binding and enforced by the exchange.

Entering your trades either for speculation or hedging is done through your broker or Commodity Trading Advisor. Commodity and Futures exchanges are distinct from Stock Exchanges, although they operate using the same principals. They are regulated by different agencies such as the Commodity Futures Trading Commission who are responsible for regulation of retail brokers in the USA as well as Commodity Trading Advisors who are Portfolio Managers.

Now let’s view some real life examples of hedging or mitigation of risk by using exchange traded derivatives.

Example 1: A mutual fund manager has a portfolio valued at $10 million closely resembling the S&P 500 index. The Portfolio Manager believes the economy is worsening with deteriorating corporate returns. The next two to three weeks are reports of quarterly corporate earnings. Until the report exposes which companies have poor earnings, he is concerned of the results from a short term general market correction. Without the privilege of foresight, he is unsure of the magnitude the earnings figures will produce. He now has an exposure to Market Risk.

The manager thinks of his options. The greatest risk is to do nothing, if the market falls as expected, he risks giving up all recent gains. If he sells his portfolio early, he also risks being wrong and missing further rally’s. Selling also incurs substantial brokerage fees with additional fees to buy back again later.

Then he realizes a hedge is the best option to mitigate his short term risk. He begins by calling his CTA (Commodity Trading Advisor) and after consultation places an order to sell short the equivalent of $10 million of the S&P 500 index on the Chicago Mercantile Exchange “CME”. Now his result is when the market falls as expected, he will off-set any losses in the portfolio with gains from the Index hedge. Should the earnings report be better than expected, and his portfolio continues upward, he will continue making profits.

Two weeks later the fund manager again calls his CTA and closes the hedge by buying back the equivalent number of contracts on the CME. Regardless of the resulting market events, the mutual fund manager was protected during the period of short term volatility. There was no risk to the portfolio.

Example 2: An electronics firm ABC has recently signed an order to deliver $5 million in electronic components of next years model to an overseas retailer located in Europe. These components will be built in 6 months for delivery two months after that. ABC instantly realizes they are exposed to two risks. 1. the rising and volatile price of copper in 6 months may result in losses to the firm. 2. the fluctuation in the currency could easily add to those losses. ABC being a young firm cannot absorb these losses in view of the highly competitive market from others in the field. Losses from this order would result in lay-offs and possibly plant closures.

ABC telephones their CTA and after consultation places an order for two hedges, both for an expiry in 8 months, the date of delivery. Hedge #1 is to buy long $5 million of copper effectively locking in today’s price against further price increases. ABC has now eliminated all price risk. The risk of plant closures is greater than the lure of increased profit should copper price fall. After all, ABC is not in the business of speculating on copper prices.

Hedge #2 is to sell short the equivalent of Euro Currency vs US Dollars. Since ABC is effectively accepting EC in payment, a rising US dollar and a weak EC would be detrimental and erode profits further. The result of the hedge is no risk and no surprises to ABC in either copper or currency levels. A risk free transaction and full transparency is the result. In 8 months with the order completed and the customer accepting delivery, ABC notifies the CTA to close the hedge by selling the copper and buying back the Euro Currency contacts.

Many examples exist to demonstrate the mitigation of risk to an institution or financial portfolio. New products are constantly created and available on both over-the counter and exchange traded markets. It would be wise to consult with a qualified Commodity Trading Advisor or broker to discuss the analysis for an on-going risk management solution or a one time only hedge.

About the Author
Dwayne Strocen is a registered Commodity Trading Advisor specializing in analyzing and hedging Market and Operational Risk using exchange traded and OTC derivatives.

Article source:
Hedging What Is It, And It’s Uses In Risk Management


Dynamic Hedging: Managing Vanilla and Exotic Options (Wiley Finance)

Dow Jones Never Loss Trade

Click Here!

Tags: , , , , , , , , ,

Contact Us

*required fields

Thank you. Your message has been sent.
There was an error while sending your message. Please try again later.
Plugin by psd to wordpress Solutions.
This site is protected by WP-CopyRightPro