Commodities, COT, Barrons, should we all SELL SELL SELL?
We are facing a worldwide shortage in all major commodities. Truth? Well, it's certainly become a strong belief of many folks. And the dollars have flooded into commodity index funds, etf's, etc. And it's not just you and me, it's big pension funds, etc. This week's Barron's cover has a picture of a bushel of corn. The lead story: Commodities Boom: Danger Lurks. The subheading? Legions of small investors have driven commodity prices to levels that can't be supported for much longer. Take a cue from industry insiders: They're selling.
Now it's not so simple as sell, sell, sell, but it never is, is it? The experts are conflicted. You've heard Jim Rogers, the big commodities bull state on every news business channel that he believes we're in a multi-decade run. And there is, of course, the short term and long term story. If you read Rogers' books or hear him speak, he considers a 30-40% correction standard in a commodity bull story. Ouch! 30-40% down before going back up again?
There are some great articles out there and plenty of arguments. The basic bull argument is that the developing countries are going through major booms that mean massive consumption of resources. This is a once in many decade story, and it's not going to slow down. The bear case is mostly related to the slowly American economy along with a bubble in commodities. The argument is not that the some commodities aren't scarce, but that the prices have gotten ahead of themselves.
You know we're at least in a serious bull if not near the top of it, when even the night-time talk show hosts are talking about the price of oil, the price of corn, and stockpicking shows are suggesting the crop report this Monday is a major event. Well, it is a major event, but there's not much I can do about it.
It took me months and months of following commodities to learn of some of the resources that very serious investors were following. So I thought I'd link a couple here. I'm going to start with the COT report.
Know what the COT report is, where to get it, and how to understand it.
The COT (Commitments of Traders) report comes out every week from the US Commodity Futures Trading Commission. It contains data on positions on futures. Many look to this report to get an idea of where the smart money is going, and not just for corn, oil, wheat, but also for the S&P and Dow which also have futures trading.
An excellent overview and description of the COT report is here on Investopedia. Take a look, they do a great job explaining in a short overview the what/how/why of the COT report.
You can take a look at the reports for yourself on the CFTC website. The COT reports are free and available to everyone. CFTC's COT reports are here.
I point out that the COT report is free, because there are a lot of high-priced services that will charge you for information about the COT reports. I would ask you to ask yourself: 1, why consider paying for this info when you didn't even know it existed before reading this post; 2, why pay when you can interpret the data yourself.
In my opinion, this is similar to the many sites that will sell you data on insider buying which is available and free on the sec.gov site. They display it nicely, and extract information (for example interpreting "A" means "acquire" i.e., buy, and "D" means "dispose" i.e., sell, but you could get it free for yourself from our government.
Now with that introduction, here's a link to one of those services. I'm linking to this because Steve Briese does have a free blog, has written an excellent book about the COT report, and mostly because he wrote a nice long article describing everything he thought they should have included in the Barron's article. And since the Barron's article is not free, I thought this is an excellent substitute (or addition if you've read the Barron's piece).
Steve Briese's expansion on his comments in the Barron's article are here at CommitmentsofTraders.org
I know this blog post doesn't answer the question "should we all sell, sell, sell?" And it's probably generated more questions than answers, but that was my goal. When I first heard about the COT report I felt like there was one more big secret that professionals knew that I didn't. Well, now you know about it. Take a look. Read Steve Briese's article. Decide for youself.
Have a great weekend!