One of the biggest problems for long positions in gold and commodities generally
in 2008 was the leverage used by investors in the futures market. Of course,
as prices increased so did the profits and the equity of these investors. The
additional equity was levered further by buying even more futures contracts.
This was a recipe for disaster as delevering took full force.
Furthermore, in 2008 the other common trade was to be short long-term treasuries.
The decline in commodities that wiped out so much equity forced a massive short
squeeze in treasuries reinforcing both trends. That was 2008.
In 2009, commodities have now stabilized and some have even risen. Long-term
treasuries are falling once again. Both of these trends, combined with all
of the cash on the sidelines, are laying the groundwork for what lies ahead.
The Federal Reserve is fighting deflation aggressively in an attempt to create
inflation - when it wins the battle it will make the aftereffects of the 2003
battle with deflation look like child's play. In 2004-2006, leverage was used
to speculate in housing. In 2009 and for the foreseeable future, leverage will
be used to build futures positions in all types of commodities. As profits
begin to accumulate, greater and greater amounts of leverage will be used in
the futures market. After all, animal spirits never die and speculating with
cheap capital is what central banks are enticing investors to do. This "Great
Relevering" will be even more powerful than the delevering that took place
in 2008.
Since financial assets were the old leadership, it is clear that real assets
will be the new leadership making this opportunity overwhelmingly favorable.
Inflation-adjusted commodity prices are near all time historic lows as cash
waits on the sidelines searching for a home. The buying of levered commodity
positions sounds like home sweet home.
Continental Capital Advisors, LLC was formed to offset the destruction of
wealth caused by the global devaluation of currencies by central banks. The
name Continental Capital symbolizes the 1775 US Currency, "the Continental",
which was backed by nothing and quickly became devalued.
Disclaimer: The above is a matter of opinion and is not intended as
investment advice. Comments within the text should not be construed as specific
recommendations to buy or sell securities. Individuals should consult with
their broker and personal financial advisors before engaging in any trading
activities. Certain statements included herein may constitute "forward-looking
statements" with the meaning of certain securities legislative measures. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause the actual results, performance or achievements
of the above mentioned companies, and / or industry results, to be materially
different from any future results, performance or achievements expressed or
implied by such forward-looking statements. Any action taken as a result of
reading this is solely the responsibility of the reader.
Continental Capital Advisors, LLC was formed to offset the destruction of
wealth caused by the global devaluation of currencies by central banks. The
name Continental Capital symbolizes the 1775 US Currency, "the Continental",
which was backed by nothing and quickly became devalued.
Disclaimer: The above is a matter of opinion and is not intended as
investment advice. Comments within the text should not be construed as specific
recommendations to buy or sell securities. Individuals should consult with
their broker and personal financial advisors before engaging in any trading
activities. Certain statements included herein may constitute "forward-looking
statements" with the meaning of certain securities legislative measures. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors that may cause the actual results, performance or achievements
of the above mentioned companies, and / or industry results, to be materially
different from any future results, performance or achievements expressed or
implied by such forward-looking statements. Any action taken as a result of
reading this is solely the responsibility of the reader.
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