The Wizetrade Commodities Blog

GLD is the EFT (Exchange Traded Fund) for gold. Mike Ennis shared with Future Focus viewers how he would time trades on GLD Options using timing from Big E-Gold charts on Wizetrade Commodities. I got to thinking…..

Who is responsible for GLD? Someone buys or sells physical gold for the ETF as more investors buy and sell shares? It’s not like a limited supply of shares that causes the rise of the price; it’s the price of gold causing fluctuations in the share value. Fear drives the price of gold, doesn’t it? Central Banks try to force the price lower by “selling” gold to bolster their fiat currency.

HSBC is the Custodian of GLD. From their website’s main page: Headquartered in London, HSBC is one of the largest banking and financial services organisations in the world. HSBC's international network comprises around 9,500 offices in 85 countries and territories in Europe, the Asia-Pacific region, the Americas, the Middle East and Africa.

Last week, Gordon Brown, Britain’s PM said that on October 10^th there was a banking crisis that came within hours of his government’s nationalization of all the banks in England. The government would have guaranteed all deposits. I assume by the word “all” he included HSBC. I also believe nationalizing banks remains on the forefront of coming events not only for Britain, but also the United States. The result would be that some government would become the Custodian/Trustee of the GLD ETF. The audit of the bullion would be done by those governments whose CBs sell gold. Interesting scenario to say the least, no?

According to HSBC’s S1 prospectus filed with the SEC on 11/16/04, page 13: "gold held in the Trust's unallocated gold account and any Authorized Participant's unallocated gold will not be segregated from the Custodian's assets. If the Custodian becomes insolvent, its assets may not be adequate to satisfy a claim by the Trust or any Authorized Participant. In addition, in the event of the Custodian's insolvency, there may be a delay and costs incurred in identifying the bullion held in the Trust's allocated gold account."

Do the unallocated assets of HSBC include GLD? What about allocated assets? Allocated gold is specifically identified as property of the Trust held in a separate account. In case of  insolvency, the Trustee can claim ownership of the properly allocated gold, and can be subject to the liquidator freezing access to all gold in all accounts held by the Custodian, including gold held in the Trust Allocated Account.

There is also the ability of HSBC to appoint “sub custodians” who may “hold gold for the Trust” and appoint other sub custodians to “hold gold for the Trust” (page 12) who are not subject to audit or inspection even by the Trust. WHAT? What was that middle thing? No transparency? Look Out!

Mike’s Options play on GLD may be as close as anyone wants to get to this powder keg. There are too many fuses for me. Oh yes, it is Wall Street, isn’t it?

Last week’s launch of Channel 2 went as smoothly as any attempt to jump off a cliff without a parachute can go. ‘On the job training’ is a brutal teacher. “Hello. Let’s open up the window to let all view every mistake made.” But, that week is now behind us, and the new vehicle for training in the software is here to stay.

I do miss the webinar approach because of the one hour length broadcasts and lack of camera. That aside, Channel 2 is a great medium for learning. The five minute interruptions every 30 minutes catch me by surprise, but I’ll soon get into the routine and wonder how I ever managed to talk continually for a solid hour on TalkLive.

Join me if you can and help me talk about the subjects you want to discuss.

Mike Ennis has been on Futures Focus for the past two days sharing information on how he uses Wizetrade Commodities (WTC) to trade options on QQQQ’s and the ETF’s for energy. Mike is a Commodities Trading Advisor (CTA) and is currently the holder of the second oldest CTA license in the US; license #68.

The information he has shared has been along the following points:        

1.      Entry and exit timing for the QQQQ’s from WTC is about 25 to 30 seconds earlier than with QQQQ’s charts from Wizetrade Stocks. The advantage can be 3 cents to 4 cents or $30 to $40 per contract. Mike is able to trade 10 contracts. Therefore, the gain over WTS has been $300 to $400 per trade for him.

2.      The trading plan is very simple, but requires patience. “Proper planning results in superior trade selection.”

3.      Entry and exit timing for USO (West Texas Intermediate Crude Oil) is furnished from WTC Crude Oil Charts.

4.      UNG, the Natural Gas ETF may be traded from the E-mini Natural Gas Charts within the WTC Energy group.

5.      All the tools necessary to trade these specific ETF markets are within the family of Wizetrade products.

I have suggested eligible for Founders Club customers who want to trade ETFs based on the commodity futures within WTC take advantage of the offer even if they don’t plan to trade commodities. Here is the main reason:

Wizetrade Stocks                                 $39

Wizefinder                                            $99

WT Options                                         $20

Option Hunter                                      $99     

Total monthly outlay                           $257

Founders Club                                   $199

Savings                                               $58

And, you get Wizetrade Commodities ($99), Wizetrade 4X and 4X Tracker. The offer is not an attempt to sell anything, but to give more value for less money.

The trading plan shared by Mike follows after a year of research and is one of the most exciting occurrences in WTC since it became a monthly subscription. Input from professional traders like Mike, Michael Jennings, Jim in Kentucky are helping all traders develop successful trading strategies. Thanks to all who contribute and we look forward to the WTV broadcasts tomorrow and Friday with Mike Ennis.

According to 60 Minutes, the largest oil company in the world is “not Exxon Mobil nor Chevron nor BP, but Morgan Stanley; not in the traditional sense of the regular oil company.

“According to documents filed with the SEC, Morgan Stanley is a significant player in the wholesale market through various entities controlled through the corporation. It not only buys and sells the physical product through its subsidiaries and companies it controls, Morgan Stanley has the capacity to store 20 million barrels of oil. With its storage tanks in New haven Connecticut, it controls nearly 15% of the home heating oil business in New England.

“Goldman Sachs controls a refinery in Kansas, and control 43,000 miles of pipeline, and more than 150 storage terminals.” hear more 

So here is the source of Peak Oil. The whip of the stampede into Crude Oil was cracked by investment bank energy analysts and their research papers promoting the limitation of oil production, increasing demand from emerging markets, and commodities as an asset class to buy and hold. It turns out to have been more big fat lies from Wall Street. Again, those who got their investment dollars tied into the buy and hold commodity scenarios lost a majority of their retirement accounts.

Just how long should we as a nation tolerate this lack of any moral fiber in the “Financial Institutions” with their desire to mislead the public for ill gotten riches? Of course, the damage done will be scorned by politicians seeking “consumer advocate” public favor in their denouncements of this “lewd and scandalous” behavior. But the fury will end without any just punishment of the guilty.

From truck drivers who went broke to Joe the Plumber and Wendy the Wealthy straining to make ends meet, everyone in the United States was robbed at the pump by these bankers’s greed. The same bankers with their marked to make believe CDO’s spurring the “Credit Crisis”; the zealous lending frenzy of sub-prime mortgages and the collapse of the housing markets which sent housing equity plummeting (again causing a decrease in wealth for all American home owners) and the current lack of lending for automobile loans creating the current automobile slump and layoff of hundreds of thousands of workers. But, thank God we gave them the 700 Billion dollar bail out so we could pay their cushy banker salaries and broker bonuses. The entire nation suffers because of them.

I am left to associate “former Wall Street banker/broker” with the notch just below child molester. The reputation of the used car salesman looks pretty pristine in comparison.

Grains: Corn tried to Limit Up, missing that mark by only 2 ‘2 cents/bushel; Closing at 389 ‘4. I was glad I sold the 350 March Corn Put for a profit of $350. The price is back to 8 cents and I will look to buy it back Tuesday as I expect the markets to weaken and go back into their down trend soon.

Meats: The Live Hog market finally had a positive day. $0.125/pound isn’t much; but it’s a start. I see the short term trend has halted and reversed at least.  Only one other day of the last seven days has ended positive.

Energy: Yesterday, My Futures Focus chart of the day was the weekly Mid Term Chart in Crude Oil because the Last Trade Date for February MiNY Crude Light was today. Another reason was the contango (no, it is not a dance) between the expiring contract and the March contract.  The difference ($6.80) between the two contracts when usually it’s about $1.50 seemed excessive and I thought it would be a good short side spread candidate. During the day, the spread increased to $8.30 and I had to laugh at the widening prices. But, March Crude did sell off at last, beginning the day lower and ending the day lower.

Financials: Look out below when everyone realizes the Fed Reserve Notes, AKA US Dollar, literally is not worth the paper it’s printed on.

Metals: Gold acted as if it wanted to get back to the main trend, up $32.00/ounce. I think some day the DOW and Gold will find parity at about $4800. I hope not.

Grains: Limit down today and more down the next few days as indicated by the momentum of the fall in all grains. The next choppy up move caused by profit taking may produce another fall in the grains as steep and rapid as the one begun today. This could be fun and profitable.

Metals: Gold closed down $33.50 an ounce and $35.30 off the session high of $854.90 (Feb). Ironically, gold is back at levels we saw in December. I am just waiting for the collapse of the Federal Reserve Notes (US Dollar) to see what happens in metals. There is something to be said for having two US Presidents in office simultaneously. The incumbent is calm and looks better physically than he has appeared in years. The incoming president looks worried and a little fatigued. He is calling for massive stimulus package for all non-taxed citizens to be done now before he takes office.

Financials: Again, where are the financials to go except down or sideways? People are more confident in the Fed than in their own bank. It makes me wonder who is buying them other than the Fed!??!?

Indices: As pointed out last month, the range for the DOW is coming down which in the past has meant a build up of volatility. I continue to look for a slow movement up through inauguration of what appears to be the already in office President. Then there will be either a final plunge to a significant bottom or a sizable rally from that area.

Energy: If you did not see the 60 Minute segment on Crude Oil last night, I’ll sum it up for you. “The same bandits that caused the sub-prime mortgage collapse, the banking and mortgage fiasco and the run-up in all the other commodity futures markets did the deed to Oil as well which in turncaused $4.50 per gallon gasoline.”  I won’t repeat their names (Merrill Lynch, Goldman Sachs, and the usual suspects). I think I may miss these guys when their gone. Nothing they do really surprises me anymore.

Meats: Lean Hogs looks more promising daily. Watch this market (as I said at Wizefest) to be the final Bull Market in commodities. I think all the commodities will rally for awhile. All the markets are oversold.

Recently, I was asked to comment on a YouTube video interview of a Dartmouth economics professor giving his expert advice on "why commodities should not be added to THE Portfolio." The answers he gave are typical of the one-sided-buy-and-hold portfolio manager’s lack of understanding of how to trade commodities markets. He (I won’t name him) is right in his assessment of commodities as a bad mix as part of what I call a static “don’t involve me in managing my money” premise. I have excerpted part of the interview:

(1) What I do when I think about forming a portfolio is as I know there is an “adding up constraint”, and, the adding up constraint is everything has to be held,* so, I know what the average of everyone’s portfolio must look like. [sic] It’s got to be the composite of all stocks, all bonds, all commodities; anything you can think of must be in that aggregate portfolio.

(2) So, when you say “people should be holding commodities,” I always ask, “Are there commodities out there to be held? What commodities are not currently owned by publically traded companies; privately held companies? What commodities are out there to be held?” There’s far less than people think ought to be held in people’s portfolios, which tells me there’s a disconnect between reality and that advise.*

(3) Then there is the argument that theses (commodities) should be held because they are a hedge against inflation…doesn’t make any sense. The variance in inflation is tiny compared to the volatility in say energy. So to use energy as a hedge against inflation…..it’s just crazy.

(4) And then there is the perception that there is money to be made there, well…that’s everyone’s perception.* Why do we think that everyone is going to line up on one side of the trade?

*Bold font is my emphasis. Bracketed numbers ( ) are mine for reference.

(1)   No! Don’t hold commodities. Commodity contracts expire and have to be sold on or before the Last Trade Date.

(2)    There is a disconnect between reality (what really happens to commodities) and “that advise” (to hold commodities). I totally agree. ETFs are commodity based funds that flow in the same direction as the commodity markets, but don’t lend themselves to the Buy for Profit/Sell for Profit scenario.

(3)   These are to which I think the professor correctly infers as a bad investment to hold both for hedging inflation and for taking advantage of seasonal swings in commodity markets and, I pretty well agree. When we get to

(4)    BINGO! That’s the reason we trade commodities, Professor. That’s everyone’s perception and reality. In commodities, buyers and sellers take either side of the trade for justifiable fundamental or technical reasons. Some gain and some lose, but no one holds.

Commodity markets since Professor’s Buy and Hold Buddies showed up with their Pension Fund money have skyrocketed to all time (or close to record) highs creating $147 Crude Oil (record), $16 Soybeans (look back to 1963), $1,033 per ounce gold (record), and the 14,000+ DOW (record). All they know to do is buy and hold…so, they kept buying and buying. These are the “speculators that drove the prices unjustifiably high” in food and gasoline, inflating margin deposits to five and six times their normal amount.

Some seasoned commodity traders short sold all the way down (like they are supposed to do) and doubled their portfolio. Thanks, Professor.

{Buy and hold did not work in the 2008 stock portfolio either, but that is another, later blog.}