Macro Trading?

I know I'm under the gun here to be posting a new thread as my first post. I am having a hard time conceptually grasping many of the principals that are advanced as the backbone for understanding this more "technically-driven" market.

I'm aware of the concept of reflexivity, but that's about as far as I've attempted to reconcile the patterns to commodity and credit cycles, etc...and some tin-foil hat-frightening beliefs about the stage we're at with the federal reserve over the longer term.


Here is what I would like to do based on my naive reasoning:

I am prepared to take a long position on a couple of equities that I believe are under-priced right now, but I'm not convinced I want to be in equities at all. Needless to say, the investments I'm talking about are not going to be in the financial or real-estate sectors of the US economy. They are not US companies at all.

With dividends re-invested (assuming no margin) I believe that there are a couple of "three bagger" opportunities over the next couple of years that are relatively high-probability scenarios.

I am more interested in the idea of using margin to "trade" commodities based on longer term pricing assumptions. Basically, I would be intrigued with the idea of being able to put $10,000 down in a typical bank loan type of scenario with a 10X leverage factor more similar to a typical "mortgage" type of leverage scenario. My time-horizon is much longer- like three years at least. I don't care about "stops", especially considering my interest in investing in commodities.

The problem is that I don't know how the X100 and over margin multiples work in terms of your time lines on these "loans". Considering I would want to have a three year time frame on maybe 3 or 4 investment "ideas", is there a way I could make the system work for me?

I don't know how you guys would be able to afford the frictional costs involved in what you're doing with the very short-term trading. That's my ignorance. I'm coming from the dot-com bubble critical mentality of viewing online trading as inherently speculative. I don't view it like that any more. But if you were to get too many people in the futures market able to access huge margin to take long positions on certain commodities, I always believed there would be problems with the contracts regarding the "storage" of consumables, etc...

I would be hugely grateful to any and all that could help me out on some of this stuff. Thanks very much for the patience-

Roy,

Three years is hell of a long time to take positions in commodities (or anything else) where leverage is involved.

On a very basic level, the potential range will be massive - up and down. Your problem will be maintaining/financing positions when margin calls arrive. I regard margin calls as an indication of bad judgement.

But what do you do if you see a good profit in the first year? Do you maintain the position on the basis that this is below your time-horizon and can run much further ?

Grant.

roy_jones said:

But if you were to get too many people in the futures market able to access huge margin to take long positions on certain commodities, I always believed there would be problems with the contracts regarding the "storage" of consumables, etc...

Click to expand...

Roy,

It might be possible, but you would have to pick the absolute bottom / top of the product you are interested in to avoid a margin call - IMO sound evidence that you got it wrong. Also, w.r.t. your point about low margins and speculation in the futures markets, it has been mentioned that margins may be massively increased to prevent exactly the situation you describe; If, say, the margin for Crude futures doubled, you would see alot of speculative traders leave the market, and this could have a huge impact on prices. watch out.

Very interesting, thanks fellas.

grantx, I appreciate that feedback because it's exactly that type of perspective I'm trying to establish. I'm obviously coming from outside of a finance background, which complicates some of the conversation because I have some fundamental gaps in my understanding of the actual instruments involved.

I have been trying to better understand forex in particular so that I'm not off-topic here, and obviously this being the largest market in the world, which I truly did not realize.

I am intrigued in the idea of investing in the RMB, but am struggling to understand how that would work. I guess for me, I have more of a macro thesis, which I feel more comfortable with than any reliance on trying to capture short term technical movements. Something about "market timing" is very against my investing nature.


MrGecko, thanks for the guidance. I am intrigued with anything that the government is trying to legislate away. I would be watching any situation where there was a deflation of the oil prices closely, as that would be a great opportunity to potentially move into that market.

Roy,

If your approach is more on the fundamentals, a long-term perspective is justified. However, the derivatives markets are not really appropriate (unless your going for long expiry out-of-the-money calls, and wisdom of this is subject to many ifs and buts).

I would suggest you look for companies which are largely exposed to the commodities you're looking at, eg oil co's; then refine this further by comparing the fundamentals. On a more speculative note, maybe look at oil (or other commodities) co’s of new EU members – under-resourced, under-funded, under-developed. Assuming they have untapped reserves, strategic alliances, major new investors, mergers or take-overs may be their way forward (and upwards for their share price).

This is your next project, Mr Gecko – set-up the required legal infra-structure to attract funds for this purpose and get Christo9her (dissertation) to construct a suitable portfolio. I’ll make the coffee and look after the women (you can take over re the latter when you've had yor eight pints).

Grant.