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Wednesday, September 10, 2008

Gold, Oil, PMs: More Hedgies Get Whacked

More commodity hedgies get whacked:

RK Capital Hedge Funds Lost Up to 30% in August as Metals Fell: “RK Capital Management LLP, the metals hedge-fund firm co-founded by Michael Farmer, lost as much as 30 percent last month amid falling cooper and aluminum prices, according to an investor with the firm.

The declines cut the combined returns of the firm's five funds to about 2 percent this year, said the investor, who asked not to be identified because the information is private. Red Kite Metals, the company's biggest fund, dropped about 40 percent, bringing this year's loss to as much as 7 percent.

The London Metal Exchange Index of six industrial metals fell 6.6 percent last month and is down 3.6 percent in 2008 as the slowing global economy cut demand for materials such as lead and zinc. Ospraie Management LLC, the New York-based commodity hedge-fund firm run by Dwight Anderson, said last week it will shut down its biggest fund after it lost 39 percent this year.”

Expect an ass-kicking climax of forced liquidation when oil pounds down through $100 and when gold slices down through $780.

The technical picture for both oil and gold can be described as ‘weak’ and ‘precarious’. Granted, both could bounce wildly off of support around here, but that would require a pretty large catalyst. I don’t see one.

Forget about oil demand from the BRIC countries. The whole globe is grinding to a halt. Believe it.

Forget about inflation. There has never been in the history of the world an inflationary run while land prices were declining. The amount of debt being destroyed as the monster of a debt bubbles implodes will suck down all asset prices and just absolutely collapse the velocity of money.

Factor in some serious de-leveraging by every single kind of market participant, and there is no way commodities can resume their ‘secular Bull market’ for years to come.

Take a look at copper for example. Copper just smashed through a multi-year trend line after putting in a long topping formation. Since 2006 prices have been hitting the same highs and getting rejected. This break down is of utmost importance. Game over.

I’m firmly in the deflationist camp.

5 comments:

peterthepainter said...

talking about 'the velocity of money'
check out PARTICLE ECONOMICS over on my blog

Anonymous said...

Ninja,
With commodities and financials nosediving, how do you play this...for the moment I'm in dollars on the sidelines trying to figure this out. I actually got here from Oil at $143.

Subster

Anonymous said...

Subster,

Wait for pullbacks in SMN and DUG. And if you do buy, know what you're buying, too. Airlines are a losing proposition but have performed well as a leveraged inverse oil play. Doubt that it holds up very long, though, as they become insolvent and unable to rollover debt.

Retail also presents somewhat of an inverse commodities play but you have to be very careful there, too, since declining asset prices and rising unemployment mean declining disposable income (HELOCs).

My only non-trading position is Consolidated Edison and I only hold it in order to get a better yield than a CD or online savings account. Be careful, it's a jungle out there . . .

-Mike J

fajensen said...

"""
I’m firmly in the deflationist camp.
"""
Can't one have both?

Deflation as the loss of jobs & income and Inflation in the form of rapidly rising prises, mainly driven by the USD falling?

Eventually, even the stupidest, inbred and corrupt asian banker will refuse to buy more USD-denominated thrash paper with negative yields and the ECB cannot. Then either the USD goes off the cliff or US interest rates go double-digit's.

Sneakers hobbies said...

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