Showing posts from April, 2020

CFA Series - Commodity Pricing

Commodity futures The difference between gold and oil is the usage of each and their storage costs. Backwardation very seldom arises in money commodities like gold or silver. This is because it costs a large amount of money to store oil, whereas gold costs next to nothing to stash somewhere as a function of its value. Instead, every barrel of oil that is extracted is done so for the purpose of consumption. The cost of storing oil on speculation or on arbitrage is just too huge to make it a profitable activity unless there were an absolute huge positive premium between near and far month contracts Commodity Futures Pricing Total return = Spot return + Roll return + Collateral return + Rebalancing return ·          The spot return is simply the price appreciation in the spot price, which is based on immediate delivery, of the commodity. The spot price is influenced by fundamental factors that are unpredictable. ·          As an investor in futures contracts has to

April Fool's Joke

Summary of the week As the corona infections reached new heights (>1 million infected) and the stock market continue to hit new lows, a real life Circuit breaker was triggered in Singapore market. As enthusiastic speculators continue to long toilet paper and short stocks, the Federal Reserve tries to calm down the markets by printing USD faster than the toilet paper companies. I originally wanted to post this piece on 1st April as an awful April's Fool joke, but there is nothing humorous about the realities surrounding us. Portfolio decisions  I initiated a high conviction position in Ishs CSI 300 ETF after I observed the recovery on the China PMI. Although a part of me is confident that China will be the first to regain industrial momentum as the factory of the world, a nagging worry is the fact that the Chinese has a history of fudging their numbers and economic data.  As a know nothing investor whom does not understand China GAAP , and has no comparative advan