Sunday, April 30, 2017

"The Last Remaining Cheap Asset"

Ah hell.
I hate seeing stuff like this in print.
It's true but I hate seeing it.
And it gets worse. He profanes an image of Julie Andrews along the way.
This Julie Andrews:
"It would surprise no one, perhaps, to learn that Julie Andrews travels with her own teakettle."
No. No it would not.

From The Macro Tourist:
There are two things that most men think they are experts at. Ask any man, and chances are, deep down, they believe they are the world’s greatest bbq’er and lover (probably in that order). Personally, I know not everyone can be the world’s greatest lover, so I hope I might be in the top quartile (I am giving myself a boost for all those too-good-looking guys who think they don’t even have to try), but god damn it! I know that I am in the top percentile when it comes to barbecuing!

My delusions about my mad bbq’ng skills are similar to everyone’s belief they are contrarians. Whether it is the NYSE specialist, the Chicago pit local, the Bay Street equity trader, the London credit specialist, or even the guy at home trading in his underwear, we are all consumed by these romantic narratives where we bravely battle the naive masses to nail the next great trade. But the reality is that we can’t all be contrarians. If we were, then it wouldn’t be contrarian…
Today we face expensive assets everywhere we look. Whether it is real estate, equities, fixed income - capital is chasing assets at a disturbing pace. Central Banks, with their massive quantitative easing programs and negative rates, have inflated anything with a CUSIP, and those private investors venturing out the risk curve have taken care of everything else.

So what’s an investor to do? Is there anything truly cheap anymore?

Well, rest assured, there is absolutely nothing easy left. Anything with a little bit of meat on the bone has been picked clean. You could try making some money taking the other side of this over valuation, but you need to realize who is on the other side of your trade. Although you might time the occasional squiggle lower, I would rather not fight Central Banks and their unlimited fire power.
No, I would rather go looking for something truly forgotten, hated, and cheap.

And nothing fits this bill better than grains.

I told you this wasn’t going to be easy, so when the idea of buying grains makes you throw up a little in your mouth, don’t immediately discount its investment merit. The grain charts look like death. No two ways about it. As the trader who sits beside me says, “going long grains is a hedge against profits.”
I realize these charts do not represent grain’s actual returns due to the problems rolling contracts and the embedded carry (positive/negative depending on the shape of the curve), but it gives you a sense of the spot market over the past five years. The selling has been relentless, and discouraging.
I like to follow agriculture twitter. It’s a nice break from all the finance guys bragging about their latest wins or posting pictures of the meat they are bbq’ng that evening. The ag people seem a little more humble, but I must admit, I get a kick out of them showing off their latest tractors or combines.
The reason I bring this up is to give you a sense of the sentiment within the agriculture trader community.

What’s that line legendary strategist Don Coxe likes to use? “The most exciting returns are to be had from an asset class where those who know it best, love it least because they have been burnt the worst?”

Well, there can be no doubt that grain longs have been burnt the worse. If we back up the timeframe on our charts, and then adjust for inflation, you will notice that grain prices are now all ticking all time lows....MORE
HT: ZeroHedge

The only positives of seeing this talked about are 1) You are dealing with a complex-chaotic system (a financial market) overlaid on a complex-chaotic system (weather) that will crush (soybean pun) you should you start to exhibit any symptoms of hubris, thus weeding out quite a few of the wannabes and 2) although the intraday move can be violent the longer term stuff can lull you into serious misreadings of reality.
The best examples are in the presentation of the charts above; it's actually been a wonderful trading environment.
If you've been short.
Which is what two-sided markets are all about.

The Andrews quote is from "Nun with a Switchblade: Julie Andrews and The Fiftieth Anniversary Of The Sound Of Music".

If interested we embedded one of the better homages to Dame Julia Elizabeth in "Watch Out Mary Poppins: The World's First Tea Brewing System Utilizing Machine-Learning Algorithms Has Received Pre-Launch Seed Funding (plus a Princess Rap Battle)"  although purists will probably have the same reaction to it that I had to news Disney was planning a Mary Poppins sequel: