Is it Time to Move Away from Stocks? (Episode 2)

Sure. This is absolutely a topic that, uh, a lot of my customers and clients, particularly hedge clients are talking about and believe it or not a lot of the farming community every year, they decide how much they are going to plant. How many acres they're gonna dedicate to corn and how many to soybeans. And it's really a big argument this year because fertilizer costs are so much higher than they normally are. Uh, it's more expensive to fertilize, an acre of soybeans versus an acre of corn. So there's a lot of speculation on what farmers are gonna plant more of this year and what that's gonna do to ending stocks at the end of the year. So it actually is creating a good amount of volatility and confusion in the, in the futures markets. So we talk about it all the time. The, the primary driver of the fertilizer cost has been natural gas, natural gas had a crazy run earlier this year.

It basically went from, uh, well, it started in the low $3 and ended up peaking out at around six 50 and so more than doubled in value in a very short amount of time. And that really ramped up the, the cost of fertilizer. The good news is natural gas has recently sold off pretty sharply from the highs. I actually, this is on a side note. I actually think natural gas probably goes back up, but, uh, we'll talk about that later for now. Um, natural gas is almost half of what it was earlier. Let's say in the, the late fall, when fertilizer prices really took off because natural gas prices took off. So there is some relief down the pipeline, but it's just like anything else. We notice it, you know, when we fuel our cars, um, just cuz the futures market drops 10% in gasoline futures or oil futures or whatever it is, doesn't mean that the price that the pump is gonna budge, it's a process. It takes some time for those price changes to filter from the cash market and the futures markets down to the actual, uh, consumers and the end users. But I think there is some relief on the horizon.

Absolutely. The one thing I wanna point out though is in my now nobody has a crystal ball. No one knows what the price of oil's gonna be next year or next month or even tomorrow. But, um, I've been doing this a long time and I've seen a lot of things in, in my opinion, I feel like we're in a situation where most of the, um, commodities are at around the, the highest levels that we will probably see, like in other words, crudes at around $80, I don't think we're going to a hundred. I think this is probably the upper end of the trading range and we probably taper off from there. Uh, now that's important because if crude oil stops going up, then prices at the pump may not necessarily go down, but they should at least stop going up. And that's, I think welcome news for all of us.

And over time that we'll eventually, um, prices at the pump will start to reflect what we see in the commodity markets. But again, it's a, it's a very slow process to the actual price of commodities going down and then consumer prices actually following suit. And you know, a lot of people try to point towards price gouging and things like that. But the reality is if you're a business and you've experienced prices go from low to high, like we did recently in energies, energies went from, uh, literally crude oil was under $20 a barrel. And in some cases almost zero or negative, if you really wanna get technical about it and then we've come to 80. So as a, it, you know, somebody that is, uh, running a business that depends on stable pricing is experiencing that kind of volatility. They're gonna be really slow to change the prices that they offer their customers because they don't want to put themselves out of business in the process. So it's not price gouging. It's just, uh, we're all trying to survive here. And some the last couple of years between COVID and economic stimulus and all these things have really created, uh, a lot of things in the markets that we weren't prepared for. We've never seen before and is wreaking havoc on businesses and consumers. So it's a, it's gonna take some time, hopefully these things start to work themselves out here in the next year.

So the volatility that we've seen in natural gas has been incredible to the point where, uh, earlier this year we were seeing moves that take place in a couple of hours that were larger than moves that took place in the previous two years. So, so the volatility has been insane to be honest for most, uh, most retail speculators, which is what we deal with. It it's been a lot to handle and, and unfortunately not everybody can, can keep up with that kind of volatility. And I even know some of the, uh, there's been a, a handful of really big traders and even funds that have mostly wiped out on this kind of volatility, just cuz they were properly hedged or they got caught on the wrong side and, and things happen so fast. If you make a mistake, there's not a lot of room for air.

So I would say, uh, at this particular time, natural gas is not necessarily in, I should also preface it by saying natural gas is not like let's say the stock market. That generally goes up over time. I mean there's pullbacks, but the stock market in the long run has always gone up and it's uh, paid dividends and all kinds of fun things in natural gas. It's a little bit different. Uh, and in commodities in general, it's different. They don't naturally go up even with inflation. I mean it seems crazy cuz everybody thinks that over time with inflation commodity prices should always go up and that's actually not the case. They actually trade sideways and very wide trading envelopes. So, uh, you wanna be real careful in commodities. It's not the kind of thing where you buy and hold for three years or five years. It's not like that if you're going to trade or invest in a commodity, whether it's natural gas or oil or whatever the case is, uh, you don't set it and forget it.

You, you, you have to pay attention to it. So with that said, I would say there are some opportunities on the upside in natural gas. There's some good fundamental stories there. We ha we're still in the learning process of figuring out how to liquefy natural gas and export it to other countries. And the reality is we have more natural gas than we know what to do with in, in the United States. Uh, or at least we did when, when we were a little more aggressive at fracking, but we still have plenty now. And the reality is overseas. That's not necessarily the case in Europe, natural gas prices are much higher than what we pay here. And uh, they don't seem to have a whole lot of relief coming down the pipeline. They rely almost solely, I don't wanna say solely, but primarily they rely on Russia and Vladimir Putin for their natural gas that's uh, is not the most ideal situation to be in.

And what it, you know, what it does is creates price volatility and quite frankly, a little bit of panic as well. It puts upward pressure on their prices. So as long as prices in Europe are high, natural gas in the us should continue to grind higher. In my opinion, also, uh, market positioning has been interesting. If you look at the reports from the CFTC, which is the commodity futures trading commission speculators are very heavily short, natural gas and very, very heavily long crude oil. Most people would look at that and think that that's bullish for oil and bearish for natural gas. But I actually look at it and see the opposite because if traders are already positioned and they're already in overcrowded trades in one, one way or the other, that means they've probably already taken action. So anybody that wanted to be short, natural gas is probably already in anyone that wanted to liquidate any long holdings is probably, probably already done. So and so quite frankly, what happens when you get into a situation like that is all the, the selling dries up because there's no one left to sell and the path, least resistance turns the other way. And I think that's exactly what we're seeing now. So you, you mentioned it's only a week and that doesn't make a trend and I agree with you, but, uh, actually I think that we're, this is the, the budding, uh, the beginning of a nice trend. So let's see what happens.

Right? That's, that's a wonderful question. So a few things to keep in mind, the great thing about commodities is we can see, and this is unlike anything that happens in the stock world. In commodities. We can see the government actually puts together reports every week that tells us who's long and who's short. Um, they separated into certain categories. For example, we can see if what commercial hedgers are doing and we can see what large and small speculators are doing. And the human tendency is to look at what large specs are doing and say, assume that, Hey, those are people that have a lot of money. They probably know what they're doing. And so if they're going long, I wanna go along too. Right? That's what the, that's what our human, uh, instinct would tell us. Mm-hmm but there's some things to keep in mind there if large speculators or the big guys or the funds, whatever you wanna call 'em.

If they're going along in a market, they probably have a lot more room for error than the average speculators. So they can, their timing doesn't have to be perfect. They have deep pockets. They can ride out if their timing's not perfect. Whereas the, the average retail speculator either runs outta money or just simply, uh, can't take the pain anymore and, and ends up getting flushed outta markets. When you see big spikes up and spikes down sounds really mean to say, but that's exactly what's happening is, is the weekends are getting flushed out. And it's very unfortunate. And I, I hate to see that obviously, but it that's just how markets work. What we've done with our brokerage is we try to encourage people to always hedge with options. So if they're trading futures long or short, they can buy or sell options around it to hedge that way.

They don't have to worry about stop loss orders. Now I know 99.9% of the people are gonna tell you to trade with stops. And I totally get that cuz it's a risk management technique. Cuz if you do get caught without any type of protection on the wrong site, it can get ugly quickly, but we try to, uh, encourage people to use options instead. And the reason being you don't have, like if there is a big price bike, one direction or the other, hopefully you can ride it out and survive. So for example, if you get stopped out and you're sitting on the sidelines, but the market ends up going your way, uh, there's two things you could do. You could either watch it and feel bad for yourself or you could chase it and then you're probably gonna feel bad for yourself. Again, if you're chasing prices, doesn't work out well most of the time. So with options, at least it gives you some, some wherewithal, but uh, I always tell people, play defense first and then worry about playing offense. Cuz the reality is this is not easy. I've seen people that have traded for 20 years, make one or two mistakes and, and uh, really put themselves in a bad situation. So it can happen to anybody, especially when you're talking about leverage commodities. So always play defense first, then worry about offense.

So you're absolutely right. The commodity dogs of 2021 were gold and silver. And I think if it, I like the, you brought up the point that the stock market probably over outperformed, most expectations. And I think that's a big part of why gold, silver underperformed. Uh, I think investors just felt like they didn't need 'em anymore. Right? They don't need any kind of hedging. Why do you need to hedge? When stocks only go up, we saw the same type of situation and treasuries. Nobody wants to own treasuries anymore. Uh, because first of all, the yields are low. But second they're generally used as a portfolio diversification tool. And if stocks only go up, you don't need that anymore. And so that's how people are looking at things. I actually believe it or not. Um, I think that we're probably seeing peak pessimism when it comes to gold and silver, as well as treasuries.

I think all three of those markets are gonna have a great year simply because everybody is so underallocated at some point, if stocks go into a more normal course of action where they do have corrections, people are gonna remember that having a hedge isn't so bad and having some sort of diversification isn't so bad. Uh, a couple things I'll bring up on the metals. Most people expect if stocks are going up, metals will go down and vice versa. It's really not that simple. That's not how it works. In fact, uh, a lot of times golden stocks go up together. So I don't want anyone to, to think that I'm saying Gold's gonna outperform if the stock market underperforms, that's not what I'm saying, but it is a great diversification tool because it does get you into an asset that is, uh, not necessarily correlated with stocks either positively or negatively.

I mean, it goes through, uh, cycles where it's either, but it's not, it's not one of those all the time. So it's a diversifying tool and let's face it golden silver. When they do decide to go up, it can be pretty spectacular. Mm-hmm so there's definitely a lot of upside potential there. I would say, not something, anything that I, I would never tell anyone to put a giant piece of their portfolio in, into any type of metals trading or speculating or investing, but I think it's worth a shot if you're looking for something, just something different other than stocks that, uh, again helps to diversify.

It doesn't an interesting thing is what you tend to find, especially now more than ever with, uh, cuz people have so much access to their trading accounts or their investment accounts to liquidate. I mean, back in the good old days, you'd have to call your broker and then your broker might have to call somewhere to, for you to liquidate your mutual fund. I mean, it was like this big process. Now people simply have a button on their phone or their computer to liquidate anything that they have in their account. So that's good in some ways and it's bad. In other ways, what it does tend to do is when things start to go sour, whether it's it who knows what market's gonna hit get hit first, it might be stocks or maybe it's commodities like crude oil, some of the risky commodities, whatever it is.

If, if something starts selling off and everything else follows, guess what? Golden, silver, um, they tend to go along for the right. If you look at March 20, 20 golden, silver, both had, I hesitate to use the word crash, but honestly that's kind of what it was. It was like a crash along with stocks. And then eventually people realized, uh, okay, so I've raised cash. I've gotten, you know, I've gotten to the sidelines and everything. Now let me think about what I wanna have my money in. And gold, silver were winners at that particular time as we went forward. But yeah, so, I mean, we'll see it's uh, I, I will also point out that the turn of the year tends to have, uh, the ability to reverse trends. So golden silver have been really sluggish in 2021. Uh they've they're starting to look a little better here early in the year. And a lot of times, if you look at gold or silver charts, you'll see, they tend to turn around in December or January. So, so far so good on the seasonals. I think if we can break above, uh, maybe like 1850 in gold, I think we might have something. So that's what we're looking for.

Yeah. I mean the upside on these rallies that we've seen over the last couple of days, or even couple weeks is it has really been, uh, disappointing. I'm not gonna lie, but what I'm noticing in gold, silver is every time it does sell off, it is holding support levels and that's important. So eventually the sentiment is really, really bearish and metals. Everyone's kind of given up. I think the worst thing that happened to silver was almost exactly a year ago. This is gonna sound a little bit crazy, but, uh, it was like February of 2021. And there was, remember, this is when all the meme stock stuff started going on. Mm-hmm the game stop short squeeze. Well, uh, a group of traders on the internet. I, I don't think it, I think it was maybe started in that Reddit thread that did game stop or anyway, it doesn't even matter.

Uh, everybody got this idea that they were gonna short squeeze, short squeeze, silver to force JP Morgan out of, out of, uh, business. That was this idea that was going all over the internet. Oh, that's brilliant. Yeah. Yeah. And so I was, it was a little nerve-wracking cuz we were short a bunch of silver calls going into the weekend and this thing, this internet thing took hold over the weekend. And I started getting alerts from like the wall street journal about this short squeeze that was gonna happen. in silver mm-hmm and I lost a little sleep about over it for, but the reality was it, they did squeeze it for like a day and a half and it traveled, I think silver moved like three or four bucks in a very short amount of time. And then after that, it's just been, uh, hasn't been able to get out of its own way since then.

It's just been really, really weak. But the fact that nobody, uh, has any confidence in it. I think all the weak bulls are out again. I think we're just kind of running outta sellers here and that's usually when markets make their move is when people least expect. If you remember last year, about this time, nobody thought oil was going anywhere. Right. All we heard was lower for longer, lower for longer. And that's what I'm hearing in golden silver right now is nobody thinks it can go anywhere. Well guess what oil is at $80 and uh, golden silver could very easily make their way higher. So we'll see

Right? Exactly.

for full disclosure. I am a futures broker of futures and options broker, which means I don't re our business doesn't deal in ETFs or stocks. And so for that reason, I'm probably a little biased towards futures. So I just wanna lay that out there, but I will say ETFs in general, commodity ETFs is what I'm talking about. They're generally are very, very inefficient. So, um, there's, there's a few good ones. For example, the golden silver ETFs GLD and, uh, SLV. Those are actually backed by actual gold, silver, but most commodity ETFs, for example, USO, which is crude oil, they're kind of mimicking a commodity pool. They're basically taking investor money and then buying and selling futures contracts and, and, uh, and doing it that way. And they're really, they tend to be horrible when it comes to actually following the underlying commodity. So for example, crude oil might be up 10%.

Your ETF might only be up 1%, vice versa. Those kinds of weird things happen because the ETF itself has to constantly rebalance its futures positions. And as we learned in USO last year, actually two years ago, almost year and a half ago, it actually believe it or not USO blew up the crude oil market when crude oil went negative on the front month. A lot of that was liquidation from the ETF. And so it can get really, really hairy. So I'm not a fan commodity ETFs in general, that said, you mentioned I'm not familiar with the, uh, talent metals that you mentioned, but yeah,

Yeah. I mean with that said if your, if your goal is to get access to nickel or cobalt or some of the, the more, um, obscure commodities, that's probably a better bet than the future's market cuz in the future's market, liquidity stops. Once you get past gold, silver, copper, platinum, and palladium are questionable there. The futures are liquid enough, but beyond that, there's really, I mean, everybody, uh, I get a lot of calls all the time. People wanna trade, you know, nickel, cobalt, those types of things. There's really no futures contract. That'll that'll do that for you. Not one that you can efficiently buy or sell. The great thing about the futures side of things is though they are offering micro futures in some of the products. Now, for example, there's a micro gold, which is, which is a very, very small contract. So it gives people the ability to take advantage of the efficiencies of the futures markets, which are 24 hours tax benefits, uh, type bid and ass that futures contract follows gold because it's deliverable against gold.

So it's not like a product that's mimicking another product. It you're literally trading the price of gold and it's a, the micro is a 10 ounce contract. So you're not gonna probably not gonna lose your shirt on it. You're probably not gonna get rich either. But just to give you an idea, like the margins, about $800 for one contract and it, it represents about $18,000 worth of gold. So as opposed to buying bullion and storing it and shipping it and all those costs, you could just buy a single futurist contract it's margin of 18 of 1000. Uh, if you wanna eliminate all the leverage, which is not a bad idea, cuz leverage can work both ways. If you just fund an account with 18,000 by one micro and you've eliminated all the leverage and you have all the efficient efficiencies of being long gold, and you can just see what happens.

That. No and it's not easy to sell. Like you, even if you buy a gold goes up, it's not all that easy to actually turn it into dollars that you can use.

Well thank you for having me, Kate. Uh, if you're interested in learning, we have a lot of free videos and articles and educational material on our website. It's D Carly trading.com. That's spelled D E C a R L E Y. trading.com. And if you're on social media, you can check us out on. Uh, my Twitter handle is at Carly garner. I'm also on Instagram and Facebook.

Thank you.