Why not look to commodity trading companies with a non-correlated futures strategy?

The U.S Department of Agriculture says Beef production will fall 5 percent to about 24.68 billion pounds. The U.S herd was the smallest in more than 40 years, factor in population growth and it appears we have a serious supply issue.

Chicago, IL (prHWY.com) December 26, 2012 - According to a representative from Goldman Sachs it is their view that more and more long term investors are looking towards Europe than U.S markets. This is because of the issue of the fiscal cliff here in the States. They believe that investors are looking too Europe even though they have their own serious debt issues because they have been dealing with it and have not defaulted. They also believe that because the United States Congress is divided between Democrats and Republicans we will have a much harder time reaching a deal. We are also not on the verge of default so we are not forced to deal with our debt the same way and in the same matter as Europe, even though we are potentially facing another recession without a resolution.

SO why are investors looking to Europe? Europe has dealt with most of its long term issues and with a lot of the debt in Greece, Spain and Portugal financed by German banks it is not likely that Germany will let its own banks fail and go into a recession itself. Germany is essentially bailing out its own banks. Most member nations of the European Union are also using the same currency. If one nation defaults it could have an effect on the value of the Euro. Essentially they are all in together and it is a few states bailing each other out to preserve their own. There is also promising economic numbers coming out of China which is fueled by the U.S and Europe which is promising for European investment.

What boggles me is if long term investors are worried about the state of the U.S economy, why not look to some investment vehicle that has historically been profitable when the U.S stock market has been in decline. Why look to Europe which I believe is still an unstable and unpredictable market? European nations have not been transparent in the past with their fiscal situation so I cannot trust them today just because we now know the truth about the past.

Investors should look to a non-correlated asset class such as managed futures. Managed futures are futures trading accounts traded by professional money managers or commodity trading companies called CTA's (commodity trading advisors). The commodity trading companies provided investors with a track record and specific trading strategy. They do not have access to account funds only the ability to place trades in the account. Funds are held in a segregated funds account with the clearing firm in which the account was opened. CTA's trade a futures strategy or commodity strategy that they specialize in. A futures strategy can be the purchase or sale of a futures contract or a combination of both to create a spread. There are also options on futures contracts where the trader can buy or sell a put or a call or do a combination to create an options spread. All of these strategies have different risks and an investor should review carefully and choose based on their own risk tolerance. A trader can also use a commodity strategy and specialize in a specific market rather than a specific type of trade.

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Tag Words: commodity strategy, futures strategy

Categories: Finance

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