June 2013 -4.75% YTD 1.28%

Dear Investor,
June: -4,75% YTD 1,28%.
Negative, another month in the negative. The market has turned into a continuous torment and I hope to see its end soon.

This is no justification, but this year is really very exceptional: we came from a  curse of drought, but before the drought of 2012 grains seemed to have one of the best years in history. Then they temporarily turned into the worst in order to finish in a more or less medium state. This volatility of prices (corn started from $550 and went to $850 in order to be quoted at $550 again) has resulted that the whole curve of the spreads and all of the seasonal fluctuations of grains and related products (that is to say meat) have been distorted and do not correspond to the usual movement of previous years.
As you know very well, a good part of my operations is related to meat and grains, and this year I do not hope to see any changes until the new harvest of corn and soy  is collected. On top of that, a few months ago it was already felt in the market of hogs that for fear of the rise of corn and soy liquidations were made last year by producers. It is something that was later corrected and that is why it was not to be seen in any report, as you know the reports are quarterly. And this was not the end, then came PED, a severe type of diarrhea that has an 80% mortality rate in piggies. It is an accumulation of factors in the markets that only makes life impossible for those who work harder, for those who want to get close to them.
What is more, and to advance this line of thought, things that indicate the huge volatility of the market: the price of gold and silver have plummeted, there are extreme liquidations on behalf of all participants. I do not work in these markets, but it is enough that some fund could have worked in them and could have lost money and then they were going to be obliged to liquidate all their positions in the market, now this definitely has an effect…
As far as interest rates are concerned, after many years, right now we  are talking about the end of QE, something that was expected to happen but not this year. And naturally, this has distorted the whole curve of eurodollar that we trade. It has risen several steps, causing the portions of the curves where I am positioned to reverse. And on top of everything crude and its curve have also reversed, and did not enter the positive range but rather the spreads that were quoted at around 0 and including in the negative have passed 140-170 basis points (this is an especially strong movement), and thus  distorted the whole curve and the fairies that create it.  And all this, the eurodollar and crude and the hogs, all happened in the past two months: everything at the same time.
Let me remind you that in the strategies of the spreads, more or less 80% of the operations gain due to the high grade of correct guesses and due to the convertibility of extreme deviations, that is to say many of the spreads return to their average after deviations in 90% of the cases. The stops being used are high, that is, more risk is taken, one allows the market to deviate and then waits for it to return to its average… and naturally, in the months when many of the unrelated parts of the markets have correlated and returned against and what is more they reach the stops, one has to liquidate many positions. And these are losses and losses and despair.
In such a market environment, with everything against and the stops that have to be executed, the only objective is to have least possible loss. These years are very strange and very hard. The good thing is that there are two or three in several decades.
For the second part of the year I hope there would be a little return to normality, if mother nature gives us some relief this year, it could be a very good year for grains. It is something that could benefit us in actual operations, and would be beneficial in the meat market. The producers will find the hedge easier and the seasonal fluctuations will return. All this gives a chance to have a good year-end closing. As for energy and fixed income securities, I have liquidated many operations and operate only spreads of gasoline and heating oil, as they follow their seasonal fluctuations for now.
In summary, it is a very difficult year, but with the hope that it normalizes in the second half.
As always, should you need any clarification, do not hesitate to contact me. I will have a few weeks of vacation, but will keep an eye on the market, with few open positions, only those that I trust the most that can function and are medium term ones.

Gregory Placsintar 

Principal/Head Trader

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Greg (Author)

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