Commodities FOR DUMmIES phần 1 ppt

Bears ...51 Chapter 5: Feel the Love: Welcoming Commodities into Your Portfolio ...61 Part II: Getting Started ...77 Chapter 6: Show Me the Money!. Choosing the Right Manager ...79 Chapt

by Amine Bouchentouf

Commodities

FOR

FOR

by Amine Bouchentouf

Commodities

FOR

Commodities For Dummies ®

Published by

Wiley Publishing, Inc.

111 River St.

Hoboken, NJ 07030-5774 www.wiley.com Copyright © 2007 by Wiley Publishing, Inc., Indianapolis, Indiana Published by Wiley Publishing, Inc., Indianapolis, Indiana Published simultaneously in Canada

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Library of Congress Control Number: 2006934824 ISBN-13: 978-0-470-04928-0

ISBN-10: 0-470-04928-6 Manufactured in the United States of America

10 9 8 7 6 5 4 3 2 1 1O/RT/RR/QW/IN

About the Author

Amine Bouchentouf is President and Chief Executive Officer of Renaissance

Investment Advisors LLC Renaissance is an international financial advisoryfirm headquartered in New York City, which provides long-term strategicadvice to individuals, institutions, and governments around the world Amine is a world-renowned market commentator and analyst and hasappeared in media in the United States, Great Britain, France, the UnitedArab Emirates, and Brazil He is a member of the National Association ofSecurities Dealers and the Authors Guild and is also involved with theCouncil on Foreign Relations He offers regular market intelligence briefingsthrough the Web site www.commodities-investor.com

Amine holds a degree in Economics from Middlebury College In his sparetime he enjoys playing golf, traveling, and socializing with friends This ishis third book

Author’s Acknowledgments

I was completely thrilled when Wiley approached me about working on a

second book for the For Dummies series I knew right off the bat that this

was going to be a very ambitious project that would require a lot of focus.The challenges in writing a book of this scope were numerous and enormous.First, both Wiley and I sought to create the most comprehensive guide on the

subject available to investors I believe we succeeded because Commodities

For Dummies covers over 30 commodities; besides the Commodity Research Bureau Yearbook, no other introductory book includes coverage of so many

commodities Second, Wiley and I also wanted to bring this book to marketsooner rather than later Working pretty much around the clock, seven days aweek, I was able to hand in the manuscript in four months (five months totalwhen editing and reviewing are factored in)

Every author who takes on a project of this size realizes very quickly that theundertaking cannot possibly be done alone Despite romantic clichés aboutwriters locked up in attics writing feverishly and not communicating with theoutside world for months on end, one quickly realizes that writing a book ofthis kind is really a team sport Fortunately, I had the pleasure of working with

a wonderful team of dedicated professionals, both in publishing and in finance First, I’d like to acknowledge the first-rate editorial team at Wiley for theirinput and assistance through every stage of this process Every writer hopesfor nothing more than to have a team of editors who will support their gen-eral creative vision, and I was extremely fortunate to have been able to followthrough on my vision for the book — from the drafting of the Table of Contentsdown to the inclusion of technical charts and figures — with the guidance of

a knowledgeable group of editors Specifically, I’d like to thank Laura PetersonNussbaum, my project editor, for providing valuable insight through every step

of the way I’d also like to express thanks to Stacy Kennedy for helping launchthe project early on and for her continuous input throughout the writing period.And I would also like to show my gratitude to the graphics department forhelping me express my ideas and illustrate my points with the help of charts,graphs, and other helpful visuals Finally, I would like to thank Noel Jamesonwho served as technical editor

Because the financial markets in general, and the commodities markets inparticular, are so broad and deep, getting insight on all the different aspects

of the markets is absolutely critical I was very fortunate that I could turn tosome of the sharpest minds in finance for their insight on the markets I’d like

to thank Dr Scott Pardee at Middlebury College for providing me with edge analysis on the cyclicality of the markets I’d also like to acknowledgethe contributions of Ray Strong at Goldman Sachs regarding all aspects of theenergy markets Thanks to Karen Treanton at the International Energy Agency

cutting-in Paris for providcutting-ing me with all the vital statistical cutting-information on the energyindustry I would like to express my appreciation to John D Phillips and NeilMcMahon at Alliance Bernstein for their world-class research Kevin Rich atDeutsche Bank shared with me his knowledge of managed funds, and thanks

to everyone at the NYMEX for their support — Jim Newsome, Madeline Boyd,Sam Glasser, Linda Rapacki, and Jenifer Semenza Additional thanks goes toFrank Ahmed at Bear Stearns and Richard Adler for their general guidance

I also need to acknowledge the contributions of Elisa Castro, Heather Balke,and, of course, my agent Mark Sullivan

Finally, I’d like to express my gratitude to my family, whose support wasinstrumental throughout this process

Publisher’s Acknowledgments

We’re proud of this book; please send us your comments through our Dummies online registration form located at www.dummies.com/register/.

Some of the people who helped bring this book to market include the following:

Acquisitions, Editorial, and Media Development

Project Editor: Laura Peterson Nussbaum Acquisitions Editor: Stacy Kennedy Technical Editor: Noel Jameson Editorial Manager: Michele Hacker,

Carmen Krikorian

Editorial Assistants: Erin Calligan, Joe Niesen,

David Lutton, Leann Harney

Cover Photo: © Markusson Photo/Getty Cartoons: Rich Tennant

Anniversary Logo Design: Richard Pacifico Proofreaders: Melanie Hoffman,

Jessica Kramer

Indexer: Techbooks

Publishing and Editorial for Consumer Dummies Diane Graves Steele, Vice President and Publisher, Consumer Dummies Joyce Pepple, Acquisitions Director, Consumer Dummies

Kristin A Cocks, Product Development Director, Consumer Dummies Michael Spring, Vice President and Publisher, Travel

Kelly Regan, Editorial Director, Travel Publishing for Technology Dummies Andy Cummings, Vice President and Publisher, Dummies Technology/General User Composition Services

Gerry Fahey, Vice President of Production Services Debbie Stailey, Director of Composition Services

Contents at a Glance

Introduction 1

Part I: Commodities: Just the Facts 9

Chapter 1: Investors, Start Your Engines! An Overview of Commodities 11

Chapter 2: Earn, Baby, Earn! Why You Should Invest in Commodities 25

Chapter 3: Is Investing in Commodities Only for the Brave? 41

Chapter 4: Get Ready to Rumble! Commodity Bulls vs Bears 51

Chapter 5: Feel the Love: Welcoming Commodities into Your Portfolio 61

Part II: Getting Started 77

Chapter 6: Show Me the Money! Choosing the Right Manager 79

Chapter 7: Track and Trade: Investing through Commodity Indexes 97

Chapter 8: Understanding How Commodities Exchanges Work 115

Chapter 9: Back to the Future: Getting a Grip on Futures and Options 133

Chapter 10: Technically Speaking: Using Technical Analysis 151

Part III: The Power House: How to Make Money in Energy 167

Chapter 11: It’s a Crude, Crude World! Investing in Crude Oil .169

Chapter 12: Welcome to Gas Vegas, Baby! Trading Natural Gas 189

Chapter 13: Fuel for Thought: Looking at Alternative Energy Sources 201

Chapter 14: Totally Energized: Investing in Energy Companies 217

Part IV: Pedal to the Metal: Investing in Metals 233

Chapter 15: Getting the Glitters: Investing in Gold, Silver, and Platinum 235

Chapter 16: Metals That Prove Their Mettle: Steel, Aluminum, and Copper 253

Chapter 17: Weighing Investments in Heavy and Not-So-Heavy Metals 265

Chapter 18: Mine Your Own Business: Unearthing the Top Mining Companies 273

Part V: Going Down to the Farm: Trading Agricultural Products 283

Chapter 19: Breakfast of Champions: Profiting from Coffee, Cocoa, Sugar, and Orange Juice 285

Chapter 20: How to Gain from Grains: Trading Corn, Wheat, and Soybeans 297

Chapter 21: Alive and Kicking! How to Make Money Trading Livestock 307

Part VI: The Part of Tens 315

Chapter 22: Top Ten Ways to Invest in Commodities 317

Chapter 23: Top Ten Market Indicators You Should Monitor 321

Chapter 24: Ten or So Resources You Can’t Do Without 327

Part VII: The Appendix 331

Appendix: Glossary of Technical Terms 333

Index 343

Table of Contents

Introduction 1

About This Book 1

Conventions Used in This Book 3

Foolish Assumptions 3

How This Book Is Organized 4

Part I: Commodities: Just the Facts 4

Part II: Getting Started 5

Part III: The Power House: How to Make Money in Energy 5

Part IV: Pedal to the Metal: Investing in Metals 5

Part V: Going Down to the Farm: Trading Agricultural Products 5

Part VI: The Part of Tens 6

Part VII: The Appendix 6

Icons Used in This Book 6

Where to Go from Here 7

Part I: Commodities: Just the Facts 9

Chapter 1: Investors, Start Your Engines! An Overview of Commodities 11

First Things First 12

Going for a Spin: Choosing the Right Investment Vehicle 14

The futures markets 14

The equity markets 16

Managed funds 18

Physical attractiveness 18

Checking Out What’s on the Menu 19

Energy 19

Metals 20

Agricultural products 21

Benefiting from Commodities Creatively 23

Chapter 2: Earn, Baby, Earn! Why You Should Invest in Commodities 25

You Can’t Argue with Success 26

The 21st Century Is the Century of Commodities 28

Ka-boom! Capitalizing on the global population explosion 29

Brick by brick: Profiting from urbanization 30

Full steam ahead! Benefiting from industrialization 32

It’s All about Me! Why Commodities Are Unique 34

Inelasticity 34

Is it safe in here? Commodities as a safe haven 36

Hedge-hogging galore! Commodities as a hedge against inflation 36

Could you hurry up, please! Bringing new sources online takes time 38

Sell in May and go away? Definitely nay! 38

Time to Get Down to Business: Commodities and the Business Cycle 39

Chapter 3: Is Investing in Commodities Only for the Brave? 41

Biting Off More Than You Can Chew: The Pitfalls of Using Leverage 42

Watch Your Step: Understanding the Real Risks behind Commodities 43

Geopolitical risk 43

Speculative risk 44

Corporate governance risk 45

Managing Risk 45

Due diligence: Just do it 45

Diversify, diversify, diversify 49

Chapter 4: Get Ready to Rumble! Commodity Bulls vs Bears 51

Seeing Both the Forest and the Trees 52

Ride the Wave? Kondratieff and the Super Cycle Theory 58

Keeping It Simple: Looking at the Laws of Supply and Demand 58

Chapter 5: Feel the Love: Welcoming Commodities into Your Portfolio 61

The Color of Money: Taking Control of Your Financial Life 62

Looking Ahead: Creating a Financial Road Map 63

Figuring out your net worth 64

Identifying your tax bracket 66

Are you hungry? Determining your risk appetite 68

Making Room in Your Portfolio for Commodities 69

Fully Exposed: The Top Ways to Get Exposure to Commodities 70

Looking towards the future with commodity futures 70

Funding your account with commodity funds 73

You’re in good company: Investing in commodity companies 74

Part II: Getting Started 77

Chapter 6: Show Me the Money! Choosing the Right Manager 79

Mutually Beneficial: Investing in Commodity Mutual Funds 79

Riddle me this, riddle me that: Asking the right questions 80

Taking a look at what’s out there 83

Commodities For Dummies

xiv

Examining Exchange Traded Funds 84

Mastering MLPs 85

The ABCs of MLPs 86

Cash flow is king 89

The nuts and bolts of MLP investing 91

Heads Up! Risk and MLPs 92

Relying on a Commodity Trading Advisor 93

Jumping into a Commodity Pool 95

Chapter 7: Track and Trade: Investing through Commodity Indexes 97

Checking Out Commodity Indexes 98

What’s the use of an index? 98

So how do I make money using an index? 99

From Head to Toes: Anatomy of a Commodity Index 99

Cataloguing the Indexes 101

Goldman Sachs Commodity Index 101

Reuters/Jefferies Commodity Research Bureau Index 104

Dow Jones-AIG Commodity Index 106

Rogers International Commodities Index 108

Deutsche Bank Liquid Commodity Index 111

Which Index Should You Use? 113

Chapter 8: Understanding How Commodities Exchanges Work 115

Why Do We Have Commodities Exchanges, Anyway? 116

Identifying the Major Commodity Exchanges 117

Ready, Set, Invest: Opening an Account and Placing Orders 120

Choosing the right account 121

Placing orders 123

Tracking your order from start to finish 126

Owning a Piece of an Exchange 129

Chapter 9: Back to the Future: Getting a Grip on Futures and Options 133

The Future Looks Bright: How to Trade Futures Contracts 134

The competition: Who trades futures? 136

Contract specs: Keeping track of all the moving pieces 138

For a Few Dollars Less: Trading Futures on Margin 142

Taking a Pulse: Figuring Out Where the Futures Market Is Heading 143

Contango: It takes two to tango 143

Backwardation: One step forward, two steps back 144

Keeping Your Options Open: Trading with Options 145

Cutting to the chase: Options in action! 146

Trader talk 147

Options have character 148

xv

Table of Contents

Chapter 10: Technically Speaking: Using Technical Analysis 151

Looking at Charts: A Picture Is Worth More Than a Thousand Words 152

Line it up: Checking out line charts 153

Going for bar charts 153

Lighting up the chart with candlesticks .155

Identifying Patterns: The Trend Is Your Friend 156

Identifying support and resistance 156

Trend lines: Ride the trend till the end 159

Pump Up the Volume! 160

Moving Averages: Anything But Average 162

Keeping it simple with the SMA 162

Taking it up a notch with the EMA 162

It’s All Relative: Using the RSI 164

Breaking into Bollinger Bands 165

Part III: The Power House: How to Make Money in Energy 167

Chapter 11: It’s a Crude, Crude World! Investing in Crude Oil 169

Crude Realities 170

No need for a reservation: Examining global reserve estimates 171

Staying busy and productive: Looking at production figures 173

It can be demanding: Checking out demand figures 174

Going in and out: Eyeing imports and exports 176

Going Up the Crude Chain 178

You want that light and sweet or heavy and sour? 179

Make Big Bucks with Big Oil 182

Oil companies: Lubricated and firing on all cylinders 182

Get your passport ready: Investing overseas 185

Chapter 12: Welcome to Gas Vegas, Baby! Trading Natural Gas 189

What’s the Use? Looking at Natural Gas Applications 190

Calling all captains of industry: Industrial uses of natural gas 192

If you can’t stand the heat, get out of the kitchen! Natural gas in your home 193

Going commercial: Natural gas’s commercial uses 194

Truly electrifying! Generating electricity with natural gas 195

Getting from here to there: Natural gas and transportation 196

Liquefied Natural Gas: Getting Liquid without Getting Wet 196

Investing in Natural Gas 197

Natural selection: Trading Nat Gas futures 199

Nat Gas companies: The natural choice 200

Commodities For Dummies

xvi