The Fabric of our Lives
The fabric of our lives and arguably the most significant commodity in America's relatively short history.
Cotton. Something we rarely discuss in finance is making the largest and fastest push seen in the commodity sector, since there has been an official commodity sector. After surging 56% over the last three months alone , cotton prices have hit highs unseen since 1870 when the New York Cotton Exchange was created.
Though cotton did trade for more during the early years of the Civil War and though it did hit a higher inflation-adjusted price in 1918, I think we can agree that this is still a pretty significant event.
In the words of Sharon Johnson, senior cotton analyst at
First Capitol Group:
It's not something you're going to see again in your lifetime.
Skip the Nassim Taleb references, I know it's tempting.
The two endpoints of the issue really interest me.
The high cotton prices at the onset of the Civil War were a result of the Confederacy's attempt to use their "cotton leverage" to drag Europe into the war on the side of the Southern Rebels. Long story short, market crash, Confederate Dollar go bye-bye, cotton go sky high.
Today, we have some market and weather related factors pushing the price up, this much we know. I am very interested, however, in the minor details which this particular article (and any reporting I have read on the subject) does not address. Examples, include everything from inaccurate valuation methods of futures contracts to price manipulation and supply hoarding at the supplier level.
Anytime you hear organizations such as the China Cotton Association issue notices of large price surges being cause by mass speculation you get that strange tingle that only scapegoat-ism can cause.
Something's stinky and it's not just my cotton sox.
for those unfamiliar with the story of Confederate issued Civil War cotton-backed bonds, take a look here ...long but definitely worthwhile...
It's chapter 4 in case you're in a rush
And all this on the day Warren Buffet said getting into textiles cost him 200 billion...ironic
Actually had Buffett in mind when I wrote yesterday's post. One day I'm writing a book about his success being 90% timing. This will be precisely 1 day after being blackballed from industry and then I will declare open season on all sacred cows.
I was sent this article that basically assessed the confederacy's chances of winning based on the traded price on the CSA's debt during the war. A little too academic and long but a good read nonetheless:
http://docs.google.com/viewer?a=v&pid=gmail&attid=0.1&thid=12a6223875f2…
Longest URL ever...
Dead link buster
I thought that would happen try this one out and if it doesnt work google: "Did Johnny Reb have a Fighting Chance? A Probabilistic Assessment from European Financial Markets."
http://www.ekh.lu.se/ehes/paper/Did%20Johnny%20Reb%20have%20a%20Fightin…
3M. I had a post on the surge in commodities prices last week I believe. I think cotton is only set to rise, along with the whole sector. This will have some really implications for future growth in the sector, as well as trade between countries
In reference to this post coupled with Eddie's earlier post, is it likely we will see a large portion of the commodities hit their lock limits early in each trading day making the industry slow a bit in the coming months? I think it's universally accepted that the commodities around the world are heading up so it's something to think about. Admittedly I'm not big into commodities but it's just a thought
Good call, though I wouldn't be surprised to see a place like the CME stretch the limits to boost liquidity, been done before.
I think it would be a nice play to short commodities at some point. These are physical products whereas the value HAS to go down, it's just a matter of when, but a definite certainty. As oppose to a stock that can go up forever theoretically
You know the name of the game, we all know what's coming, but it's only the one's who can stay solvent up until that point who reap the benefits, who ever calls the top of the current commodity spike is going to have a great ride on the short line all the way to boardwalk.
I think cotton leverage was mentioned in Niall Ferguson's book Ascent of Money. He argues that the South lost because they lost the port of New Orleans, and could no longer back their bonds. Economics starts and ends wars, despite what history may teach us today.
good to see you around again, i posted the link to the episode you're mentioning in my first response, great story.
Not all commodities have limits. I can't say with 100% certainty if cotton does these days, but in the late 90's it had no limit. We made some good money on cotton in '98 thanks to a drought.
THink it is too early to short commodities? Also, is their an ETF that is 3x levered for commodities?
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