Commodity Trading & Trend Following

The bastion of safety that Muni bonds held in the past might not be that safe any more. All one has to do is use a little common sense. In this economy sales tax, income tax and property tax revenues are declining. The question is can we expect more defaults like Harrisburg, Vallejo or Central Falls Rhode Island. On average $1 billion of munis default a year. This year however according to Richard Lehmann’s Distressed Debt Securities statements we are at $1.7 billion.
Countless hospitals, nursing homes, toll roads, stadiums, small parking projects and school districts that are struggling to make their coupon payments. School districts were convinced by their advisors to enter into toxic interest rate swaps or high risk investments that they did not fully understand.

Pundits still claim Munis are safe if you buy large, essential service revenue and General Obligation municipal bonds. However if there is an onslaught of defaults on the the weak issuers which no longer pay…this will stain the market and a possible domino effect can take place.

Big name cities and States are struggling such as Los Angeles, San Diego, Illinois and even New Jersey. Considering this fact how comfortable can you be investing in this strategy. Many times the perceived low risk ideas ( such as Muni bonds) are more risky than thought of supposed riskier asset classes such as commodity trading.

Yes there is risk in commodity trading and managed futures. I do not want to belittle the risk however the risk can be addressed with a proper trading plan of thinking of terms of risk per trade…risk per sector..and total portfolio risk. To the contrary this is impossible with muni bonds that you can get wrapped up in events that you have no control over as well as the liquidity comes into question.

In my opinion trading a well thought out plan with the utmost of risk management in place trading commodities in a trend following manner gives one the potential to compound money over time. This is not a get rich quick nor anything easy. In reality most of the time it can be very aggravating …nothing happens…small profits..small losses…whipsaws and then when you least expect it…you have a nice profitable period followed again by the above. If you can rise above the aggravation and not let it effect you….you stand the potential to compound your way to wealth through trend following a large basket of commodities.

Follow the trend …have a plan… manage the risk… have discipline and patience to let the plan work out over time

Andrew Abraham
Andrabr9@gmail.com
www.myinvestorsplace.com
Futures trading involves risk. People can and do lose money