Commodities are back incase you haven't noticed already

Oil, gas, gold. Everything that has actual value as opposed to currencies.

The devaluing of the US dollar and massive injections of credit of the Obama administration to curb the downturn means the commodities trade is back on with a vengence.

Further, China is stockpiling oil and coal and other raw materials at current depressed prices.

With these two tail winds, I am long on oil and natural gas. I am playing oil with AET.un and USO. Gas, I am playing with UNG and KWK. 

Two stocks on China

The two stocks I want to focus on today is FXI and OCNF

FXI, a play on H-shares Chinese stocks listed in Hong Kong. The Hang Seng index has broken out past 16000 two days ago in a beautiful cup and handle chart formation. The 20dma is above the 50dma. All this on the back of strong economic data coming out of China. I am adding to my FXI holdings on pullbacks.

OCNF is a dry shipping company with a fleet of ships. This is a play on the China recovery story. Yesterday saw heavy volume over 20M shares traded on average volume under 2M. This is a $1.85 stock at the moment and extremely risky. 

Messrs. Buffett and Munger on Math and Theories

Excerpt from the Wallstreet Journal:

Messrs. Buffett and Munger made clear their complete disdain for the use of higher-order mathematics in finance.

"There is so much that's false and nutty in modern investing practice and modern investment banking, that if you just reduced the nonsense, that's a goal you should reasonably hope for," Mr. Buffett said. Regarding complex calculations used to value purchases, he said: "If you need to use a computer or a calculator to make the calculation, you shouldn't buy it."

Said Mr. Munger: "Some of the worst business decisions I've ever seen are those with future projections and discounts back. It seems like the higher mathematics with more false precision should help you, but it doesn't. They teach that in business schools because, well, they've got to do something."

Mr. Buffett said: "If you stand up in front of a business class and say a bird in the hand is worth two in the bush, you won't get tenure....Higher mathematics my be dangerous and lead you down pathways that are better left untrod."

Trading is like Farming

An analogy I just thought about is farming. Being a trader and investor is very much like a farmer.

We only have so many seeds to sow (capital). We need to constantly decide where to sow our seeds.

Trader - Invest in short term or long term securities (short swing trade or longterm investment)

Farmer - Plant crops that grow quickly or slowly

Trader - Buy and sell at what price based on information and speculation

Farmer - Buy and sell seeds at what price, will the seed prices rise or fall? Sell your crops now because you think prices will fall, or sell later because you think prices will rise?

Trader - Take a percentage of annual gains away from trading account into savings account. For spending and for a rainy day

Farmer - Take a percentage of crops and keep it stored. Wheat, rice can be eaten should you expect a draught to feed the family.

Trader - Mr Market forces are strong. Many things you cannot control and can get wrong. The markets can be brutal and trades can always go against you

Farmer - Always at the mercy of Mother nature. The climate, floods, droughts, pests. All can destroy your hard work and leave you devastated.

Adding to shorts

I have added a number of short yesterday. I am now net short. My biggest short positions is skf (long the bear financial) and tna (short the bull 3x etf). TNA is my favorite because it has been in a one month upward channel where it has been bouncing off a beautiful ascending channel. Further, it also hit a resistance of about $28 set 2.5months ago. The bottom of this channel is at $23.5.

Two Hedge fund managers I have the greatest respect for Doug Kass and Eric Bolling have also been selling into this strength in the markets and adding to shorts. This in addition to what I see in chart formations of what looks to be a temporary top on the markets (SPX 890) gives me additional confidence with my decision to go short.

The next leg down to 860 on the SPX is the near term target. Ideally, I would like to see the SPX start to form a downtrend. I don't expect the fall to be quick but also don't expect 760 to be breached.

For currencies, the EURUSD would be a great short should it fall below 1.3212 the 20dma line.