Hobofinance.com

As my old martial arts instructor used to say, “Everyone has a plan until they get punched in the face”. Trading is no different. Well, not true. Traders get punched in the face a lot more often than martial artists. And when they do they tend to hit back by throwing good money after bad, forgetting well thought out strategy and relying on the generosity of the universe to pay them back plus interest.

The worst thing a trader can do is ignore the rules he made with a calm and clear mind before his money was at risk and rely on his own discretion when the market doesn’t act accordingly. The market is impersonal, and accepting a loss as a personal affront is both irrational and common. At this point it is imperative that one takes a step back, breathes, analyses one’s mistake if there was one, and not, I repeat not to rely on outside mystical forces swirling around this benevolent universe just looking for the chance to manifest as your good luck.

That being said, the stars have aligned in a fortuitous coincidence. Yesterday my girlfriend and I went to the Ri Yue Gu Hot Springs in Xiamen China. These hot springs have tens of small springs, some with minerals, grains, or alcohol. I could hardly contain myself when I saw the sign ‘coffee pot’, a hot spring steeped with coffee grounds. Coffee, my favorite commodity and the one that’s about to take a severe beating from me over the next eight months.

‘This is a sign’ I shouted. This was no ordinary day. It was my birthday, and soon to be my rebirth day. I’ve been preparing recently for another round of balls out investing, ‘going all in’ as they say. I am about to buy a bunch of coffee, highly leveraged, and I just happened to find a pool of coffee to immerse myself in on my birthday of all days, in the middle of china. No! This was no coincidence. Stars are aligned and fixing to pay me out.

“I need you to baptize me. It’s my birthday. It’s important.”

As odd as she thought that was, it was after all my day and acquiesce she did. I asked her to say a few words, deep meaningful words about coffee and baptism and how albeit through osmosis I’d be absorbing the inveterate powers of the coffee bean, heightened senses and augmented concentration and what have you. I’d be bonded from this day forward with the holy spirit of coffee bean futures, through rallies and dips, oscillations and breakouts.

“No” she said, “it feels weird.”
“It’s my birthday and it’s fate. We’ll proceed.”

So I said all those inspirational words and explained to her the logistics of baptism; how to keep my head from crashing against the stone steps and that baptism is really more like dunking a donut than drowning an adversary, and we ought to keep it that way because the water is hot and I didn’t want coffee acid to corrode my eardrums.

I reemerged a new slightly older man.

And so, with said piety my fate was sealed. Coffee, baptisms aside, has a plethora of persuasive reasons to rapidly appreciate from these price levels:

1. Skyrocketing fertilizer costs should result in declining care of coffee trees for the coming season.
2. The Dollar continues to decline against the Brazilian Real making current values much less appealing for Brazilian farmers then they would have been 10 years ago. Prices are not yet high enough to stimulate new investment and crop expansion.
3. Producer stocks are at all time lows!
4. World consumption should outpace production in the 2009-2010 season. Supply will be somewhere in the ballpark of 10 million bags shy of demand, assuming good conditions.
5. We’re approaching the off year (2009) of the on-off production cycle for both Brazil and Vietnam which should stress world reserves to dangerously low levels.
6. Not only are global stocks low, but relative to usage they are at levels insufficient to ensure smooth movement through the pipeline without producers carefully rationing exports.
7. Coffee is in a long term bull trend since the lows of 2003, and the highs coffee futures made in February 08 broke through significant long term technical resistance, suggesting much higher prices to come.
8. Coffee is inexpensive relative to nearly all other agricultural commodities.
9. Coffee hasn’t yet shared in the pervasive commodities bull market and it’s simply a matter of time before hedge and mutual fund money flows into it with the force we’ve seen in crude oil, wheat, soybeans, and corn.
10. China and India, nations with a long history of tea drinking, are embracing western culture. Coffee is increasingly popular both in the soluble market which has really made a name for itself in Nescafe and in the rapidly growing coffee shop culture you can find in all first (largest, 10 million people plus), second, and now even third tier Chinese cities.

But if I were to insist that these wildly bullish factors are to result in much higher prices I’d still be like every other schizophrenic trader out there when the volatility sets in. I’d feel hope when prices rise and fear when they fall, the untrained impulses of baby traders. But these hobo hands are steady and this confidence is steadfast for another reason. I can say with relative certainty that I’m the only coffee trader this year to be baptized in a pool of coffee. And if that wasn’t enough I consummated my baptism by pulling the coffee bag out of the steaming natural spring and squeezed its yellow juices all over my head. Coffee will run, Amen!

I also happen to be very bullish on hogs, so if anybody finds a pool of lean hogs…