Hobofinance

Finance for those who care more about living than making a living

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My Glorious Coffee Trade

This page compiles the best of the Hobofinance commodities futures options coffee trade case study that is currently underway.  The initial hypothesis: that a hobo could borrow a very large sum of money from a generous lender (credit cards) and with extensive study and utilizing the leverage that comes with coffee futures options, invest that sum for considerable returns in 6 months, has proved false.  Do to a financial crisis that damn near took down the entire global financial system, I’ve nearly been wiped out of this ongoing coffee trade.  But I have not, as of yet, thrown in the towel. 

My persistence with this trade is not only a reflection of my arrogance, an arrogance that has difficulty admitting defeat.  It also has to do with the fact that every fundamental factor I’ve encountered points to one thing; the impending bull run in coffee futures.  In all likelihood, the day of this page’s creation, January 19, 2009, will mark, within a week or two, the long term bottom for coffee futures prices.  Coffee, unlike almost any other asset out there, has a real world supply and demand imbalance that is not going to be alleviated without much much higher prices. 

I’m not like those other jokers out there looking for a swarm of hungry followers to hang on to my every word.  You know the jokers I speak of.  They say things like, “Coffee may be one of the best performers in 2009” or “Coffee futures could rise 15% in the latter half of 2009”.  Those jokers have jobs to worry about.  They don’t commit because they’re not concerned with coffee prices, they care about readership, a readership they can be manipulated into returning day after day looking for a handout.  Well fortunately for you all, I have no job.  And I have nothing to fear by going out on a limb, with the exception of personal financial ruin.  So I can say things like “COFFEE WILL LOOK BACK ON JANUARY 09 PRICES AS BEING DIRT CHEAP.  INSANELY CHEAP.  AND ONCE COFFEE STARTS TO MOVE, IT WON’T LOOK BACK UNTIL IT’S REACHED A RECORD HIGH SOMETIME PRIOR TO DECEMBER 2010.” 

For those who have joined this site after the collapse in coffee futures prices that occurred in October of 08, and have lasted until the present, Mid January 09, I have selected some of the more important posts so you don’t have to dig through the lot of them trying to understand how it all began.  The Coffee Trade post quantity was significantly altering the shape and scope of this blog, and I wanted to add this page to get that under control a little bit.  It should make following this trade a little more efficient for newcomers as well.  So let’s get to it.

The fundamental supply and demand situation in coffee has been a long time in the making.  Jim Rogers wrote about it 4 years ago in his book “Hot Commodities” which you can find in the Hobofinance Top Ten Recommended Books.  Coffee Demand has been steadily rising for over a decade, and since 2003 has risen at a rate that dwarfs the rise in supply.  For two years now coffee stocks (reserves) have dwindled down to next to nothing.  There is simply not enough coffee in the world to meet demand.  On top of that, this financial crisis has not impacted coffee demand the way it has virtually every other commodity.  Because when people are nervous, or frightened, or stressed, they tend to drink more coffee, not less.  And even though starbucks has seen large losses due to shrinking consumer demand, at home coffee consumption has risen to take its place. 

This coffee trade of mine began back in July with a powerful spiritual experience.  It was my birthday and my girlfriend and I were at a hot springs in Xiamen China.  And the events described in Superstition and the Coffee Baptism were the coalescence of cosmic forces that will eventually culminate in the highest coffee futures prices the world has ever seen.  I also lay out ten reasons that coffee is sure to climb this year.  They were true then, but the baby was thrown out with the bathwater during the panic liquidation that occurred in all stocks and commodities.  They are truer today at these prices, which are in the $1.15 range.

The second coffee futures options trade entry “Let the coffee buying begin,” describes technical and fundamental timing factors I used to enter the trade, as well as the date of my initial trade.  The third coffee futures options trade  entry”The glorious investment plan” is where I laid out the entire strategy I was going to implement, including ‘securing finances’ and ‘trading strategy’.  The circumspect analysis that went into that strategy should set a good example to all those who believe in a sure thing.  I never imagined in a million years things would play out as they did.  Looking back, I have no one to blame but myself.  This is the value of recording your plans, thoughts, and strategies.  Many people out there are blaming their losses on the economy or financial crisis.  They have no idea where they went wrong, so they are not holding themselves accountable.  I can look back and see exactly where I was wrong, and as such, I’ll be able to prevent the same mistakes in the future.

But moving on.  After a beautiful beginning, making 34% on my money within the first 4 weeks of the coffee futures options trade, what I thought was a correction turned out to be a disaster.  I identified the technical breakdown of coffee futures on Sept. 19 in coffee futures options trade 6 “Crapping My Pants”.  This is a great post examining in real time conflicting market information.  And it shows just how important it is to not only have a method of trading, but to listen to that method absolutely, tuning out your optimistic discretion when it rears its greedy head.  I saw clearly at that time, as evidenced by the thorough analysis of market indicators, that said indicators had given failed signals.  And as they say, when your indicators, which usually hold true give failed signals, there are powerful fundamental factors in the market that should not be challenged.  And it would be wise to stay out of the market, liquidate ones position, or reverse position and follow the market.  Easier said than done. 

This was followed by a blindly optimistic post exemplifying the curse of fundamental analysis: when something declines in price and all fundamental factors remain the same, it just got cheaper, and cheaper is good.  You’d be better off buying or dollar cost averaging down then.  The problem is that a commodity or a stock can always get cheaper…always.  And relative cheapness can’t be determined by today’s price in relation to prices a weak ago.  In coffee futures options trade 7 “Humble Hobo” I re-examine fundamental factors that should have sent coffee to the moon already.  Let this be an example to those who thirst for hard ‘facts’ about commodities and believe that real world happenings precede price movements.  The price doesn’t lie; news is always partial and can be falsified or discounted with time.

With coffee futures options trade 8: “Digging out of the Hole” I hit rock bottom in morale and in equity.  I went from an initial sum of 60 grand to 2.5 grand in just a few short months.  Ouch.  I analyze some of my mistakes and review some of the timeless and hard learned money management rules we all need to heed in order to survive in this game.  Then I unveil a new strategy, a spread trade that will save me from my predicament.  That strategy turned out to be stupid.  In coffee futures options trade 9: “Is the Bull Back?” I picked the bottom of the market, gave fundamental and technical reasons for that bottom, and my indicators started functioning again. 

Some time has passed and this week has confirmed the bottom in coffee prices, again with support from the MACD Histogram, the RSI, and moving averages.  At present, March 20th, 2009, we have just seen the end of the beginning.  The market has confirmed a low and is rising sharply.  This in conjunction with supportive news out of Columbia and Vietnam, the masses are finally starting to take notice of the events that are about to unfold.  Coffee futures are about to fly.

And it couldn’t come at a more opportune time, sarcasm intended, as I have less than $1,500 equity left of the initial $60,000, and am hurting with debt.  This exists in the form of a single July 09, coffee $1.40 call option.  Nevertheless your fearless hobo remains optimistic and steadfast.  I will continue to hold a position in this market, and will continue to add equity updates from time to time.  The further fundamental and technical analysis of coffee futures will however be moved to Coffee Futures Trading so that hobo financial things may be focused on once again here.

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