Commodities For Dummies

Table of Contents

Introduction     1
About This Book     1
Conventions Used in This Book     3
Foolish Assumptions     3
How This Book Is Organized     4
Commodities: Just the Facts     4
Getting Started     5
The Power House: How to Make Money in Energy     5
Pedal to the Metal: Investing in Metals     5
Going Down to the Farm: Trading Agricultural Products     5
The Part of Tens     6
The Appendix     6
Icons Used in This Book     6
Where to Go from Here     7
Commodities: Just the Facts     9
Investors, Start Your Engines! An Overview of Commodities     11
First Things First     12
Going for a Spin: Choosing the Right Investment Vehicle     14
The futures markets     14
The equity markets     16
Managed funds     18
Physical attractiveness     18
Checking Out What's on the Menu     19
Energy     19
Metals     20
Agricultural products     21
Benefiting from Commodities Creatively     23
Earn, Baby, Earn! Why You Should Invest in Commodities     25
You Can't Argue with Success     26
The 21st Century Is the Century of Commodities     28
Ka-boom! Capitalizing on the global population explosion     29
Brick by brick: Profiting from urbanization     30
Full steam ahead! Benefiting from industrialization     32
It's All about Me! Why Commodities Are Unique     34
Inelasticity     34
Is it safe in here? Commodities as a safe haven     36
Hedge-hogging galore! Commodities as a hedge against inflation     36
Could you hurry up, please! Bringing new sources online takes time     38
Sell in May and go away? Definitely nay!     38
Time to Get Down to Business: Commodities and the Business Cycle     39
Is Investing in Commodities Only for the Brave?     41
Biting Off More Than You Can Chew: The Pitfalls of Using Leverage     42
Watch Your Step: Understanding the Real Risks behind Commodities     43
Geopolitical risk     43
Speculative risk     44
Corporate governance risk     45
Managing Risk     45
Due diligence: Just do it     45
Diversify, diversify, diversify     49
Get Ready to Rumble! Commodity Bulls vs. Bears     51
Seeing Both the Forest and the Trees     52
Ride the Wave? Kondratieff and the Super Cycle Theory     58
Keeping It Simple: Looking at the Laws of Supply and Demand     58
Feel the Love: Welcoming Commodities into Your Portfolio     61
The Color of Money: Taking Control of Your Financial Life     62
Looking Ahead: Creating a Financial Road Map     63
Figuring out your net worth     64
Identifying your tax bracket     66
Are you hungry? Determining your risk appetite     68
Making Room in Your Portfolio for Commodities     69
Fully Exposed: The Top Ways to Get Exposure to Commodities     70
Looking towards the future with commodity futures     70
Funding your account with commodity funds     73
You're in good company: Investing in commodity companies     74
Getting Started     77
Show Me the Money! Choosing the Right Manager     79
Mutually Beneficial: Investing in Commodity Mutual Funds     79
Riddle me this, riddle me that: Asking the right questions     80
Taking a look at what's out there     83
Examining Exchange Traded Funds     84
Mastering MLPs     85
The ABCs of MLPs     86
Cash flow is king     89
The nuts and bolts of MLP investing     91
Heads Up! Risk and MLPs     92
Relying on a Commodity Trading Advisor     93
Jumping into a Commodity Pool     95
Track and Trade: Investing through Commodity Indexes     97
Checking Out Commodity Indexes     98
What's the use of an index?     98
So how do I make money using an index?     99
From Head to Toes: Anatomy of a Commodity Index     99
Cataloguing the Indexes     101
Goldman Sachs Commodity Index     101
Reuters/Jefferies Commodity Research Bureau Index     104
Dow Jones-AIG Commodity Index     106
Rogers International Commodities Index     108
Deutsche Bank Liquid Commodity Index     111
Which Index Should You Use?     113
Understanding How Commodities Exchanges Work     115
Why Do We Have Commodities Exchanges, Anyway?     116
Identifying the Major Commodity Exchanges     117
Ready, Set, Invest: Opening an Account and Placing Orders     120
Choosing the right account     121
Placing orders     123
Tracking your order from start to finish     126
Owning a Piece of an Exchange     129
Back to the Future: Getting a Grip on Futures and Options     133
The Future Looks Bright: How to Trade Futures Contracts     134
The competition: Who trades futures?     136
Contract specs: Keeping track of all the moving pieces     138
For a Few Dollars Less: Trading Futures on Margin     142
Taking a Pulse: Figuring Out Where the Futures Market Is Heading     143
Contango: It takes two to tango     143
Backwardation: One step forward, two steps back     144
Keeping Your Options Open: Trading with Options     145
Cutting to the chase: Options in action!     146
Trader talk     147
Options have character     148
Technically Speaking: Using Technical Analysis     151
Looking at Charts: A Picture Is Worth More Than a Thousand Words     152
Line it up: Checking out line charts     153
Going for bar charts     153
Lighting up the chart with candlesticks     155
Identifying Patterns: The Trend Is Your Friend     156
Identifying support and resistance     156
Trend lines: Ride the trend till the end     159
Pump Up the Volume!     160
Moving Averages: Anything But Average      162
Keeping it simple with the SMA     162
Taking it up a notch with the EMA     162
It's All Relative: Using the RSI     164
Breaking into Bollinger Bands     165
The Power House: How to Make Money in Energy     167
It's a Crude, Crude World! Investing in Crude Oil     169
Crude Realities     170
No need for a reservation: Examining global reserve estimates     171
Staying busy and productive: Looking at production figures     173
It can be demanding: Checking out demand figures     174
Going in and out: Eyeing imports and exports     176
Going Up the Crude Chain     178
You want that light and sweet or heavy and sour?     179
Make Big Bucks with Big Oil     182
Oil companies: Lubricated and firing on all cylinders     182
Get your passport ready: Investing overseas     185
Welcome to Gas Vegas, Baby! Trading Natural Gas     189
What's the Use? Looking at Natural Gas Applications     190
Calling all captains of industry: Industrial uses of natural gas     192
If you can't stand the heat, get out of the kitchen! Natural gas in your home     193
Going commercial: Natural gas's commercial uses      194
Truly electrifying! Generating electricity with natural gas     195
Getting from here to there: Natural gas and transportation     196
Liquefied Natural Gas: Getting Liquid without Getting Wet     196
Investing in Natural Gas     197
Natural selection: Trading Nat Gas futures     199
Nat Gas companies: The natural choice     200
Fuel for Thought: Looking at Alternative Energy Sources     201
Out with the Old and in with the New?     201
King Coal: Not as Scary as You Think     203
Coal hard facts     203
Paint it black     206
It's a coal investment     207
Investing in Nuclear Power: Going Nuclear without Going Ballistic     208
You've Been Zapped! Trading Electricity     210
Current affairs     210
Power plays     211
Always Brand Spanking New! Renewable Energy Sources     213
Sunny delight: Solar energy     214
Fast and furious: Wind energy     214
Totally Energized: Investing in Energy Companies     217
Bulls Eye! Profiting from Oil Exploration and Production     217
Going offshore     218
Staying on dry land     221
Servicing the oilfields      221
Oh My, You're So Refined! Investing in Refineries     223
How to Become an Oil Shipping Magnate     226
Swimming in oil: Transportation supply and demand     226
Ships ahoy!     228
Masters of the sea: Petroleum shipping companies     229
Swimming with sharks: Avoiding industry risk     231
Pedal to the Metal: Investing in Metals     233
Getting the Glitters: Investing in Gold, Silver, and Platinum     235
Going for the Gold     235
The gold standard     236
Good as gold     240
Get the Tableware Ready: Investing in Silver     244
Checking out the big picture on the silver screen     244
A sliver of silver in your portfolio     246
Bling Bling: Investing in Platinum     248
Platinum facts and figures     249
Going platinum     249
Metals That Prove Their Mettle: Steel, Aluminum, and Copper     253
Building a Portfolio That's As Strong As Steel     254
Steely facts     254
Investing in steel companies     255
Aluminum: Everything Is Illuminated     257
Just the aluminum facts     257
Aluminum futures      258
Aluminum companies     260
A Visit to Dr. Copper     260
Quick copper facts     260
Copper futures contracts     262
Copper companies     263
Weighing Investments in Heavy and Not-So-Heavy Metals     265
Palladium: Metal for the New Millennium     265
Zinc and Grow Rich     269
You Won't Get Nickel and Dimed by Investing in Nickel     270
Mine Your Own Business: Unearthing the Top Mining Companies     273
Diversified Mining Companies     274
BHP Billiton     274
Rio Tinto     275
Anglo-American     276
Specialized Mining Companies     278
Newmont Mining-Gold     278
Silver Wheaton-Silver     278
Phelps Dodge-Copper     279
Alcoa-Aluminum     280
Arcelor-Mittal-Steel     281
Going Down to the farm: Trading Agricultural Products     283
Breakfast of Champions: Profiting from Coffee, Cocoa, Sugar, and Orange Juice     285
Give Your Portfolio a Buzz by Investing in Coffee     285
Coffee: It's time for your big break     286
Brewing the right investment strategy     287
Warming Up to Cocoa      289
Invest in Sugar: It's Such a Sweet Move!     291
Orange Juice: Refreshingly Good for Your Bottom Line     293
How to Gain from Grains: Trading Corn, Wheat, and Soybeans     297
Field of Dreams: How to Invest in Corn     298
Welcome to the Bread Basket: Investing in Wheat     300
Trading Soybeans: It's Not Just Peanuts     302
Soybeans     303
Soybean oil     304
Soybean meal     305
Alive and Kicking! How to Make Money Trading Livestock     307
Holy Cow! How to Invest in Cattle     308
Live cattle     309
Feeder cattle     310
Lean and Mean: Checking Out Lean Hogs     311
You Want Bacon with That? How to Trade Frozen Pork Bellies     312
The Part of Tens     315
Top Ten Ways to Invest in Commodities     317
Futures Commission Merchant     317
Commodity Trading Advisor     318
Commodity Pool Operator     318
Integrated Commodity Companies     318
Specialized Commodity Companies     318
Master Limited Partnerships     319
Exchange Traded Funds     319
Commodity Mutual Funds     319
Commodity Indexes     320
Emerging Market Funds     320
Top Ten Market Indicators You Should Monitor     321
Consumer Price Index     321
EIA Inventory Reports     322
Federal Funds Rate     322
Gross Domestic Product     322
London Gold Fix     323
Non-farm Payrolls     323
Purchasing Managers Index     324
Reuters/Jefferies CRB Index     324
US Dollar     324
WTI Crude Oil     324
Ten or So Resources You Can't Do Without     327
The Wall Street Journal     327
Bloomberg     328
Commodities-Investor.com     328
Nightly Business Report     328
Morningstar     329
Yahoo! Finance     329
Commodity Futures Trading Commission     329
The Energy Information Administration     329
Stocks and Commodities Magazine     330
Oil & Gas Journal     330
National Futures Association     330
The Appendix     331
Glossary of Technical Terms     333
Index     343