let's do a quick review of contango and backwardation
because they really are opposites of each other
but they're using different context
sometimes with the exact right meetings
sometimes with the knots or right meetings
so let's clarify what we're talking about
so if you hear
a commodities traders say that a market is in contango
they're normally just referring to the
fact that you have an
upward sloping
futures curve
so it would technically be just
you would call it a normal futures curve
because it's upward sloping
they would call it contango it sounds a little fancier
and if you were to hear a commodity straighters today
that a market is in
backwardation
they're really just talking about an inverted
futures curve
they're just talking about something like this
now if we were to be more precise with those
that's how it's using kind of common everyday lingo
but if you wanted to be more precise
if someone were to talk tell you
that we're to talk about contango theory
contango theory maybe in an academic setting
then they're talking about the notion
that the future delivery price
is actually higher
than what people expect the price to be at that date
the problem with that is it's just a theory
and there's no way to know ahead of time
what that expected price actually was
so it's very theoretical
similarly if someone is talking about
backwardation theory or even
I guess more particular if they use the word
normal backwardation
if they say the theory of normal backwardation
they just don't say backwardation by itself
they say the theory of normal backwardation
they're talking about the idea
that the future delivery price is lower than some
expected price
because the sellers
willing to sell the discount
so that they can essentially
lock their prices in
but once again it's a very theoretical idea
it's really hard
to observe it in the real world
because you actually don't know
what the expected price is
so someone is saying backwardation
they're usually just talking about an inverted
an inverted futures curve
if someone talks about
normal backwardation or the theory of
normal backwardation
they're talking about the idea
that the future price
the future delivery price is below
the market's expected price
I've even seen the word
normal contango
use when they're talking about contango theory
the idea
that the future price would be above the expected price
so contango theory
is the opposite of the theory of normal backwardation
now for both of the theories
you never know what this expected price is
so you can't literally observe it
a snapshot in real time
and the closest thing we can do to observing either
a real contango in a market
or real normal backwardation in a market
is if in the example of contango
if the future delivery price right now
is higher than the expected
as we get closer and closer to that delivery date
it should converge or it should move down
so you can kind of observe contango over time
when this price moves down as we go forward in time
this is a snapshot
this is it moving in
moving down as we move ahead in time
same thing for normal backwardation
the only way that you can really observe it
or even attempt to observe it
is to look at what happens to this price over time
in 8 months the delivery price is $50
but as we move future
as we move forward in time
and that contract becomes closer and closer
to its actual delivery date
it will converge with the spot price
and it will move up
so this observation of
the future's price moving up
as you get closer to delivery
that's a better way
of observing that a market
is experiencing normal backwardation
hopefully that clarify some things
now that we know what
a traitor means
when they say that a market is in contangle
let's think about whether it would be a
bullish or a bareish
signal for prices in
that commodity
so as I mentioned in the last video
it's actually normal for things to have a contango
because it takes into account
the opportunity cost of the cash and the storage cost
for that commodity
so if something is kind of in a reasonable contango
you really can't make a call on it one way or the other
whether it's bullish or bears
it's really just something that you would expect
what's not as usual is a severe contango
saphir contango
and that's when
the current spot price is a lot lower
than the future's price or the forward price
and in that situation
as we mentioned in the last video it's because that
there's perceived to be a big glut in the market
there's a surplus on the spot market
or maybe there's a perceived shortage at some point
in the future
and in general this is perceived
although once again
you can't just look at one simple signal and
be able to you know
bet your life savings on the direction of the market
yeah it's a very quick way to lose your money
but the general view is is that a severe contango is a
bareish signal
is a bear signal for the future price of that commodity
and the reason why it's perceived to be bearish
is because if you have this huge discrepancy
all someone has to do is buy a bunch of oil today
we assume that these were oil prices
so buy a bunch of oil today for cheap
store it
and once again we're assuming this is a severe contango
so this it won't cost $100 a barrel to store this
this oil for a year and then we agree to sell it 450
dollars so we agree
agree to sell it
and assuming the storage cost is less than $100
we're going to guarantee some money
so if you have a bunch of people doing this
buying on the spot market
it will increase demand on the spot market
raised prices there
but for the future's market
there's a bunch of people who are now
agreeing to sell in the future
so it's going to lower
it's going to increase the supply
on the selling side of the future's contract
so it'll lower the future's prices
so in general severe contango is
barrish for the future's price
if a commodities trader tells you that a market is in
backwardation
they're essentially saying that
it costs more to buy
whatever commodity they're talking about now
so now it costs more than it would to buy it later
to go into a future's contract to buy that
whatever that commodity might be silver gold or oil
to buy it later
so later is cheaper
is cheaper so the question you might ask yourself
or that really any traitor might ask themself
is this bullish or is this varish
is this a bullish situation
and there's no obvious rule of thumb here
but if someone says look
to get something now cost more than
to get it later
what does that tell you
about what's happening in the market
well it tells you that people are desperate
so they are desperate because if they weren't desperate
the rational thing to do would just be wait
wait a little while and get it cheaper for later
or if you don't need that oil right now
if you don't need that corn right now
or if you don't need that gold right now
instead of paying more for it right now
just say look I can enter into a
futures contract
for delivery of that gold or oil
or corn or whatever it is
at a later date for a cheaper price
and I wouldn't even have to store it between
now and then so if some
if people were rational and if they weren't desperate
this wouldn't happen
but because they're willing to do this
they're willing to pay more now than
for a future delivery date
it shows you that there might be some type of
it tells you that there might be some type of shortage
in the case of oil maybe
you know the oil supply has been disrupted somehow
in the case of corn
for whatever reason some crops have been destroyed
and people need to eat in all of the rest
for commodities that aren't used so to speak like gold
if you see backwardation there I wouldn't say
I mean it's definitely still desperation
but it's not out of a core need
if gold goes into backwardation
it's more because of some type of
irrational desire to have their hands on the gold now
then have it have their hands on the goal later
maybe they think society is going to collapse and the
the future delivery dates of gold aren't going to
actually hold up
who knows what they are
so in general
when people talk about backwardation
because of this desperation in the market
people tend to perceive it as a bullish signal
obviously if people are desperate that
there's demand for this thing
my argument is you can't just look at one
tea leaf out of a bunch of
tea leafs and say whether it's bullsh or barrage
but what you could say is look there's something
somewhat abnormal going in the market
due to some type of desperation
it's a little less irrational if it's due to a storage
but it could be very irrational if it's due to just
wanting your hands on it
because frankly
if you wanted to buy gold
just for the sake of investing in gold
you're not going to eat it
or use it to fuel your car or anything like that
it would make
complete sense or even better if you already held gold
in this type of a market that's
undergoing backwardation
the rational thing to do would be to sell your gold now
for more money
and then agree to sell it
and agree to buy it back later for a cheaper
and so once this later date comes about
you'll still have your gold
and you would have made some risk free profits
发表于 2023-4-7 15:03:57
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