Lessons From a Terrifying Day By Andy Hecht, Editor, Trade Hunter & Commodity Trend Alert Dear Sovereign Investor, Today is an auspicious day in the history of the United States.
Exactly 70 years ago, the Japanese Imperial Forces launched an attack on Pearl Harbor and drew the U.S. into the Second World War. The anniversary of this day hits very close to home for me.
It was the first foreign attack on American soil since the War of 1812. I was in New York during the last one.
I was working at a hedge fund in the building that houses the New York Mercantile Exchange that trades energy and the COMEX that trades metals.
It was a beautiful day. I remember the sky was clear and I was thinking about taking the day off to play golf. Summer was winding down and not much was happening on the commodity markets. In the end, I changed my mind and dropped by the office to do a little trading.
September 11, 2001, began typically. I arrived at the office just before 7:00 a.m. and I was still thinking about that round of golf. But by 9:00 a.m., the city was already in turmoil.
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Along with some of my fellow traders, I made my way to the courtyard at the World Financial Center, directly across the street from the two massive towers.
Smoke was billowing from the north tower. I’ll never forget the sight and sound of people jumping to their death from the plume of smoke and flames. Our Own Personal Pearl Harbor I was standing in the courtyard next to a trader named Rocco from the oil-futures pit when, moments later, the second plane approached the south tower. I saw it was a commercial plane and that it was flying too low. With our mouths open, we watched as it flew from the Statue of Liberty and slammed directly into the tower.
The explosion that followed was earth-shattering. We were numb with shock. I remember saying to Rocco we were witnessing our own personal Pearl Harbor that day.
The New York Mercantile Exchange and COMEX closed immediately after the attacks. No one knew what horror was coming next. But the events were as clear as the potential consequences. Our way of life, our city and our country were under attack - just as it surely felt 70 years ago during the Pearl Harbor assault. I Was Long on Commodities on
that Fateful Day Many of us were traders with risk positions on at the time. In my trading book, I was long on oil, gold, silver and copper.
The markets were not moving much in those days. The ranges were narrow and I was trading for small profits.
Fleetingly, it occurred to me that the markets in those commodities would move higher because of the events of the day - but, amid the turmoil, that was really the last thing on my mind.
In fact, just after the attacks, gold moved up from $291 to $296 and silver moved from $4.29 to $4.73. Commodities are Counterintuitive -
in the Medium-Term But over the next month, gold fell to $273 and silver fell to $4.03. Copper and oil never rallied, copper fell from 65.7 cents to 60.5 cents and oil fell from almost $30 to $16.70.
The knee-jerk reaction in all of these markets was to buy-buy-buy. Over September, October and November, the markets all tanked. This was amazing to me, considering where the attacks came from and who the attackers were.
But starting in November, many key commodities began to rally, and to this day they have never looked back. Prices today are many multiples of what they were back then.
Looking back, the logic of the markets was clear. An attack on the U.S. from powerful and resourceful enemies in the Middle East had caused everyone to buy these key commodities at the same time. The knee-jerk reaction was correct in the long-term - but wrong for the short term.
When a major event happens commodity prices often react in an opposite direction that common sense may dictate. A Similar Thing Happened This Year In the aftermath of the earthquake in Japan earlier this year, history repeated itself.
Japan is a major importer of corn. An earthquake and a nuclear incident resulted in the destruction of stockpiles of corn.
Common sense dictates that corn prices should have moved immediately higher. But, while the knee-jerk reaction was to buy corn - corn prices tanked first. History Tends to Repeat Itself Today, we remember Pearl Harbor and other attacks on U.S. soil. It is most important for us to remember those who died in those attacks on our soil and those who died defending our freedom.
But history can also teach us other important lessons...
Common sense may dictate the price of a commodity should move one way, but often it does the exact opposite.
Happy trade hunting... 
Andy Hecht
Editor, Trade Hunter & Commodity Trend Alert
P.S. All astute investors these days know the key determinant of long-term performance is strategic asset allocation. The chances are that stock-picking in developed markets runs the risk of going as horribly wrong as betting on the euro. But the astute investor also knows that, in recent years, there is no more strategic an allocation than the commodities market, particularly in those commodities fueling the growing wealth among the giant populations of emerging markets. This boom has years to run, and here’s what you should know if you want the boom to work for you...
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