Happy Friday! I am back from my travels and ready to get back to some more hardcore Kung Fu Finance love…thank you for your patience!
Great questions this week, from how to review the Commitment of Traders report to what is the purpose of kung fu in China to why did I choose the name “Kung Fu Finance” and am I a black belt and more…
Let’s dive in!
First, Willis asks,
It’s a pleasure to be a part of the KFG community.
I like what you’re implying. Be aware of what’s going on in the markets – regardless of whether it’s manipulated or not – and invest accordingly. Though it takes some of the mystery and excitement out, it sure will save a lot of emotional roller coaster rides.
Do you think you could one day explain how to read and interpret the COT report? I see it mentioned quite frequently in Ed Steer’s daily email report, but have never been able to click on how to interpret this information.
Sure! First let me explain what the COT (Commitment of Traders) report is, as not everyone may know. The COT is published by the Commodity Futures Trading Commission (the CFTC, just to throw some more financial acronyms at you). It is the CFTC’s attempt to “provide the public with current and basic data on futures market operations”.
The reports are available on the CFTC’s website– the one for silver can be found here:
The COT reports give a breakdown of each Tuesday’s open interest for markets in which 20 or more traders hold positions equal to or above the reporting levels established by the CFTC.
For silver (the market that is most alleged as manipulated) the reporting level is 150 contracts, and each contract is for 5,000 oz. of silver (@$34.32/oz * 5,000 = $171,600 at today’s prices), so 150 * $171,600 = $25.74M reporting level. So traders who have more than about $25M worth of silver futures contracts are reported in the COT reports (obviously that’s the big guys, although realize that these contracts can be HIGHLY leveraged).
This reporting level is different from the much-argued “position limits” which is the legal amount you are allowed to own, which is larger than the amount you must report. Position limits are where all of the controversy is in the silver market—you have probably heard this argument many times in Ed Steer’s publication. It is a huge issue and many believe that the limits are set far too high, but there has been no real resolution to this yet (they did change the position limits slightly last year, but not “enough” to quell the rumors) although it’s still under investigation by the CFTC.
Anyway, to sum up, the COT report is a weekly snapshot of the commodity futures market and shows which traders are “long” and which are “short” in each commodity.
The reports themselves are available in short and long format (ha—no pun intended…they seriously have a “shorter version” with less information and a “longer version” with more information, including the concentration of positions held by the largest four and eight traders, which is where most of the controversy originates).
The reports are released every Friday at 3:30pm EST, and you can look at the “futures-only” version or the “futures and options combined” version. Here is a link to today’s COT Futures-Only Long Report:
Taking a quick glance at it (it is so ugly, by the way….all plain-text and just tailor-made for accountants—my apologies to any accountants out there!), you can see under the “Silver – Commodity Exchange Inc.” category that the 4 or Less Traders (the 4 “largest” traders) had a net short position of 34.9% and a net long position of 12.8%, so the “big 4” short traders hold a short position more than 3 times larger than the “big 4” long traders.
The conspiracy theorists believe that this big concentrated short position in silver points to a manipulation in the market, but this hasn’t been proven.
I could go on and on regarding the COT (and I will if you’d like…?), but hopefully this gets you started! Let me know if you want me to do a full-length post on this sometime. There are several specific commodity analysts who analyze this every week for you, which is great—the biggest one I know of is Ted Butler (who is a staunch believer in the market manipulation) and also silverseek.com does a weekly analysis of the COT (so you don’t have to wade through the slog yourself!).
Ted Butler is decidedly biased, but he is also a great and long-time silver analyst (some 30+ years) and always has an interesting take on what’s happening in the market.
Good luck, and thanks for the great question!
Next, Hannah asks,
What is the purpose of kung fu in China?
Kung fu in China is generally a broader term than what we use here in the West. In the West, we tend to associate Chinese kung fu with Bruce Lee, Kung Fu Panda, and just general ass-kicking self-defense martial arts.
However, in China, kung fu literally means “excellence in any skill achieved through hard work and practice”. This means that you can have great “cooking kung fu”, “running kung fu”, or “investing kung fu”….whatever you are good at and have practiced long and hard at you are said to have good “kung fu” with.
This is one reason why I love this kung fu metaphor for finance and investing….it is literally the opposite of “get rich quick”, requiring hard work and practice (but it can still be FUN!). I hope this makes sense…thanks for your question!
Actually, this leads right into the next question…
Next, Reginald asks,
How did you choose the name Kung Fu Finance? Do you take kung fu? Are you a kung fu black belt?
Hi Reginald, welcome to Kung Fu Finance, and thanks for your questions! I purchased the domain name for Kung Fu Finance over three years ago, after having gotten completely fed up with “mainstream” finance and financial education. I was taking a kung fu class with a girlfriend of mine in San Francisco at the time (although no, I am sadly not a kung fu martial arts black belt!), and I had always been a Bruce Lee fan and had a former roommate who was a huge Bruce Lee and black belt theater fan (shout out to Greg—you know who you are!). 🙂
I loved the name because it perfectly expressed what I wanted to create and what I am about—it’s action-oriented, and I’m a “take action” kind of girl, it’s philosophical and success-oriented (Bruce Lee was well-known for his thoughtful philosophies and following of the Tao and was inarguably a huge success himself), it was edgy and alternative (and this site is dedicated to “thinking for yourself” and to alternative thinking and investments outside the “typical” 401k mutual funds), it incorporated the idea of self-defense and self-reliance (and I believe in order to achieve financial independence we need to become completely self-reliant with our finances—not to depend on our government, our employer, nor anyone other than our own sweet selves to take care of us), and self-actualization (Bruce Lee was a perpetual student-master and believed that all knowledge is “self-knowledge”…he was constantly seeking to better himself, improve himself, and understand himself).
And, it was just fun and “kick ass”, which I like! And I believe the finance field in general can use a good dose of fun and “kick-ass”-ness….it tends to be *really* stodgy and boring, which is a shame (because making money is FUN!).
It also had mass appeal…there is Kung Fu Panda and Hong Kong Phooey, and that was important to me, too—I am not an “elitist” like many of the financial gurus, but instead firmly believe that ALL PEOPLE can achieve financial independence given the right mindset, education, and tools.
So there you have it….Kung Fu Finance was born!
I hope you have a fantastic weekend! Thank you so much for your comments and questions! Please feel free to comment and/or reply to this email with any questions—I love to hear from you!
To your financial success,
— Kung Fu Girl