“The End of the World as We Know it….And I feel Fine!”
-R.E.M.

Kevin on Oil CNBC Closing Bell Friday
(Video repeats in the middle, sorry)

Ok finally, after a week of wild trading I get to really sit down and answer a fraction of great questions my visitors and subscribers have sent me…Thank you. I also get a few heated e-mails that I respond to directly here. No use in mincing words, we are traders in very fast paced markets so I will always say it like it is. Ok I will waste no time telling you what an amazing trading week I had last week…Ok well maybe just a little.

First of all a big spanking for me.

I broker my own #1 rule, I talk about it in my book and there I was breaking it. Trading too much size. Taking on too big a position in the grains. The drawdown was massive as corn fell back and it took a huge chunk of my equity, I had my disaster stop set and was about to get hit when the Fed came to the rescue. My corn positions rallied recovering all my equity and handing me profits. It was a reminder of why I have my rules and that I better use them. Giving advice is easy, taking your own advice can be hard….Lesson learned yet again.

If you are going to be out in Vegas July 9-12 or even better in Vancouver at the end of the month, please swing by and say hi, let me sign a book for you, and let’s chat….I love meeting as many of you as possible and July is going to be a big month for that. Please drop me a line at the mailbag kevinscottkerr@mac.com register as a member of this blog or keep up with all the big changes that are coming, I hope to hear from you and to see you soon.

Now onto your e-mail.

Q. Hello Kevin,

no world record here, but the gasoline prices in Israel are being raised at the month end to $2.10 per liter (I recon around $7.94 / gallon ) for unleaded 95 self service (most of it is tax, of course). The price for gasoline is under price control, but is calculated according to some formula that is updated twice a month. It is not meant to be a subsidy or to constrain the market, but it does take away competition. I suppose the margins of the different gasoline outlet chains are really not that high, they try to make up for it by opening convenience stores and so on. The only advantage that I can think of of the price control is you know you’re never getting a bad deal filling up in some country location, prices are uniform throughout the country.

Did you ever get that mail that I wrote to you about Gothenburg? It was so interesting to read that your family hails from Gothenburg, that’s where I grew up. I wonder if you have any subscribers there. My mother and brother live there, I know the city quite well.

I have a theory about OPEC and the oil price in the US and Europe that I would like to share with you ( I think perhaps the kernel of this idea I picked up in some article I read long ago):

OPEC probaply figures, that when oil was selling for a “normal” price of $50 a while back, the effective price of oil in Europe was perhaps $150 with the taxes on gasoline, so that means that European governments are actually pocketing more money from the sale of every barrel than the producers of OPEC are! So why should they sell the oil for cheap? If the Europeans pay an effective price of $150, why shouldn’t the Americans as well? Now the Americans are paying approx. $140, and they can bear it, apparently, even if they cut back on driving a little bit. The Europeans of course are paying around $320 a barrel now (159 liters/barrel times around $2 per liter), but that’s their problem (in OPEC’s view), they can always lower the tax a little bit and lower their outrageous (tax) revenues if their citizens have a problem with this.

Of course I’m not disregarding all the other explanations, such as increased demand, I’m just saying that OPEC are very happy right now….nobody is preventing them from making contracts selling oil at $90 if they so wish….it’s not against the law.

I apologize but I disregarded the refining costs. So do the Americans, apparently, since the refineries are hardly making any money. I have VLO and it was a deep value play, and I’m going crazy from it.

I’d be happy to get a short responce to see what you think of this theory. I have more to say…(”who said “The market is well supplied”, well supplied my ….” ).

Best regards,
Yitzchak

A.

Sure and thanks for writing in. Gothenburg, nope but have always wanted to go there. My grandmother and my ancestors were from there as you know. Maybe this year I will get there, I would love to see where our Swedish roots come from. The other place I want to go is Scotland, the other side of the Kerr genetic roulette wheel. Can’t get much more Scottish then Kevin Scott Kerr after all.

Sero Sed Serio I think is our crest, something about the sun…Anyway, both places are on my must visit list. I think your theory is spot on. Look it ’s because of many reasons that we have these oil prices, greed, stupidity, and laziness come to mind. There are many things that can be done, the question is will we elect people who will do them. In this country I doubt it. Americans need pain for motivaiton, it’s true. We don’t do anything until our feet are in the fire…Look at Pearl Harbor or 9/11 A shock to the system Motivates Americans

That means gasoline at $10 a gallon and crude at $350, that’s what it will take in my opinion. At least the possibility of drilling is being disussed, that’s a start but a helluva long way from doing something. Under indecison (see also Ben Bernanke, all talk no do). Thanks and please write in anytime. Best, Kevin

Q.

Kevin,

Saw that you said we could be out of the gold trade quickly …. that surprised me because my broker says you’ve said gold could go to mid-1000s (I think) this year & I figured you were looking for at least a surge over 1000. Since I added some futures to your option, I’m really concerned re: what your thoughts are … thanks

Mark B

A. Well Mark, whenever I nail a trade on the upside and the downside, like i have with gold the last two times, I never press my luck. Heck, 50-75% profits in only a few days is rare indeed. Gold is volatile just like the rest of the commodities and profits are profits. I will at least take half profits next week if they are this hi then I can ride the rest or I may grab them all. Longer term I am bullish, very bullish on gold…I do not however look at these markets as an investor but as a trader, and there is a very big difference….Good luck my friend and please visit the blog and write me anytime. Best, Kevin

Q.Kevin,

I just returned from Nicaragua. The best gasoline price I saw there was, I think, C$25.34/liter. That’s 25.34 Cordoba x US$0.05546 x 3.23 l/gal = US$4.539/gal. Diesel fuel was priced at about the same as regular gas, plus or minus a few centavos. The price in Managua ran about one Córdoba higher in each category. I used the conversion rate given on Yahoo! of 18.032/dollar, although for most of my purchases we used an even C$20/US$.

By the way, apparently Agora’s policy of no individual advice was applied in my case to prevent Byron from responding to my question. One of the purposes of my trip was to visit the Polaris Geothermal installation at San Jacinto Tizate. My question to Byron was to ask if he had any specific questions he would like me to ask. Since I received no reply, I made up my own list. I know the recommendation for GEO.TO was in his other publication, but I’d appreciate it if you would let him know I have some information - and pictures - which his readers might find interesting.

Bob

A.

I will forward it on to him and let him know…I know I am dying to hear…Thanks KK

Q.Dear Kevin

For days I had been reading your e.mails, no purpose!!! I have recently subscribed to your service and what??? E.mails full of BLABLA. NO single rekomendation of any kind during my membership period. Statements thatt somebody may think are recomendations dont make any sence to me. Your travels and social engagements and other garbage. Is that what I payed for the service? not a single reco to make me 1$. Are you going to shape UP?

Do not publish this.

regards

(name witheld due to request)

A. Answer withheld because you’re an idiot. “SHAPE UP” Why don’t you GROW UP, put on the big boy pants and focus on what I am saying. We just did a gold trade three days ago that is up 60% almost…We just grabbed profits on soybeans and corn of over a 100% each. Get serious. This isn’t a trade factory where 12 new trades get churned out every day. E Look it sounds like this “trading stuff”is not for you, if 60% profit in a few days isn’t enough for you, I suggest you get a refund and move on. My grammar and spelling are awful but yours is a 911 emergency. Focus on that for right now first, ok…Us adults will be over here trading when you are ready let us know. You see I got my point across to you without any “social or travel info”, hope you enjoyed it. I know I did. K

Q.Kevin-

I have had a couple of emails blocked by your ‘spam’ filter.

Any suggestions?

It was an interesting essay I was sending on for your enjoyment.

See you in Vancouver

Fred P

A. Hmmmm, I will look into it but be sure to white list my URL and mailbox, that might do it..Thanks for letting me know. K

Q.Kevin;

I noticed in your recent email that you would like your subscribers to let you know when they filled an order. I am a brand new customer of yours with the RTA and last week (the day after I got the email notice from you on it) I filled the gold spread option play with Bob Miller at Foremost Trading, LLC. This was my first play in doing options of any kind. I am very happy so far nedless to say. Hats off to you for picking this gold play seeing that the front month futures contract for gold hopped up 3.7% (yesterday), the biggest one day gain in 23 years.

I have never done options before but I am looking forward to it. My main investing just consists of having most of my money in silver bullion bars (in storage) on a margin account (a 1 to 3.5 ratio account) which has done well over the last year or so. I got into silver at the $13.00 per ounce level.

I feel that gold and silver will both be doing quite well over the next few years. I think that silver will be at $50 an ounce one and a half years from now and $100 an ounce three years from now. I think that gold will be in the $2,500 to $3,000 range in three years from today.

I have a sense that silver will start to go up fairly well in November of this year. Where you possibly thinking of doing any option plays on silver in the near future? Just wondering, I am very big on silver.

Thank you for your help and best to you!

Andy M
Washington, DC

A.That’s awesome, yes we sure have called gold right this year, first by sellling it thew day before it crashed and then buying it again for this run up…It doesn’t get much better than that…All the best, Kevin

Q.Hi Kevin - LOL you should resist watching that morbid stuff! On a more positive note, for the first time since I’ve been an RTA member, I’ve added a trade “mid-way”, ie., quite bit after the initial reco was given. In this case it was sugar. I added when it had been really beaten down and members were sending you (I have trouble believing how) rude emails criticising the trades they put on. Trying (and this is a constant battle) to use sentiment as a reverse indicator I put on the sugar trade on May 17, 2008, extending the month to January 2009 (SBF917C). I got filled at 0.48 and today it closed at 0.64 today. With sugar following oil up, and with a lot of time left on it, this trade could get even better. Your gold reco was exquisite. I had been suffering through the wild ups and downs of the intermediate bear in gold since the Bear takedown on March 17 (I’m following Jim Sinclair’s general direction on gold, but the chopping market has been devilishly hard to trade).

But since your reco, gold has taken off like a rocket and, supported by the strong weekly MA and RSI, it looks like we may have started the next bull upleg. Dude, your timing on gold was as exquisite as it was in August 2007 (when I first joined RTA) and February 2008 (I should have listened then!). So, kudos and more kudos. And even more kudos on the corn (I got out early, with a 100% return) and the beans (I got in late and recently got out with a small loss, which to me is just like a win). Keep up the excellent work (no pressure here, LOL). Regards, Tim T, Hong Kong

A.Hey Tim I was just in Hong Kong, I would love to come back soon. “Dude, your timing on gold was as exquisite as it was in August 2007 (when I first joined RTA) and February 2008 (I should have listened then!)” Yes not to sound conceded but I am amazed at my calls on the metals the last couple of years and recently it has almost seemed psychic. Glad you are enjoying yourself. Stick with it. All the best, Kevin

Q.I sold the balance of my bean oil for 700. so holding on for the extra few days paid off for me. This was a nice one!
George M

A. I thought so too. Sometimes the profits just come fast and furious like that. Bam! It can happen with loses too so take it all in stride and fight on as they say! KK

Q.Dear Kevin,

got filled for sugar & soybean oil. I even did better on the sugar because i also bought 07/2008 12 calls at 20 and sold at 82 points !

I should also thank you for this trade because you give me the information to make now and then a trade on my own ( I also bought some december cotton 85 call at 2,2 )

Best Regards

Boelen B

A. Again awesome move on your part with the cotton. In my opinion that is a very smart trade indeed. Best, Kevin

Q.Kevin,

I notice you tend to recommend buying naked options or debit spreads, but not selling naked options or selling credit spreads to open a trade. I wonder why?

Some argue that out of the money selling credit spreads has limited risk and is more likely to win than buying options or debit spreads? But the downside of selling credit spreads is that the ratio of risked amount to potential reward is much greater than buying options?

Thanks.
Dan

A. Great Question. I have no particular bias to the long or short side or debit or credit spreads. on thing I never do in a newsletter that I do quite often in my own account is write options. Unlimited risk in a newsletter format is never a very good idea for many reasons. And your point on risk reward is true and that is another factor in why I do the spreads I do. Personally I do not like spreads but with premiums and volatility as high as they are, spreads are often very necessary. KK

Q. evin:

I just read your last news letter. There was a subscriber looking for a free commodities reporting. I use mfglobalfuture.com by Man Financial. Also Ino.com and futuresource.com are good in that order. However, these charts have a time delay of a few hours. But for our type of trading, I find them acceptable.

Dave K

P.S.
I believe way back when you recommended using futuresource.com and Ino.com

A. correct. There are so many resources out there nowadays but some are certainly better than others. Real time quotes can be pricey and for options trading you don’t really need it. Live charting is the same story, for the average trader. Having said that I have real time everything and it comes with a big bill every month but then again this is my livelihood. Take care and good luck, KK

Q.Hope you’re having a great vacation. You seem to enjoy being kept informed of our results, so here are my last 3 sales. In my brokerage acct I sold 5 sugar contracts @ 224 (25% profit) and 5 at 3313.6 (75% profit). I chose not to sell my bean oil on the first recommendation and sold 2 @ 610 (94% profit). Finally, I bought beans a few days after you recommended bean oil and sold 2 bean contracts @ 141 (139% profit). All in all, a really good week. I also repeated the same series with fewer contracts in both my wife’s and my ROTH IRA’s and a brokerage acct I handle for my mom. All accts have a good amount of cash and I anxiously await your next recommendation.

George

A.Unfortunately I always seem to be trading on my vacations…lol Sounds like you are having a fantastic 2008, keep your head down and it could be the best year yet…I am doing the same. Take Care and best to your family. Good Luck, Kevin

Q.Kevin , we got 630 points and I have 2 options .
I made $ 2820 before commissions .
Thank You very much !!!
Good Job !!!!
Ruben

A.Yup, it’s real money indeed. Who says corn isn’t having a good year….It certainly is for us! Best, Kevin p.s. Enjoy those profits

Q.I had 1 47 Call at 2.20 and sold it today at 4.10 for an 87% gain before commissions. If an alternative trade is recommended a close for that alternative should also be recommended.

Bob D

A. Yes, very good point…Duly noted. Thanks Bob KK

Q.Hi Kevin,

I’m just a young guy (like you), fed up with typical financial people telling me to make typical investments that typically don’t make me any money! I’m 43 and have 2 young kids and make a pretty good living but can’t seem to obtain that “take you to the next level” piece of investment advise! Sure, I’m up all night reading financial stuff on the internet, but your name was mentioned to me and apparently you are somewhat of a maverick and maven on commodities. I’ve never invested in commodities so any direction you could offer up would be GREATLY appreciated for a commodities novice!! I also hear a lot about coal, what is your take on how to or if to get involved with coal???

Thanks a million!!

Mitch L

A. I am called a lot of things. Not all of them good…lol Look I do not consider myself some Guru ro old school commodities guy like His Heiness Gartman or some of the others. I am a guy who has learned form some of the best over a twenty year career in commodities trading. These markets are changing and fast and we are on the cutting edge here. Coal is an awesome market that has a very bright future. I have bought many coal stocks for my portfolio and I will continue too. As my friend Larry Kudlow says, the “US is the Saudi Arabia of Coal” Amen. Welcome aboard, KK

Q.

Hi Kevin,
I’m a little late reporting this, but I bought the 1050 Dec gold call on the day you made the recommendation (6/17). I watch gold a lot because I have a lot of Canadian exploration stocks, and felt that the current correction is close to an end. That’s why I decided to go with the call instead of a spread. Looking at the trading for last Thurs and Fri, it sure looks to be like we had a valid breakout – take a look at some of the gold stocks (I don’t think they would be so strong if the metal wasn’t going higher). Anyway, your timing is outstanding.
Thanks so much,
Larry L

A.I will take luck anytime I can get it. What I find however is the harder I work the luckier i get. Be well, Kev

Q.Kevin,
I have been on vacation in Israel for the past 3 weeks.
My Commodities broker has been following around this country(by phone)First I got a call in Jerusalem to get out of our bean spread. Then another call when I was at the sea of Galilie enjoying St. Peters fish at the best place to enjoy it, En Gev.
Finally I was in the ancient port of Jaffa when my broker called me about getting out of Corn with a profit.
I am glad I stuck with you. Last year was rough, but so far this year has been awesome.
All the best to you and your family.
Michael S
A. Yup my broker is the same way, he could find me in Timbuktu, and he has. Anyway, yes last year was tough and then about in June it started to turn around…Trading is cyclical and it’s important to manage equity to be able to weather those tough times that come to all traders. Betting everything on Red and hoping for the best is better left to casinos, risk mgmt and discipline is the key to profitable trading. Take care, Kevin

And our last e-mail for this Mega Mailbag…

Q.I just started on 6/10/08, and 80% + on my initial start up investment. I bought soybean and corn then on your advised have sold them both. I still have the soybean oil and just bought the Aug gold 6/26/08. I am waiting for your next recommendation. I am very appreciative. Guillermo

A.I am sorry to hear you are so disapointed…lol Congratulations on those gains that’s fantastic.. I am very glad to have you on board…Best of luck, Kevin

Ok well that’s all the time we have for this mailbag but I will have to do another one this week because there is simply so much mail, Remember, I cannot answer your e-mail directly but I do read all of them and will try to respond to as many as I can right here in the mailbag.

Form near and far..The mail will always get through

Where in the World is Kevin Kerr?????

A. Kevin, deep in the shale oil mines of Narva, Estonia on the border with Russia!