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iPath Bloomberg Livestock SubTR ETN Message Board

  • luktrot luktrot Jun 9, 2008 11:16 AM Flag

    Contango In Cow

    I see a lot of commentary on this board about the price of cattle but nothing about how COW as an investment is actually structured. From what I understand contango in futures prices can have a BIG impact on returns of any commodity ETN. Anyone with thoughts on this subject in relation to COW? If for instance, commodity investors think cattle prices will be much higher six months from now but not quite so high one month from now, that from from what I understand can actually have a negative impact on a commodity ETN like COW because it is always selling the most recently expired contracts to buy the next month's. If the most recent contracts are lower priced than the later dated ones, then COW must always pay up to get the next contract, causing losses--contango. Please correct me if I'm wrong. And what is COW's contango situation? Anyone know?

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    • Reading through Baclay's stuff, it states this is a long term note. Unlike PIMCO's Commodity Index which buys SWAPS from a counterparty, Barclay's is the counterparty. A similar ETN is issued by Elements. The best part is that if you hold this in a taxable account, Barclay states we should be able to assume that when sold we pay either short or long term capital gains. ... Back to Contango - it should make no differnce if it is in Contango or Backwardization. I agree with your concern. I bought USO years ago when it suffered contango and it took a big bite out of the price, then later it went into backwardization and gave a higher return. Overall balanced out, but the impact on an actual future contract can be large. That is why DB funds like DBC, DBA, etc use a computer model to hopefully roll over into the best contract for gains. Not sure how it works at DB but sounds good when contracts roll. ... Hope that helps. ... If you want to read about actual contract hazards go to DBC or any of DB's funds on yahoo message boards. ... Happy trading and it should be OK to hold COW until it pops -- my guess is no longer than 2 years.

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