of RBC Dominion Securities

Plaza Futures Group

Jeff Kowal | Jonathan Shields | Ivan Ghandour | Steve Harrop

Royal Bank Plaza, South Tower | 200 Bay Street Suite 2305 | Toronto, ON M5J 2J2
24-hour trading: 416-842-1100 Fax: 416-842-1130 Toll Free 1-877-387-4901 Mexico Toll Free: 001-800-514-0577
plazafutures@rbc.com

TRADERS’ NOTES See Page 2, or click here, for a snapshot of current market prices.

Thursday, October 21, 2010 December Coffee, Daily

• In over twenty years of trading markets, you hopefully pick up a few
valuable tools that are timeless in their predictive powers, and relative
strength is one of them. While the natural human tendency is to look for
markets that are cheap, history has shown that strong markets are usually
strong for a good reason (which sometimes may not be overly apparent)
and it doesn’t pay to look for things on sale - buy the premium product. We
wrote about how sugar rallied to multi-month highs on Tuesday in the face
of plummeting commodity markets; today, it’s coffee’s turn. This morning
in New York, the arabica bean contract surged to 13-year highs as supply
concerns continue to dominate (see upper chart). The latest impetus for this
push higher seems to be Columbia, the third-largest producer, which has
been hampered with two years of sub-par crops and it appears that they may
be headed towards another disappointing year. Oh, and by the way, coffee
was another market that thrived during Tuesday’s sell-off. So next time you
are shopping in the commodity space, stick to the strong ones.
• Could the US’s Federal Reserve Board’s decision to buy $1.7 trillion
Source: Bloomberg
in various debt instruments finally be turning the economy around?
We wish we knew for sure, but our suspicion is yes, at least judging buy the Absolute Money, Zero Maturity (MZM), Weekly
recent acceleration in the monetary aggregates, like the broad-based MZM
(see lower chart). Standing for “money with zero maturity”, MZM measures
the supply of financial assets redeemable at par, like money market funds,
and it just made recent highs at over $9.7 trillion. Perhaps more important
than the absolute level, is it’s recent acceleration over the past two months,
as it could signal that all this pumping the Fed has done may be finally making
its way through the system. How ironic would it be if the Fed engages in QE2
just as the economy turns? The recent surge in commodity prices may
support this argument. Stay tuned.
• On Tuesday, the battle of the prefrontal cortex was clearly won by the
dorsal medial section of the brain, as investors indiscriminately sold “risky
assets” after China’s surprise rate hike. Numerous scientific studies have
proven that the emotion of fear is two-and-a-half times greater than that of
greed, so that’s why markets tend to fall much faster than they rise, as most
are pre-conditioned to be long, not short. We’ve mentioned here numerous
times recently that many of these bull markets have not attracted piles of
Source: Bloomberg
speculative money. In fact, in many cases just the opposite is true: those
fortunate enough to be long have been anxious to book profits as soon as Today’s Market Data (expectations in brackets)
a little weakness is seen. Why is the average investor so scared? Look CA Leading Indicators, Sept (0.2%) 8:30am
towards another part of the brain, the hippocampus, for your answer. This part US Initial Jobless Claims, weekly (455k) 8:30am
of the brain is seen as critical in the formation of long-term memories, and the US Leading Indicators, Sept (0.3%) 10:00am
recent vicious recession and market meltdown of 2008 has been carved into US Philadelphia Fed Index, Oct (1.9) 10:00am
our hippocampus, so investment paralysis has become a permanent part of
EIA Natural Gas Inventories, weekly (88bcf) 10:30am
the investment landscape.
 Futures Market Snapshot
10/21/10 7:58 AM
Product Month Last Price Net Change Product Month Last Price Net Change
Currencies Precious Metals
Australian dollar DEC 10 98.07 +0.09 Gold DEC 10 1345.30 +1.10
British pound DEC 10 157.40 -1.08 Silver DEC 10 23.915 +0.05
Canadian dollar DEC 10 97.87 +0.19 Platinum JAN 11 1684.40 -2.90
Euro currency DEC 10 1.401 0.0061 Palladium DEC 10 593.40 +2.75
Japanese yen DEC 10 123.42 +0.17 Base Metals
Swiss franc DEC 10 103.98 +0.08 Aluminum LME 3m 2393.00 +31.00
Mexican peso DEC 10 8.063 +0.040 Copper LME 3m 8405.00 +65.00
New Zealand dollar DEC 10 74.900 -0.270 Nickel LME 3m 23,900 -45
US Dollar Index DEC 10 77.22 -0.19 Lead LME 3m 2502.00 +52.00
Stock Indices Tin LME 3m 26,953 +203
Mini SP 500 DEC 10 1180.50 +5.75 Zinc LME 3m 2492.00 +52.00
Mini Nasdaq 100 DEC 10 2099 15.25 Energies
Dow Jones DEC 10 11115 52 Crude Oil DEC 10 82.27 -0.27
S&P/TSX 60 DEC 10 730.3 2.1 Natural Gas NOV 10 3.534 -0.005
Nikkei 225 DEC 10 9420 50 RBOB Gasoline NOV 10 208.41 +0.15
FTSE 100 DEC 10 5752 45.5 Heating Oil NOV 10 224.97 -0.51
CAC 40 NOV 10 3846.5 35 Agricultural
DAX DEC 10 6591.00 +54.00 Soybeans JAN 11 1231.00 +7.25
Interest Rates Corn DEC 10 576.00 +2.50
30yr Bonds DEC 10 132.71875 +0.063 Wheat DEC 10 685.25 +2.25
10yr Notes DEC 10 126.91 -0.14 Soymeal DEC 10 338.6 +0.800
5yr Notes DEC 10 121.69 -0.09 Bean Oil DEC 10 48.80 +0.33
2yr Notes DEC 10 110 -0 Softs
CGBs DEC 10 127 -0 Sugar MAR 11 29.00 +0.19
JGBs DEC 10 143 2/4 -0 Cocoa DEC 10 2809 +32
UK Gilts DEC 10 124.77 +0.58 Coffee DEC 10 201 1/4 +4 2/4
Bunds DEC 10 129.81 -0.14 Orange Juice JAN 11 148 2/4 -2 1/4
Cotton DEC 10 117.46 +3.20
Lumber JAN 11 261 -2.20

This newsletter is not intended as nor does it constitute tax or legal advice. Readers should consult their own lawyer, accountant or other professional advisor when planning to implement
a strategy. This information is not investment advice and should be used only in conjunction with a discussion with your RBC Dominion Securities Inc. Investment Advisor. This will
ensure that your own circumstances have been considered properly and that action is taken on the latest available information. The strategies and advice in this newsletter are provided
for the general guidance and benefit of our clients. Readers should consult their own Investment Advisor when planning to implement a strategy. Interest rates, market conditions, special
offers, tax rulings, and other investment factors are subject to sometimes-rapid change. The information contained herein has been obtained from sources believed to be reliable at the
time obtained but neither RBC Dominion Securities Inc. nor its employees, agents, or information suppliers can guarantee its accuracy or completeness. This report is not and under no
circumstances is to be construed as an offer to sell or the solicitation of an offer to buy any securities. This report is furnished on the basis and understanding that neither RBC Dominion
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Inc. may from time to time include securities mentioned herein. RBC Dominion Securities Inc.* and Royal Bank of Canada are separate corporate entities which are affiliated. *Member
CIPF. Insurance products are offered through RBC DS Financial Services Inc., a subsidiary of RBC Dominion Securities Inc. When providing life insurance products, Investment Advisors
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