CTS Lesson 12: The Three Sisters.

The Story of the Three Sisters - Silver, Sugar and Soybeans

By Paul Brittain

In the commodity markets, many inter market relationships exist. Crude Oil, Gasoline, and Heating

Oil are an example, the same for the bean complex with Beans, Bean Oil, and Bean Meal all being

obviously related. The reason for the relationship is simple and easy to understand. They are all

comprised of a common ingredient .... the Mother commodity.

However, history has shown that there is many inter market relationships that are not as obvious.

The reason for the relationship may not be as clear and, like many legends, could be subject to

interpretation. Also, they are not necessarily as tight or as in sync as the aforementioned markets,

but nonetheless they do exist.

Earlier in my career, back in the 80’s, I was fortune enough to work along side what we now refer

to as an “Old School Trader.” The type of trader who would study not just the chart formations

when trading a market like Pork Bellies, he would also consider the current diets of the hogs as

well as something as benign as the farmer’s personal economic situation. Why? Hey, even though

the bellies may look bullish, the farmer might fold early and dump hogs faster because something

you cannot see on the charts. He needs the money.

Anyway, this “Old School Trader” told me a story of “The Three Sisters,” Soybeans, Silver and

Sugar. He explained that in times of coming inflation that these three products will lead the way

because of the way the world works. Before going any further, you need to understand that this is

not going to be some eloquent piece of writing, full of multi-syllable words that will leave you

wondering exactly what point I am trying to explain. This trader was extremely simplistic in his

trading approach and his theories; he was also one of the most consistently successful traders I

have ever witnessed in the last twenty-two years. He risked little and made money.

To understand this relationship, you first need to understand what causes inflation. This in itself is

an argument that will cause you to become bleary eyed and start pulling out your hair unless you

look at it in a simple way. Realistically, inflation is caused by “good times." In good times, people

have more money and buy more goods, which lifts demand. They eat better and buy stuff they

wouldn’t normally buy if they didn’t have extra cash, or rubles or euros or what ever they line their

pockets with. So, now that you know the secret cause of inflation we will proceed.

Soybeans are the world’s number one food source being the base ingredient of countless forms of

food for both humans and the animals we like to consume. During “good times,” the world will get

fatter regardless of what the current diet fad is. The bottom line is when the world has more

money, the first thing people do is eat better.

That brings in the second sister, Sugar. During "good times," the world is a sweeter place and

nothing, repeat nothing, sweetens like sugar. It is the number two-food stuff.

OK, so the relationship of the first two sisters is pretty easy to understand, they are both

consumable foods that are found as an ingredient in almost everything we eat. Now we move right

along to the third sister, Silver.

Silver is one of the few “precious metals” that is also consumed industrially. Unlike gold, which is

held and horded (they say that Cleopatra’s gold is still in existence) silver is used in industry, which

takes millions of ounces off the market annually, never to be seen again in its original form. Its

price, compared to gold, is relatively cheap. Trading at 40 times less than gold gives it the

reputation of being the “poor man’s gold.”

During “good times,” the world sees economic expansion. What were once referred to as third

world countries come into their own, whether it is because of their natural resources or

technological advances or for something as simple as a source of cheap labor. Economic

Expansion entices those who used to be known as the “have-nots” to want what they have never

had. Think of the old “two cars in every garage and a chicken in every pot” speech.

Think of the millions of people in a country like China who are tired of riding a bicycle and a diet of

rice. They will soon be driving in their car (that’s computerized system contains silver) to

McDonald’s for a cheeseburger (made from a cow who ate soybeans) and a Coke (sugar, a lot of

sugar).

"Realistically

inflation is caused

by “good times”, in

good times people

have more money

and buy more

goods, which lifts

demand"

"Inter market

relationships exist.

Crude Oil, Gasoline,

and Heating Oil are

an example, the

same for the bean

complex with Beans,

Bean Oil, and Bean

Meal all being

obviously

related...comprised

of a common

ingredient...the

Mother commodity."

Futures Traders Helping Future Traders