Time for Maxine Waters to trot out hearings with the heads of all the US Oil companies and start making recommendations to follow Chavez and nationalize the oil business here in the US.. OH MY GOD, I am kidding for all you people out there who don’t get sarcasm…. As we head back up to 100 dollar a barrel oil, it will drag the rest of the commodities with it, as we saw today.
Even in the face of index fund selling in corn and wheat, while buying beans, the markets absorbed it and rallied in spite of it..
I warned about this that traders trying to profit from the index fund re-allocation might get their noses smacked by a rolled up newspaper like a puppy being house trained..
In the end, the bulls trampled and trumped all bearishness today, with Nov Beans flirting with the ten dollar mark settling up a healthy 18 3/4 cent at 997 1/2, Dec Corn up 14 1/4 cents at 386, and Dec Wheat cutting through the 500 mark like warm butter, settling up 19 cents at 515, while posting a high at 523, very close to the option strike price at 525… Not a co incidence…
There were more stories about delayed harvest, too high a moisture content in corn, delayed harvest in beans which will spill over into planting delays, etc. etc. etc..
The gasoline to this fire of bullishness was crude oil cracking the 80 dollar level, with a high at 80.40 and settling at 80.26…
Like I said in my opening sentence, it won’t take long for congressmen and such to start attacking oil companies and ‘big speculators’ as the driving force behind this run up of greed.. No one, unfortunately will make the Econ 101 connection that its fueled by a dollar which is rapidly becoming the currency the whole world loves to hate…
That couldn’t have any thing to do with the fact that we have been forced to flood the country with dollars, which still hasn’t eased credit, because the banks are still too soggy and scared to take lending risks…
Like reformed Alcholics on the wagon, They have visions of them selves 3 years ago doing their best impersonation of ‘yellow belly tap sucker’ drinking as much of the fun stuff as they could in a race to jack up their profits, quarter by quarter… Now in the aftermath of the sub prime debacle, they are so reformed that even though the economy is awash in dollars, the banks are suddenly prudish about lending standards… 4 years ago, they were partying with all ships hands and the cook to boot, in an orgy of lending… Now they have re-claimed their virginity, and will only party with 80 year olds who don’t have access to Viagra… Only the safest of players will do….
Fast forward to the possibility that the inflation hawks will be able to pressure the Fed into a rate hike to defend the dollar, and you have, in my humble opinion, the recipe for truly the ‘other shoe to drop’…
As a country, we have to take stock and look at what is the one thing we are better at than anyone else now in history? It would have to be 1) growing food, 2) making movies to entertain ourselves…
We are all waiting with baited breath that the new ‘Green Economy’ will be our saviour, hoping and looking for the next revolution which will catapult the US back into the drivers’ seat of growth engine for not only our 350M people, but will be a force to make the rest of the world’s 5Billion Plus inhabitants still look to us as the dynamic force we were for the last 70 years…
The one thing we have that can’t be outsourced to Asia is our ability to produce food… Higher commodity prices, in fact much higher commodity prices should be on the horizon over the next several years, because, as much as the rest of the world may not like us, they all like to eat, and therefore, will come to our shores for what we can give them that no other country can…
Not only beans are cheap but rice as well… What other commodity, can be sold in 50lb bags which will sustain, not lavishly, but sustain a family for relatively so little.. Throw in the fact that that the dollar is worth less in foreign currency, and we have a blue light Kmart shopper special in the form of our crops… American commodities are on sale, and the rest of the world will recognize that… the invisible hand of supply and demand will tip the scales and we will have higher prices. Period.. I can’t see any other scenario on the horizon…
Will there be fits and starts and gnashing of teeth from longs who mis-time their purchases? Absolutely, But Over all, I think major dips in prices are major opportunities to benefit from a trend which will last until we start Jacking up interest rates and making the dollar stronger relative to the rest of the world’s currencies..
Until that day, I think commodities, and I would argue even US companies, via the us indexes, will also benefit…Inflation will lift the price of everything.. Could you envision paying 5 or 6 bucks for a gallon of milk where today its 2 bucks? Why not.. And if your house re-inflated in ‘value’ from 200 to 800K, well, then, it would all be relative, and we’d be spending ten bucks for a value meal at BK instead of 3….
Just food for thought…
As far as the trade goes, this is not a train you want to step in front of unless you are Superman.. Tuesday could be turn around Tuesday… We could see a pullback which will be a buying opportunity… That being said, these markets will correct just enough to punish all the weak longs… We still have gaps below these grain markets to go and fill… They are looming out there, and we could slingshot down there quicker than ice on ice…
With the indexes, I think if we get through October with out Ted Koppel standing in front of the statue of the bear on Wall St. in NYC,, then there will most likely be a rush to catch up through the end or the year and end of the quarter…
Money on the sidelines may just come pouring in as the last of the Barron’s perma bears throw in the towel and buy common stock again… At that point, we may find out what the term “bearish correction” really means…
Good Trading..