| What a bad week in the commodities.
The economic news keeps feeding a significant amount of future pessimism
relative to the U.S. stock markets. By selling off as dramatically
as they have, the stock markets have really priced in an extreme amount
of additional negative economic news. On Thursday, the S & P
500 dropped to levels not seen since 1997; obviously dropping below the
2003 lows around 767. However, the Dow Jones did not and has not
yet dropped below the 2003 lows. In fact, since October 21; the S
& P 500 is now down 167 points and the Dow Jones is down 988 points.
I would think that this sell off, seen in the past 30 days, has really
been way over done as the economy has not deteriorated over the past 30
days so much that it would justify these kinds of significant sell offs
in the stock markets. I believe what you are seeing in the stock
market is fear and panic. Remember, futures markets always seem to
swing higher and lower than they need to; and we are seeing them swing
much lower than they should (including grains, cattle and energy).
However, the fundamental interpretation is that with a deteriorating stock
market, so goes the economy, which is perceived to translate into significantly
reduced commodity demand, leading to lower commodity prices. However,
in my opinion, this extreme pessimism over demand deterioration has been
blown way out of proportion and seems to mimic more fear and panic than
anything else. You have to remember, if you want to buy futures or
purchase call options for any reason; it is always cheaper to buy them
on down days and not up days. On up days, you are always chasing
the market and end up not getting in where you wanted or paying more for
the long position. The reverse is true for the desire to sell futures
or purchasing put options. I’d say these agricultural markets are
providing wonderful opportunities to get long; and it is my preference
to do so by purchasing call options as opposed to buying futures.
It may be time to begin getting long the stock markets as well. They
always say: when no one wants to buy, that is when you buy; when
everyone is walking you should run; and, what the mass majority does, you
should do opposite.
Friday’s agricultural markets were
a victim of the normal “closing at 1 PM and prior to nearly all other markets”.
The stock market was really not trading much differently until about 2
PM CST. At this time, President Elect Obama announced his choice
for Secretary of the Treasury. That choice is the President of the
New York Federal Reserve, 47-year old, Tim Geithner. This caused
a dramatic rally in the stock market resulting in a close for the Dow Jones
that was up nearly 500 points and up nearly 50 points in the S & P
500. However, the agricultural markets were already closed and could
not react. Also, the U.S. Dollar traded in a fair range today until
late in the day, when it sold of sharply and ended down nearly 80 points
at 87.13, still up 34 points for the week. Mr. Geithner is apparently
well respected by many on Wall Street and in Washington and is believed
to be a very good choice. Furthermore, and according to NBC News,
New Mexico Governor, Bill Richardson will be Obama’s Secretary of Commerce.
So it appears that President Elect Obama’s Cabinet is beginning to take
shape. This may help alleviate a lot of unsure feelings towards the
economy and the stock market and may help to stave off further significant
sell offs in the stock markets. But, what about the agricultural
markets?
Unfortunately, the agricultural markets
are being treated as a whipping post by institutional investors.
Commodity liquidation continues in the agricultural markets; as it is a
source of cash for anticipated investing customer requests for withdrawing
of funds. Additionally, there are many analysts out there now, anticipating
the sell off of the U.S. Dollar. This could really light a fire under
the agricultural commodity markets. However, remember that generally
a stock market turns and begins to show signs of improving well before
the actual economy does; thus the economy will probably continue to wallow
around in it’s recession pool for some time yet. This will most likely
keep the equity markets from getting to carried away with rallies; and
simultaneously will limit any rallies in commodity markets unless the dollar
begins to sell off.
--- Mike S.
Traffas |
