One measure of the size of monetary stimulus is the expansion of M3, a broad measure of the money supply that includes institutional money funds. Capital Economics calculates that M3 is up 15% from a year ago, the biggest increase in 37 years.Source: Businessweek, "The Fed's Revolution," March 20, 2008
Having embarked on this course, Bernanke has no way to head off the next boom-bust cycle.
Saturday, March 22, 2008
Friday, March 21, 2008
Interesting article in Bloomberg that suggests the Fed likely overstepped the law:
Fed Bypasses Emergency-Loan Policy on Rate for Securities Firms
This has ominous potential ramifications when we consider that the Fed has probably expanded its own regulatory powers beyond those enumerated in the Act that created it. If we allow government (or quasi-government, as the Fed is) to expand its powers without check based upon the idea that a panic or crisis validates it, freedom will progressively wane and America will one day awaken, only to find out that it, like Rip Van Winkle, has awakened in a different world than it thought -- one of tyranny, but in the "land of the free".
Thursday, March 20, 2008
Since corn and soybeans were both limit down overnight, I didn't take any additional trades today. I remain short soybeans, having reduced my position for the three-day Easter weekend.
The grain futures markets are closed tomorrow for Good Friday.
Wednesday, March 19, 2008
This underscores the fact that small individual traders like me have distinct advantages over large funds. They have the disadvantage of the Law of Large Numbers. I am much more nimble and able to enter and exit the markets quickly.
- Price close below the 8-period EMA, and
- The Klinger Volume indicator is red and below its yellow Moving Average
Here is a link to Jack's daily currency newsletter:
Tuesday, March 18, 2008
Here are two web sites for excellent news. The first is a general news site, but I have the link set up to automatically search for commodity-related news. This British website constantly crawls the Internet checking thousands of news sites for developing news on many topics. I frequently check this website for news related to my preferred futures trading instruments.
This second website is for the magazine Farm Futures. It has agriculture-related updates several times each day, and registration for the website is free.
Check out the great update today on this website for corn and soybean plantings, as well as long-term forecasts for the upcoming harvest season, current weather for the farm belt, and prospects for continued price strength for both corn and soybeans. Interesting article!
Except the Fed, of course!
What does it say about us that there was a run on Bear Stearns over the past few days, and the stock market shot higher? Do the words, "irrational exuberance" come to mind?
Richard Nixon declared the above headline, and I suppose he was right. Consider these facts:
- Economic stimulus of $160 billion to be sent to Main Street around May 1. Has anyone ever even talked about how this is to be paid for? No. The answer is that we'll borrow it.
- Fed economic rescues for Wall Street -- $800 billion, of which $400 billion has already been spent. Never mind that most of the Wall Street firms being assisted aren't even members of the Federal Reserve Bank system, nor have they paid FDIC deposit insurance. It doesn't matter any more, now that the Fed can create money "electronically" (Ben Bernanke's word). Even more remarkable considering that many of these Wall Street executives were paid more than $250 million each last year while their investors lost money!
Fed Fund futures are pricing in a 100 basis point interest rate cut this afternoon when the FOMC meets.
Question: How many times in the 95 year history of the Fed has the FOMC cut by 100 basis points?
"It is a wise rule and should be fundamental in a government disposed to cherish its credit, and at the same time to restrain the use of it within the limits of its faculties" -- Thomas Jefferson (letter to John Wayles Eppes, 24 June 1813) Reference: Jefferson Writings, Peterson, ed., 1280)
PPI and Inflation
Monday, March 17, 2008
However, I am hearing traders say that they will buy the dips in commodities. After such a dramatic rise in commodity prices over the past two months, I anticipate more of a consolidation than a bear market. Historically, prices following a strong bull market tend to consolidate in the near term rather than reverse. Following a consolidation period, either a bull or bear market can occur, although I believe a new bull (following an earlier bull) has a higher statistical frequency, from my experience.
Intra-day Soybean Chart
Daily Soybean Chart
Soybean futures appear to be the favorite grain of traders for the time being, even though prices overnight have straddled the flat line of Friday's settlement price. Trading this chart could be very profitable, given the smooth, sine wave pattern that is seen on these charts. However, taking the trade overnight also carries higher risks because the bid/ask spread is significantly wider. I usually don't trade overnight, because the risk is higher, volume tends to be lower, and profits are more spotty.
The Chicago Mercantile Exchange reports this morning pre-market that much of the activity is due to the Bear Sterns saga and net fund long liquidation, so further softening of soybean prices may be in the offing during the day session. This would be especially true if oil and gold prices continue to soften.
In a fascinating science article related to the health benefits of soybeans, a recent study is indicating that eating soybeans may impede the growth of prostate cancer. Eat your soybeans, men!
Here is the article:
Soybean, Male Sex and Cancer
Volume for wheat has been weak overnight, with the price moving modestly higher.
This entire development has created a sense of uncertainty that has dropped the Dow Index futures by as much as 250+ points. However, the Dow has recovered from deeper dips than this before, so anything could happen in the day session.
The typical "flight-to-safety" phenomenon of buying treasuries is also evident this morning. This is also remarkable given the extremely poor return (lower than inflation) of treasuries. Gold also has now sunk well off its overnight record high of $1033/ounce to close to its Friday futures settlement price.
Sunday, March 16, 2008
US Dollar Chart, evening of Sunday, March 16, 2008
Crude Oil Chart, evening of Sunday, March 16, 2008
Crude oil has once again hit another all-time high price tonight of $111.40, while the US Dollar Index has set a new all-time low at $71.30. The closing price of crude oil on Friday is so far off this chart (I marked it with a blue line, just as the price of gold was marked on my next posting), it literally doesn't even show up on this chart! All three of the following articles indicate that the US Dollar and the price of crude oil are directly and inversely related (as if we need to be told -- just look at the above charts for the two Sunday evening). This should be no surprise, since crude oil futures contracts globally are linked to the US Dollar. The lower the US Dollar goes, the more of them it will require to buy one barrel of crude oil. Time to write the Congressmen, America! The Fed is trying to inflate its way out of a sinking economic crisis!
Oil Prices Hit All-Time High
Oil Rises to New Record As Dollar Drops
Oil Rises to Record As Investors Buy Commodities on Dollar Drop
Here is another very interesting article that suggests that higher inflation and the tanking stock market in the United States are directly linked. The author makes a good argument that the companies whose earnings are being hurt by Fed rate cuts are the ones that are being delivered a knock-out blow by the tanking US Dollar and rocketing commodity prices, which, or course, are the direct result of the Fed's rate cuts. In other words, the Fed rate cuts are literally feeding a downward spiral. Interesting analysis!
Will Further Fed Cuts Exacerbate the Problem?