Friday, July 25, 2008
volume: 1,111,266 (more than 10X the volume of USA)
Open Int: 544,948 (more than double the OI of USA)
Corn Jan 09
volume: 189,000 (greater than the USA)
Open Int: 352,364
On the Chicago Mercantile Exchange
Soybeans Nov 08
Open Int: 251,580
Corn Dec 08
Thursday, July 24, 2008
The bear market rally appears to have now fizzled. The latest government bail-out appears to have fallen on ill favor with global investors. It lasted less than 10 days. Today's stock dump is more of a measure of the true sentiment in the financial markets. While poor existing home sales data is being attributed for this decline, the fact is that the stock charts were in free fall 30 minutes earlier than the home data was released. The bear market continues.
BP Losing 23% of Production as Russians Assail Investment
These sorts of crippling problems are almost certain to increase the cost of oil going forward.
Wednesday, July 23, 2008
This is the best article I've read on the subject of commodity price inflation and the role of speculators. The facts debunk the myths and errors.
Congress Blames Index Speculators
Read it. Become informed!
Yes, that's not a misprint. It's trillions -- with a "t"! Here is the quote from Fisher's speech a few days ago:
Richard Fisher is the somewhat hawkish governor of the Dallas Federal Reserve Bank. He said, "speaking solely in my own capacity," (in other words, he wasn't speaking as an official voice for his fellow Fed governors) that "the unfunded liabilities from Medicare and Social Security... comes to $99.2 trillion over the infinite horizon. " As if that figure isn't staggering enough, he continues:
This comes to $1.3 million per family of four - over 25 times the average household's income....No combination of tax hikes and spending cuts, though, will change the total borne by current and future generations....We know from centuries of evidence in countless economies, from ancient Rome to today's Zimbabwe, that running the printing press to pay off today's bills leads to much worse problems later on. The inflation that results from the flood of money into the economy turns out to be far worse than the fiscal pain those countries hoped to avoid.
Commodities always go through boom and bust cycles, and this one is no different than the previous ones. This overnight chart for corn speaks volumes. Corn prices have now broken through previous support at around $6.10/bushel. The charts for soybeans and wheat were similar.
Here is the daily one:
Tuesday, July 22, 2008
What a nice rally in the last hour of the stock market today. This has to be somewhat of a relief, especially given the less-than-stellar earnings reports. However, faltering demand for crude oil is finally offering some relief to bulls over these past few trading sessions.
The CFTC today released the results of the data it had collected on the underlying causes of this year's rise in commodity prices. The result? Supply and demand are the causes of commodity prices. Duh!
Several food manufacturers, including Kraft and Sara Lee, in the past few days have announced that they will push through higher prices within the next few months, due to higher commodity prices and other input costs. How much of a price increase? They say about 20%. That's a hefty increase! That doesn't help the inflation picture at all!
Personally, I am glad to see the price of crude oil plunge, because I know that it will tighten the economic noose on tyrants like Mahmoud Ahmadinejad of Iran and Hugo Chavez of Venezuela. A crude oil market collapse could be just what's needed to bring these guys to their knees. Chavez has so devastated the economic vitality of Venezuela that he has resorted to begging from the very groups that he targeted so brutally with his confiscations and price controls. Good riddance to the Castro of the Continent in South America. The sooner, the better.
The rough surf should not impact U.S. oil and natural gas operations, since the majority of the offshore oil platforms are in the central Gulf.
Monday, July 21, 2008
Decoupling is bunk, pure and simple!
Late breaking earnings reports, including Apple, have caused the Dow futures to plunge 100 points in the past half hour. Those are after-the-close prices plunging on that chart! Apple's future earnings forecasts show signs of being wormy. Even though Apple beat estimates, the forecast shows surprising weakness and the stock price has weakened. SanDisk, Texas Instrument, and Schering-Plough have also disappointed analyst estimates. So much for the safety of tech sector stocks!
American Express is also weak. No good news for any of these stocks this evening.
The Dalian Commodity Exchange already offers futures volume levels for many agricultural commodities, including corn and soybeans, that rival the U.S. Exchanges. The DCE already has volume levels of soybean futures contracts that exceeds the Chicago Mercantile Exchange. According to data on the DCE's website, the DCE offers corn futures volumes that are about 2/3 of the current volume on the CME. The Open Interest on the DCE for corn is already over 400,000, and the volume is growing by 95% (nearly doubling) each year!
The Dubai Gold and Commodity Exchange is still very small with low volume. However, the nature of Dubai as the emerging capitol of the financial markets in the Middle East is bound to attract greater and greater capital, especially from the immensely wealthy beneficiaries of the limitless spigot of oil money in that part of the world. Dubai is determined to become one of the world's financial capitals, and all the fundamentals point toward success for them.
In addition to the effect on the Dollar, Congress should shudder to think that by shutting down the free futures markets, they could literally hasten the day when the US Dollar is no longer the world's primary reserve currency. This would have catastrophic ripple effects world-wide, as the Dollar evolves from the world's primary currency to perhaps the world's pariah currency instead. As investors and governments begin to shun not only the Dollar currency, but also Dollar-denominated debt (especially treasuries), interest rates will inevitably be forced to rise, shutting down credit and mortgage markets, and reducing consumer-driven purchases.
Lastly, Congressional impositions on the commodity markets may also result in the commodities themselves flowing out of the United States and into other countries more willing to pay the market price for them. This may cause shortages of those commodities in the United States, as those commodities are siphoned to those places where the capital is available and the citizens are willing to pay more competitive prices for them. One way or another, the markets eventually punish those who try to restrict them.
The 600 point stock market rally last week was almost certainly created by SEC Chairman Cox's announcement that the naked short rule would be "imposed" beginning today. It is generally agreed that the rally was due more to short covering than a perceived buying opportunity. However, if naked short selling was already illegal, then why would Chairman Cox need to create such hubbub over it? If there was no real change in government policy, then why would the SEC say anything at all? How could they impose an already-existing law? Doesn't that seem a little absurd?
I don't buy it. Sorry, guys! I just don't buy it!
Daily Chart Still Bearish
Intraday Shows Signs of Buying
Respectable earnings results for Bank of America pre-market this morning has given stock index futures a solid foundation to move higher. However, enthusiasm appears dampened somewhat this morning because crude oil has recovered about $3/barrel.