Saturday, February 21, 2009

Grains Can't Get a Foothold

From Farm Futures' Arlan Suderman:

Gold topped $1,000 per ounce today as investors rushed to the safety of the precious metals markets. It’s the first time that gold topped the mark since March of 2008, but the buying shows few signs of slowing at this point. Traders are increasingly wary of the financial markets, with the Dow Jones Industrial Average falling to fresh six-year lows today and threatening the October 2002 low of 7,197.

Some of that money could eventually move into the food-grade commodities, but not until they have a compelling case. Investors are less interested in investing in the possible bullish story and are more interested in the “sure thing” during this point of uncertainty. We moved a step closer to that bullish story with today’s USDA’s export sales report, but traders will likely need to see stronger dynamics.

Today’s trading was reminiscent of what we saw through much of last 2008, with grain prices following the DJIA almost tick for tick at times. Fundamentals go out the window when fear takes over and there’s plenty of fear in the financial markets right now. We shouldn’t see the scope of liquidation that we experienced last fall, as the majority of the fund money was flushed out of the market at that point. However, it would be wise to know how much downside risk you can afford and take steps via put options or minimum price contracts to limit that exposure until the financial markets stabilize again. You have to manage as if anything is possible in this emotionally driven environment.
Read the entire grain market closing commentary here.

This statement appears to sum up the financial markets quite well. It was suggestive of the state of the financial markets that, despite a "bullish story", grain and other futures prices remain weak because of the bearish macro environment.

Friday, February 20, 2009

White House-Led Rally Reassures Markets

After Senator Chris Dodd suggested that nationalization of U.S. banks was almost inevitable, the White House reassured the financial markets by suggesting that they were opposed to such an idea.

A fellow trader pointed out to me, however, that the White House only suggested that only the banking "system" would remain in private hands. He said that the subsequent lower close occurred when market participants began to parse the White House' words and realized that individual banks may still be nationalized. Stocks closed lower as a result.

Sinking, Stinking Stocks

After breaking through support and closing below the November '08 lows yesterday, stock futures have continued to sink still lower over night. The Dow is down triple digits leading into today's stock market open.

Gold -- A Hair's Breadth from $1000

Gold continues to rise, and the futures are now priced just short of $1000/oz.

Thursday, February 19, 2009

New Bear Market Closing Low for Dow

From the Wall Street Journal:

The Dow Jones Industrial Average set a new bear-market closing low, as the financial sector continued to decline and investors found little impetus to buy in a flurry of economic data.

The Dow Jones Industrial Average dropped 89.68 points, or 1.2%, to close at 7465.95. The blue-chip benchmark had flirted all week with its five-and-half-year closing low of 7552.29, set on Nov. 20. Thursday, the Dow briefly dipped under its five-and-a-half-year intraday low of 7449.38 of Nov. 21.

Here is the full article.

Perspective on Today's Positive LEI News

Marketwatch has the following article on why today's positive LEI was a head fake:

The LEI is a useful tool, but right now it's flashing a false sign of hope. The indicators that track the real economy are still falling, while most of the indicators that track the financial system are improving.
Despite what the indicators say, no one believes the financial system is actually improving in any meaningful way. Most of the improvement in the LEI in the past two months has been due to the massive expansion of the money supply engineered by the Federal Reserve. It's been rising at an 18% annual rate...
The LEI is an index of hope, not reality.

And I thought we had some good news today!

Another Last-Hour Selloff?

During Pres. Obama's speech, the stock market has begun a fresh round of selling, reaching new lows for the day. Will this be another last-hour selling frenzy, or just another hiccup in a very tight range today?

Treasuries Plunge Again

Treasuries have traded in a consolidation pattern and tight range the past few days, but today, treasuries have sold off once again.

Everyone Should View This Video

I saw this live on CNBC this morning, and was cheering -- and laughing -- right along with the floor traders as this reporter responded to the anchor's questions. Since it occurred, it has been sending a tsunami of rippling waves across the internet. Everyone should view this video. It is not only very entertaining, but has some good nuggets of truth in it! It is less than 5 minutes long. God bless Rick Santelli, the floor reporter in this video clip!

CNBC has no video link to permit me to play it here on this same page, so you'll have to follow the link to their website. Well worth it! It is at once funny, entertaining, and enlightening!

Cheering and Booing Traders Expressing Discontent With Foreclosure Bailout!

Crude Oil Takes Off on Lower-Than-Expected Inventory Data

Some Good News -- Leading Indicators Looking Better

From Bloomberg:

The index of leading U.S. economic indicators rose more than expected in January, led by a jump in money supply that masked continued deterioration elsewhere in the economy.

The Conference Board’s gauge rose 0.4 percent, the most since December 2006, after a revised 0.2 percent increase this past December, the New York-based group said today. The index is designed to show the likely direction of the economy over the next three to six months.

Read the rest of the story here.

Treasuries Show Good Trading Activity

The daily chart (not shown) for treasuries shows a consolidation, but this intra-day chart show good volatility! With the resurgence of inflation concerns today, this was to be expected!

Dead Day for Stocks -- So Far!

Crude Crumbles Leading Up to Government Report

This is interesting, because with the EIA report out in a few minutes, anything could happen when it is released.

Inflation Surprise! PPI Jumps Higher by 0.8%, 0.4% Core!

PPI has jumped unexpectedly higher today. Only 0.1% increase was expected. We must keep in mind that this figure is for a single month, so I often will multiply the PPI or CPI reported figure by 12 to obtain a realistic expected of an annual inflation rate. This PPI figure will reignite concerns that the Fed is starting to fuel inflation. This is very significant. It also suggests that in the future, hard assets will be the investment of choice. Wow! This is a big surprise! Gold is beginning to take off again!

Stocks: Who's in the Driver's Seat?

Stock futures appeared to be poised for a rally today, with Dow futures overnight moving higher by about 80 points. Now, however, stock futures have given up most of their gains, which may suggest another sideways day. Moments from now, we will get PPI and jobless claims data, which may set the mood for the opening bell of the stock exchanges.

Wednesday, February 18, 2009

Stocks -- Dead Flat!

Gold Continues It's Ascendancy Toward $1000/Oz.

$988.50 on the April '09 contract. What does this say about Fed Chairman Bernanke's refusal to acknowledge inflation in the future? The Fed has no cred.

Obama and Bernanke Send Gold Higher

Treasuries Collapse

Nice trade! Interest rates are rising!

Stocks - Back to Black

Obama Forclosure Plan Injects Volatility Into Stock Markets

We are seeing some wild swing in stocks today due to the announcement this morning of President Obama's plan to prevent home foreclosures.

Stocks Turn Red Again

Lengthy Jim Rogers Interview in 5 Parts

This is nearly an hour-long interview, but shows Jim Rogers discussing many different aspects of economics. Fascinating!

We Need MORE Speculators in the Commodities Markets, Not Less!

The following is my reply to a few posters in a financial forum regarding speculative traders in the commodities markets:

Last year, the CFTC completed a major study of futures exchanges and commodities and found the following:

1) Speculative positions were LOWER in 2008 than in 2006 as a percentage of the total Open Interest. The presence and influence of speculators was LOWER in 2008, not higher! Since speculators are usually the first ones to see overbought prices, and thus SHORT the market, their sparse presence was likely one of the reasons why hedgers drove prices to such extreme levels. It was the ABSENCE of speculators that drove prices higher, NOT their presence!
2) Speculative positions in commodities were EVENLY divided between longs and shorts. How could speculative traders drive prices higher if they were evenly split between longs and shorts? Impossible! In fact, that's the way it is designed. Speculators, by design MUST reverse their positions to exit their trades. Only hedgers can take a long position and ride it all the way to delivery. Forcing speculators to take delivery would make this WORSE because there would be fewer and fewer off-setting short trades! Hedgers who were taking delivery represented the vast majority of LONG positions.
3) Speculators represented only 16-18% of the total Open Interest, depending upon the individual commodity involved. It would be impossible for such a small minority to control or manipulate prices.
4) NON-exchange traded commodities prices rose HIGHER, FASTER than the exchange-traded commodities. The existence of speculators in the commodity futures had the influence of DAMPENING and SUPPRESSING prices, NOT driving them higher. The larger and more liquid a market is, the better. More liquidity protects all market participants from manipulation by the few, the powerful, and the BIG. (Remember the Hunt Bros. manipulation of silver markets, until enough participants entered to crush prices.) Fewer participants reduces liquidity and makes it easier for the Blue Whales in the market to throw their weight around.
5) As more and more pension funds (CALPERS, for example) and ETFs have begun to SHORT commodities, this has the effect of adding more liquidity and keeping prices in check!

In the fervor of anti-free-market diatribes, the main stream news media has erroneously tried to paint traders as the villains in this crisis. They are an easy and defenseless target for populist sentiment. The main stream media has consistently been pro-socialism and anti-freedom. Listening to their tirades against freedom should only increase our fervor to protect these markets that have functioned extremely well.

Seeing the futures exchanges collapse would return us to the pre-futures era, when prices fluctuated to such extremes that many commodities would be worthless at times, and at other times, prices would be so sky-high that the shortages made them IMPOSSIBLE to obtain. This made supplies lower and prices higher because the providers/growers of the commodities couldn't count on prices that would provide them with a fair return on their investments. Despite last year's price extremes, that was NOTHING compared to the wild price swings that dominated commodities markets before the futures exchanges smoothed them out.

Be careful what you wish for. Things will be much WORSE... if you get it! You can look forward to long lines at the gas pump IF gas is available at all, and shortages of basic staples in the grocery stores. And in all cases, prices would absolutely be MUCH higher because there would be fewer supplies. No one wants that!

Tuesday, February 17, 2009

Marc Faber on Global Finance and Economics

This is a lengthy radio interview. Ignore the video. Marc Faber is an investment analyst and entrepreneur with a Phd. in economics graduating magna cum laude.

In this interview with Jim Puplava of the Financial Sense Network, Mark Faber talks about the impacts of many of the events unfolding right now in global finance. He answered many questions for me that have been haranguing my mind for the past few weeks and months. For example, he talks about how China will be impacted by this global financial crisis. He also talks about the consequences to the United States and the world of the current Fed policy of quantitative easing. This is a fascinating interview. It was so interesting, I kept backing it up to listen to various sections again. Not to be missed!

Jim Rogers On Dutch Television

This is a great interview! Ignore the interviewer, who introduces Jim in dutch. The interview itself is in English. It occurred Thursday, February 12th. Jim Rogers understands the essence or prosperity economics!

Grains Grope for Bottom

Along with many other financial markets, the grains have been in a downtrend for the past few days. Based upon today's trading, it doesn't appear that the bottom is near. This chart for soybean oil is symbolic for all the grains, including corn, the entire soybean complex, oats, rough rice, and wheat.

From Bryce Knorr of Farm Futures:

Traders return from a long weekend to confront much of the same bearishness they faced last week. Economic pressure around the globe continues to weigh on the grain market, with better weather in South America adding to the negative tone.

Gold -- Can You Say $975?

Consumer Retrenchment

From the Liscio Report:

What does this all mean? It suggests that the consumer retrenchment in this recession will be deep and long, and will probably continue into any recovery. The American consumer is no longer the world consumer of last resort, and that's an enormous change for both this country and the rest of the world to get used to.
It is changing world, and those countries that have built their economies on a foundation of exporting to other countries may find that it was a sandy foundation.

D-Day for Detroit

GM and Chrysler must submit their viability plans to Congress today. It is going to be a tough day for them, because negotiations between GM and the UAW broke down over the weekend. Personally, I am convinced that a bankruptcy is inevitable and that a reorganization is a necessity. They will live again, but only if they cut the apron strings to Washington and begin the needed steps of freeing themselves from the ties that bind them to the mistakes of the past.

Stocks -- Holding on By the Skin of Their Teeth

Stock index futures are holding above the November lows by the skin of their teeth. Anything could happen between now and 4:00 pm EST. We have seen stout rallies before that closed the gap, or we could see a breakout lower. Anything could happen!

Gold Racing Towards $1000

Gold is above $970/oz. today on the April contract. It appears that $1000/oz. is a near certainty, especially with ever-growing concerns about the stability of major banks in the United States and Europe. Gold is real money!

Stocks - A Hair's Breadth From November Lows

Worry, worry, worry! Stock index futures are trading just a hair's breadth from last November's lows. Meanwhile gold futures have continued to rise, up about $30/oz. overnight. The dreadful news that some European governments won't be capable of bailing out the staggering losses of their banks, the ongoing fiscal crisis in California, GM possibly on the cusp of an inevitable bankruptcy, the downward trend of the Leading Economic Indicators, the continuing earnings dissapointments from corporate America, and the disappointment over the U.S. government stimulus bill, are weighing once again on stocks. So far today, the Dow has come within just 20 points of the November lows from last year.
When I look at the state of the financial markets this morning, the image springs to my mind of a movies in which the hero has fallen off a cliff, and at the last second before he or she plunges to death, the hero manages to grasp a bush on the edge of the cliff with just one hand. There dangles our hero with one hand hanging onto life as the rest of his or her body hangs over the cliff. That's where are financial markets are today. We live in interesting times!

Dollar Back in Favor As European Currencies Fall

With turmoil in Europe now appearing to be worse by the day, and even more so than in the United States, the Dollar is rising as the Euro and Sterling plunge new depths. We appear to be on the verge of a downside breakout for the Euro, just as the Pound collapsed several days ago. It is important to keep in mind, however, that the Dollar's relative strength is not due to fundamental improvement, but rather, to the perception that other currencies, and the countries that use them, are even weaker than the United States.

The Flight to Safety -- Gold!

Gold continues to set new records almost every day. We have now surpassed $960/oz. Despite this, the price of gold has now reached its upper trend line on the daily chart (not shown). Unless it breaks out much higher, we may see a pull-back or consolidation if the trend line holds as resistance.
Silver is also setting new records. What does this tell us about the market's confidence in the recently-passed "stimulus" bill?

Monday, February 16, 2009

Gold Rise Spurred By Economic Turmoil

Continued economic turmoil and uncertainty continue to provide fuel for gold to rise above $950/oz.

Stocks, Euro Drop in Evening Trading

Stocks continue to inch closer to the lows of last fall. Meanwhile, the Euro is dropping due to concerns that Europe's turmoil is worsening.


Earnings Will Continue to Worsen

Also from John Mauldin:

Last week I said that 2009 as-reported earnings estimates for the S&P 500 would be dropping. 2008 earnings had dropped to $29.57 as I wrote the letter. They are now down to $28.60. One of my favorite analysts is David Rosenberg of Merrill Lynch. His forecast for reported earnings for 2009 is now down to $28. That puts the P/E for the S&P 500 at 30.

He also projects "operating" earnings to be $55 for 2010. And, as he writes today:

"For those looking for a silver lining, at least we are going to have a deeper bottom to bounce off. Applying a classic recession-trough multiple of 12x against a forward EPS estimate of $55 would imply an ultimate low of 666 on the S&P 500, likely by October if our estimate of the timing for the end of the official downturn is accurate."

That is a 20% drop from today's close of 829. That is not what you will hear from "sell-side" managers who want you to invest in their mutual funds and long-only management programs.

I noted the problem with the rest of the world earlier. 40% of the earnings for the S&P 500 are from outside the US. It is hard to see how those earnings are not going to be deeply affected. Let me reiterate my continued warning: this is not a market you want to buy and hold from today's level. This is just far too precarious an economic and earnings environment.

Read the entire newsletter here.

Leading Economic Indicators Point Lower

From John Mauldin:

In the US, the leading economic indicators (LEI) continued to decline, but the leading indicators in the rest of the world were often much worse... These are results from the OECD's analysis of the leading economic indicators for a variety of countries. Notice in particular how poorly Russia and China are doing! Also remember that the LEI is about how the economy is expected to be doing in six months, not what is going on right now.
Did you catch the gist of that last sentence? He is saying the the leading indicators are suggesting that the economy will be worse in six months than it is today! Enough already!

Stock Futures Accelerate Downward, Treasuries Move Higher

Stocks are sinking fast today in low-volume holiday trading. Treasuries are rising as interest rates drop, but the rising treasuries are more a phenomenon of fear and seeking for safety rather than a willingness to accept low interest rates.


Jim Rogers on Geithner's Bank Bailout Plan

Jim Rogers on Where Commodities Are Headed and When

Jim Rogers Video on US Economy and Commodities

Jim Rogers has become legendary for his investing prowess and predictions of the commodity bull. He is considered to be one of the world's greatest gurus on commodity investing. He also discusses current economic policies and their potential impact on the economy and the consequences. Wow!

Sunday, February 15, 2009

What a Phenomenon! Everything Drops on Open, Then Goes Flat, Including Stocks

This is beginning to sound redundant, but all the charts I've posted this evening show this same phenomenon. The futures open much lower than Friday's close, but then go flat. Weird, huh?

Euro Plunges 100 Pips on Open...

but then goes flat! The daily chart, however, remains constrained within a very tight range.

Treasuries Open Higher, Slide Lower

This is an interesting chart because treasuries opened higher, then immediately started to fall, following last Friday's price action downward. We must keep in mind that this is a holiday weekend, and that trading will have reduced volume and constrained schedules. At the time of this writing, prices have found support at Friday's low, but support is still holding -- for now!

Natural Gas Drops to New Lows

My charts don't go back far enough to know how long ago natural gas reached prices this low. However, in evening trading, natural gas has declined to price lows that we haven't seen in recent history within the past few years. However, my March '09 contract charts show that the price of natural gas hasn't been this low since it began trading in April '04, so this is a historically-low price level.