Rally Falters, Sell-Off Resumes

The rally has faltered, and continued selling has resumed to end the week. Many traders, large and small are either taking profits or simply don't want to assume the risk of maintaining a position over the weekend. I wouldn't be at all surprised if buying resumes next week. Quite honestly, I see this as a very healthy correction. It is one that is needed, and it will provide for renewed buying and vigorous activity next week. As far as corrections are concerned, this one is relatively weak. I expect further buying and upside potential in the near future.

Is This the Rally?

Perhaps this is the rally toward the close that I was expecting. This chart shows soybeans, but the same is happening for corn.

Profit-Taking, Liquidation

Although the sell-off today has slackened somewhat, it is apparent that profit-taking and lightening up on positions is the order of the day going into the weekend. I still would not be surprised if there is a rally toward the close of the day, as day traders (who are short) exit their positions before the close of the day.

Grains Sink

Today, grains have opened with a sell-off across the board. I suspect that many of the index funds that drove prices higher earlier this week are selling today. Many won't want to hold positions over the weekend with the possibility that weather could affect prices while the markets are closed. I will also be alert to renewed buying, as funds may view prices at these lower levels as bargains.

Evening Trading

This is the content of an email to a fellow trader last night:

I have been trading somewhat in the evenings for the past week. Here are a few observations that I have concerning trading during the evening in my time zone (MST).

• I only trade until about 9 pm MST. After that, many traders on the East Coast have gone to bed. Liquidity dries up and activity drops off. It can become quite unreliable and high risk after that.
• The only trading instruments that show sufficient liquidity and tight enough spreads to trade in the evening are the 10-year treasuries, the S&P 500, Corn, (sometimes) soybeans, the Euro, the Aussie Dollar, and the Yen. The Yen and Aussie have active business days during our evening hours (Asia), so there is strong currency activity and good spreads to trade them. I always check soybeans before placing a trade during the evening to make sure that the spread is no more than 2 ticks. NO MORE! Otherwise, liquidity is poor and I won’t place a trade. Tonight, soybean trading was active and the spread was only 1 tick!
• I only trade the currency FUTURES, not Forex. Futures have tighter spreads than Forex at all hours of the day. The CME miraculously maintains tight spreads for currencies at all hours. Forex brokers make their money by widening the spreads. TS and CME make their money from charging a flat fee of only about $5-6 per round trip trade. If the spread is only 1 tick, you can break even at just 1 tick!
• I watch closely both the 3 minute and tick charts. I monitor very closely both of these charts side by side. Whichever one shows less market noise and looks cleaner, that’s the one I follow.
• I pay close attention to the Klinger Volume indicator and the EMA. I use a setting of 8 periods for the EMA, NOT the default. For the Klinger Volume indicator, I do NOT use the default settings either. I use the following settings, which give a much more accurate reading of market sentiment than the defaults:
  ATRLength: 10
  Trigger: 8
  SmoothATR: 2 (any other setting causes delay, and ruins the leading aspect of this indicator)
  Smooth: 1 (same as above)
• My entries and exits are when I get a close that crosses the EMA, and then the next candle following the one that crossed must also go at least one tick higher or lower than the high/low of the candle that crossed the EMA. The Klinger must also be moving in the same direction, and if prices have reversed from the previous trend, the Klinger indicator must cross over its MA also. If it is a reinforcement of an existing trend, then I only require the Klinger to be moving in the same direction and reasonably close to its MA (mine is yellow, but I don’t know if the Klinger MA – the trigger line – is yellow by default).
• If prices quickly cross the EMA BACK in the direction away from my position for a small loss, I assume that volatility has fallen and that volatility is too low to trade further. I then look for the conditions that Cahen lists in his book (6 periods of candles closing inside the BBands, flat BBands, T1, etc.) I usually won’t take another trade until the T1 conditions are met and volatility rises again.
• If I see a lot of market noise for one instrument, I just look at the others. Treasuries are extremely liquid at all hours, but unfortunately, they are quite sedate in evening trading until the Europeans wake up and start trading.
• Trading in Europe picks up and is extremely active and profitable at about 2 am MST. I think that is 3 am your time, but I’m not sure. Just in case you can’t sleep sometime. :)

The nice thing about evening trading is that it is much more leisurely, and you can take more time to be deliberate. A trade that might take 2-5 minutes during the day might take 20-40 in the evening.

Stay informed of your margin requirements regularly on the RJ Obrien website. Lately, margins have been updated 2-3 times each week. 6 months ago, they would only change about once every six weeks. Never max out your margin account. During these days of credit crises, it is better to maintain some extra liquidity rather than run the risk of a margin call or have your broker liquidate your positions against your will. I am expecting Congress and/or the Fed to step in and impose all sorts of new regulations and possible demands that may put small speculators like us out of business. The complaints about speculators in the business are getting louder and louder in Congress’ ears. (see my James Madison quote below).

"I believe there are more instances of the abridgement of freedom of the
people by gradual and silent encroachments by those in power than by
violent and sudden usurpations. ... The means of defense against foreign
danger historically have become the instruments of tyranny at home."
James Madison

Dollar Falls, Then Bounces Back

The US Dollar fell precipitously today, coming very close to its all-time lows, but later bounced back. This was probably the reason that both forms of gold (the metal and the black kind) dropped from their recent highs.

Stocks Flat

This chart shows an interesting phenomenon. Except for Fed interventions, stocks have generally ended flat to lower. After the Fed-induced rally of 400 points a few weeks ago, the last 8 consecutive trading sessions have ended nearly flat. Look at the blue box on this chart. It shows 8 consecutive doji candles for the past several days. the good news is that usually, when a doji doesn't lead to a reversal on the next candle, the existing trend is likely to continue. In this case, it is a hopeful sign for stock market bulls. The longer the pattern persists, however, the more likely is a reversal. Also interesting to note is that nearly all of the green (up) candles were days when the Fed intervened. But look what happened on the days following the green Fed intervention days! Ouch!

Needless to say, there is great indecision in the stock markets about the direction of the US economy.

Corn Too!

Sell-Off At Close

This is a rather predictable pattern. Just before the close of the market, day traders (like me) will liquidate their positions so that they can sleep nights. Others will liquidate if they are over-extended on their margin accounts so that they don't have to maintain higher margins overnight. I don't have this problem. However, it creates a typical sell-off at the close of the market. I take advantage of this by selling in the closing minutes and then liquidating my position within the last minute or two of trading. Soybeans came very close to reaching the limit up price again today, as it did yesterday. This closing sell-off can be extremely profitable. In this case, the price dropped 20 cents in just about 6 minutes, and it never slowed down! Apparently, the soybean bull is back and in full force!

It Gets UGLY!

Time to trade corn again. It is more subdued, reliable, and predictable!

Bulls 1, Bears 0

We Can Trade This!

By listening to the market and giving it what it wants, I can trade this! It is not easy! Anyone who tells you that it is easy, is a liar! They either have an agenda or want your money. But it can be done!

Philosophy and Why Funds Sell Just As Easily As They Buy

As I mentioned in my post yesterday, index funds will sell into the market just as readily as they will buy. In the futures markets, unlike stocks, selling is just as easy as buying. The direction is irrelevant to futures traders. Thus, when the market tells us that prices are overbought, we will sell, and do so just as profitably -- and quickly -- as when we buy. Why is it that they only complain about speculators when prices rise? They never complain when speculative sellers drive prices lower!

Financial Markets are Like the Seas of the Earth

I think of the financial markets as an immense ocean. As a trader, I'm just a tiny little guy in a rubber life raft bobbing up and down on the financial seas of the earth. My first priority is to simply survive financially to live another day. If I don't properly respect those seas, they will eat me alive! I will drown if I don't acknowledge the immense power they hold. They will humble me, unless I show them proper respect. The oceans of the earth could literally take my life. Likewise, the financial oceans of the earth have the same potential to take my financial life if I don't listen to them and give them what they want.

My job as a trader is to trade with the tides, surfs, waves, and currents of the seas, moving in tandem and in harmony with them. In his book, "Trading Chaos," Bill Williams says that our job as traders is to give the market what it wants. Too many traders try to tell the market what they want, and can't ever quite figure out why the market never gives them what they expect.

Imagine the consequences of a person in a life raft on the open seas, if that person tried to tell the ocean what they wanted. That person might jump out of the life raft and "swim for shore" -- even if it's 200 miles away through wind, fog, and rough seas. That person might try to ride a shark or hitch a ride with a whale. (Jonah's whale was a rare exception. His was a divinely-commissioned leviathan.)

The idea seems silly, doesn't it? But I see traders do the equivalent all the time! If I tell the market that I will set a stop loss of XX ticks, and then sit and wait for that stop to be taken out while the market moves against my position, or by capriciously deciding that I will get out when I have XX ticks of profit, I am dictating to the market what I want. What if the market wants to give you 20 or 30 ticks of profit, and you exit with only 10? Let the market tell you where to set your stop losses and when to get out. If your trading method doesn't allow for that flexibility, then you may as well swim with the sharks, because you're going to get eaten! And believe me, it's painful to be eaten alive! I know what its like to eaten alive financially!

This is one reason I don't try to predict market moves.

During market turbulence, when it is unclear what the market wants, I sit the market out or I find another market ocean to swim in. This is what the market pays me to do. And its the only way to survive!

Trader's Bias Vs. Giving the Markets What They Want

If I have a bullish or bearish bias, then it predisposes me to what I think the market is going to do. Then, I will have a tendency to be blinded to what the market is telling me to do, and I will tend to make mistakes. This is completely the wrong approach. Instead of me telling the market what I think and what I want, I need to be listening to what the market is trying to tell me. I need to be listening to what the market wants, not what I want.

Remaining unbiased to what the market is seeking to tell me, I believe, is an important skill for a trader to have. It is also an incredibly difficult one to learn, perhaps even impossible. Perhaps it is not possible to remain completely unbiased. Sometimes the best we can do is to simply be alert to our biases, thus nullifying their affect on us, rather than to completely eliminate them. I catch myself by noticing my biases -- opinions -- all the time. One way that I am alerted to my biases is when the market surprises me. How can I be surprised unless I hold an opinion about what the market is supposed to do?

Of course, sometimes market shocks occur, and the market will make moves that catch everyone off guard. However, I have noticed that the better I control my expectations of what the market is supposed to do, the fewer are the times that I am surprised. I can nullify my expectations, or at least hold them in check. This way, I can be prepared for anything that the market wants to tell me to do. One of the 5 Fundamental Truths of trading from Douglas' book, "Trading in the Zone" is:

"Anything can happen."

That law is so incredibly simple, but so immensely powerful, once correctly understood and properly applied. As a trader, I must always be ready for anything! That is the essence of my philosophy and methodology, which I call "trading dynamically".

Klinger Can Signal Sideways Movements

I have noticed that when the Klinger Volume indicator reverses direction, but price remain relatively flat, as in this case, this is a sign that prices will continue in the same trend direction as is already in play, or prices will move sideways. This is a chart for corn today, which I have noticed that after trading higher overnight, has now reversed, and is trading below yesterday's settlement price (white dotted line).
The Klinger Volume indicator, like the stochastic indicator, is extremely sensitive to subtle shifts in market sentiment and momentum. However, the stochastic is limited in its range, since it essentially goes flat once it moves above 80 (overbought) or below 20 (oversold). Thus, the stochastic indicator loses its effectiveness and utility in these areas. The Klinger+ATR indicator doesn't lose its effectiveness; it continues to function and serve as a leading indicator all the while.
On days like today where the market moves sideways, once volatility falls, a trader must stop trading until volatility rises again. Otherwise, a trader will give up gains by whittling his past earnings away slowly with small, losing trades that gradually destroy one's margin account. Remember Phantom's Rule #1! I consider this to be a correlary to Rule #1. Don't trade in a dead/sideways market!
Only soybeans continue to trade significantly higher for the day. Corn and wheat have both given up their overnight gains and are trading below yesterday's closing prices.

Grains Move Sideways to Modestly Lower

Sideways trading appears to be the norm this morning, with this wheat chart a good example. Trading like this can be done profitably (recall my river analogy), but not on time interval charts. The market moves back and forth much to quickly to be traded profitably on time intervals charts. On days like this, a trader must be willing to accept small trades, but many more of them.

Corn and Wheat Stronger, Too

Corn Chart Overnight
Wheat Chart Overnight - volume was sparse, but uni-directional

Grains Trading Actively Overnight

The funds are back!

Following my previously-posted trade last night for soybeans, prices sagged as traders liquidated their trade before they went to bed. However, at the start of the business day in Europe, soybean buyers were out in force. I did not take this second trade (green arc on the right side), as I was asleep. However, the strong liquidity and forceful movement of soybeans shows that fund buying is back, and is driving prices even higher. Of course, funds wouldn't be buying at all if the global demand/supply equation weren't making it profitable. Rest assured that when the supply rises to meet the demand, funds will be just as quick to short the market, driving prices powerfully lower. But don't hold your breath, since there is a limit to the amount of arable land on the planet, and demand for food is growing faster than the supply can increase to meet it. The United States must produce a bumper crop of grain this year just to meet the existing demand, and if weather doesn't cooperate, the supply will fall short, and prices will increase substantially. That is a recipe for continued price strength, not a bubble! That is the recipe for a famine!

The only thing that would possibly bring prices into check would be a stronger US Dollar. Have you see the Dollar overnight? It is lower (at 71.755 at the time of this posting), and approaching its all-time lows set within the past few months of 71.205. If the value of the Dollar break below that amount, look out belooooooow! And commodity prices will rocket even higher!

Commodities Come Roaring Back

And so does inflation!

This chart shows the Commodity Index futures daily chart, which is nearing its all-time highs again. The Upper Bollinger Band is typically a point of dynamic resistance, so we may well see prices reverse at that point. However, since we are in a multi-decade secular bull market for commodities, prices also have a strong likelihood of passing through previous highs, and the resistance they represent, and continuing to new highs. Crude oil within the past few hours has touched yesterday's high of $112.20 per barrel, so we shouldn't be surprised if prices continue achieving new highs in the near future.

Soybean Parallels

This is a nice set of parallels this evening on soybeans. They don't get any more picture perfect that this one. It's obvious why they are called "parallels". Liquidity has been unusually good for evening trading. Funds have been adding long positions en masse.

Wheat: Perfect Trading

It would literally be impossible to find better trading conditions than this. Here are three perfect trades. They were worth almost $1750 per contract.

Soybean Selling Into the Close

As we approach the close, these sell-offs are typical as day traders, hedge funds, and others liquidate their positions. May tomorrow be another one just like today!

Gold Too!

Gold is also sharply higher today, which is typical in sympathy with the higher price of crude oil. The Fed has not tamed this inflation beast!

Crude Oil $112!

And Now, the Plunge

Earth to Grains: Come Back Down!

Corn and wheat are now plunging back to earth, as speculators are selling their positions and returning the grain prices back to earth today. It's about time we get back to reality! Even still, the price of wheat is barely back to flat today. This should also bring soybean prices back below their lock limit price! Unbelievable trading today! Stay on your toes, because we're not finished yet!

Corn Goes Interstellar Too!

Corn has gone into inter-stellar orbit today also! Apparently, this immense rally is being driven today (above chart, 3 minute and tick) by a surprise drop in crude oil inventories, and crude oil prices have rocketed to new all-time records today. This concern for fuel is driving prices for grains higher, as demand for biofuels has re-emerged, driving alternative fuels much higher still. Whoa there!

Corn Daily Chart -- There is no exploding bubble here!

Flame On! Ag Bull Reignites!

Even wheat has turned around and is now higher for the day! The agricultural commodity boom, along with crude oil and gold, has reignited and appears to be headed higher.

Soybeans: Lock Limit UP!

If this is due to speculative excess, then regulatory oversight is almost a certainty. Speculators, and especially hedge funds, must take the blame for the hammer of regulation that will fall upon them. This will probably arrive in the form of huge margin increases or being completely banned from participation in the markets. It may even result in speculators being required to pay all cash to establish a position in the commodity futures markets. This will, in turn, hurt farmers who market their products in the futures markets by hedging.

Soybeans Soar!

Soybeans prices are exploding much higher today. This feels overbought to me. I wouldn't be surprised if we see a very sharp reversal at some point, driving prices back down again. Parabolic price rises of this sort tend to be subject to very sharp, rapid reversals. Corn has topped out, so this suggests to me that this soybean prices spike is due to overheated speculation and subject to a sharp reversal. I am unaware of any fundamentals-related news that is causing this price rise. It may exist, but I am simply unaware of it. It is also a concern to me that if speculative forces have created this, then regulatory oversight may step into the marketplace and force small traders and hedge funds out This is unhealthy and will hurt everyone!

New Record for Oil -- Way Over $111!

Crude oil prices have exploded higher again today, dragging gold prices with them, due to a surprise draw down in crude oil inventories in the United States. This, in turn, may be one reason for the rapid rise in corn and soybean prices -- biofuels!

What commodity bubble?

Treasuries Take Off on Stock Worries

Again, take note of how effectively the Klinger Volume indicator signals the end of the movement before prices do. Wow!

Look at That 3 Minute Chart!

This is a remarkable trading day. Look how nicely the charts have followed the Exponential Moving Average on the 3 minute chart (left side), and how perfectly the Klinger Volume Indicator signaled a change in sentiment just a few candles before prices reversed.

Signs of Upside Exhaustion

Now, we are seeing signs of exhaustion to the upside. On the 3-minute chart (left), the Klinger Volume indicator is starting to turn downward, and there is a bearish divergence of the same indicator (right) on the tick chart. Prices are also very close to their highs for the day, which is often a point of reversal on subsequent movements.

Reversal Higher Again

Now, prices have reversed higher again. Note the signals in order:

1. Reversal higher on Klinger Volume indicator before prices reverse. Again, the Klinger indicator has shown its remarkable consistency as a leading indicator.
2. Both the Bollinger Squeeze and stochastic indicators turn up almost simultaneously.
3. The Hull Moving Average and Gaussian filter (which are both smoothed exponential moving averages) turn up together.
4. The MACD turns up just as prices turn up.
5. Lastly, the 7 and 23 period moving averages turn up.
   

Another Reversal

Note the divergence of the Klinger Volume indicator at the first red arrow. This is the finest leading indicator that I have ever seen. It really is remarkable. Note that is also suggests a change in market sentiment and direction several candles before the light blue and magenta simple moving averages (7 and 23 period, as recommended by Cahne) in the same (lower) panel, represented by the 2nd red arrow. Moving Averages are, by nature, lagging indicators. They always turn following prices. It is their nature to be this way. This is why we also use the MACD, which also signaled a bearish divergence shortly following the Klinger indicator.

I suspect this one may be a short-term reversal, since the 3 minute chart shows that prices are slightly overbought. They are somewhat over-extended above the 3 minute EMA, and ripe for a short-term correction.

Wheat Substantially Lower

Wheat has not only moved lower, but has continued to confirm a downtrend. The first chart is today's 3-minute chart, and the second one shows the daily chart and the longer-term downtrend. I wouldn't be surprised to see wheat find support at the $9.00/bushel level, at least temporarily. Ironically, the global prospects for wheat are very strong, with U.S. stocks in storage at 60-year lows. Wheat is down, however, because with wheat prices having been so strong of late, global production is expected to pick up.

3 minute and tick charts
Daily chart - down for an entire month

Grains Reversal

I have switched to corn, and am trading twice as many contracts. It just looks smoother to me than soybeans. Even with the new corn margin requirements that were imposed this week, it is still more economical for me to trade more contracts using corn rather than soybeans, at least for today. I have also noticed that in the past week or so, the spread has widened on soybeans to two ticks, whereas it remains on tick for corn. This is significant, because if it costs me two ticks to enter my position and two ticks to exit, that is a cost of four ticks to trade soybeans versus two tick to enter and exit corn. While soybeans have greater volatility, this difference is negated by taking larger positions (with lower margin requirements) on corn. It tends to equal out somewhat, but the lower spread is an advantage that I consider to be worthy of the change -- for the moment.

One of the reasons that I use the triptych with multiple time frames is so that I can see when prices are slightly over-extended -- on a short-term basis -- on a higher time frame. If price move too far away from the EMA and outside the Bollinger Bands, then I know that I should take partial profits before a snap back or correction occurs. Then, I can re-enter the market with both profits and at a more favorable price point for additional trading. However, I do not trade on the higher time frames. I merely use them as a frame of reference and to provide context to the market. If I tried to trade on these higher time frame (I use 3 min. and 15 minute), I would probably lose money. The tick charts are my preferred time frame to use, except during evening trading. During evening trading, I watch the 3 minute and tick charts equally.

Up and Down Grains

Grains opened up for the morning session, after a fairly action session that also traded up overnight. However, all three major grains have shown a sharp correction downward since then. The USDA crop report this morning was fairly bullish for soybeans and corn. I expect a rebound at some point today.

Grains Relatively Quiet Today

Grains trading today was relative subdued, with little news and many traders awaiting the FOMC minutes. Tomorrow should show very active trading with another USDA report due out before the days session opens tomorrow.

What Does Volcker Think?

In an article on Bloomberg today, former Fed Chairman Paul Volcker questioned the legal authority of the Bernanke Fed to take over Bear Stearns a few weeks ago. Here is the article:

Volcker Says Fed's Bear Loan Stretches Legal Power

More Grains News

From Farm Futures Magazine:

The World Food Bank indicates that 33 countries face social unrest due to tightening global food supplies, according to Bloomberg. Both rice and wheat stocks are at their lowest levels in decades, with some major sources of these commodities limiting exports to protect their domestic supplies. This hardly sounds like a scenario of declining commodity prices until global stocks are rebuilt. Rebuilding stocks requires favorable weather and sufficient investment in the commodities to provide an economic incentive to boost production; in other words, high prices.

The CME has also begun the new process of determining settlement prices. This explains why today's settlement price is below the lowest trading price on May 08 wheat today.

Here is more about rice and other grain prices:

Rice Races to Record High

Rolling Contracts

The CME has indicated in its after-market commentary that much of the heavy grains selling today was due to funds beginning to roll contracts to later contract months. Profit-taking has also been cited as a reason for today's lower prices.

The USDA will also start issuing weekly crop progress reports this afternoon. This is likely to add to volatility in coming weeks, so trader must take this into account on Monday afternoons.

Also due out on Wednesday morning is a USDA stock report, which is closely watched by many traders, especially funds.

Good Day for Trading Soybeans

Great day for trading soybeans, as liquidity was excellent and market moves provided superb conditions. Let's do it again tomorrow, please!

I'm convinced that short-term trading will prevail for the foreseeable future. I will probably liquidate all long-term trades and trade only short term until a new, stronger long-term trend emerges. I remain bullish long-term for agricultural commodities due to strong fundamentals.

SELL! Grains Take a Tumble

Grains have taken a tumble across the board today. However, because world-wide grains stocks remain in very tight supply, I consider this to be an excellent opportunity to buy into the agricultural commodity boom at better prices. I fully expect buyers to emerge to drive price higher at some point. Softs are showing strong buying strength even in the face of grain selling today. Weather affecting the growing season in the Northern Hemisphere may be a driver for price rises later on. However, I am still shorting grains on days where appropriate -- like today. In some cases, I may short on a short-term basis with one broker while I am simultaneously maintaining a long position with a different broker on a longer-term basis.

Corn
Soybeans
Wheat

Unemployment Worse Than BLS Number Suggests

From John Mauldin's weekend newsletter. I highly recommend it, especially since it's free!

Payrolls tumbled by 80,000 today, more than forecast and the third monthly decline, the Labor Department said today in Washington. The unemployment rate rose to 5.1%, the highest level since September 2005, from 4.8%. The household survey shows the number of unemployed people rose by 438,000. (That is not a typo!) In March, the number of persons unemployed because they lost jobs increased by 300,000 to 4.2 million. Over the past 12 months, the number of unemployed job losers has increased by 914,000.And of course, when you look into the numbers it is worse than the headlines implies.

Prediction: we will see 6% unemployment before the end of the year.

There were negative revisions totaling 67,000 job losses for the last two months, making those months even worse. This means that the Bureau of Labor Statistics (BLS) is clearly over-estimating the number of jobs in the first announcement. That is because they have to extrapolate based on recent past data. And as I continually point out, as the economy softens, they are going to continue to overestimate the number of jobs. It's one of the problems of using past performance to predict future results.

Job losses since December are now at 286,000 in the private sector and 232,000 overall, counting for growth in government. What was up? Health care (23,000) and bars and restaurants (23,000 also). Initial unemployment claims are up by almost 25% for the last four weeks over last year, and this week were over 400,000. Given the job losses, this is not surprising.

This month the BLS hypothecates 142,000 jobs being created in their birth/death model. You can guarantee this will be revised down. For instance, they assume the creation of 28,000 new construction jobs as the construction industry is imploding. Total construction spending has fallen for the last four months in a row. Somehow they estimate 6,000 new jobs in the finance industries. Does anyone really think we saw a rise in employment in mortgage and investment banks?

Here is a second excerpt and chart:

...the amount of new debt in relationship to GDP is rising. We borrowed in one form or another $5.70 for each $1 rise in GDP last year.

Debt in all forms rose $7.86 trillion for the previous 8 quarters to $48.8 trillion dollars. Nominal GDP was only $14.1 trillion. This is of course unsustainable. At some point, debt growth must slow dramatically. As the world deleverages, decreasing debt and the resultant slowing of consumer spending will become a head wind for GDP growth.

Gold, Oil Extend Rallies Even Higher

Leading the entire commodities complex higher, both gold and crude oil futures have risen markedly today.

Gold - over $933
Crude Oil - over $109

Oil prices are now within less than $1 of their all-time high price.

News from CME on Grains Settlements

From the CME this morning:

The CME will change the way it calculates the settlement prices in grains and the soybean complex today. Nearby contracts will settle at the midpoint of the closing ranges, and deferred contracts will then settle based on spread relationships in the pits.

Corn Building $6 Foundation

While the price of corn is struggling to break solidly above $6/bushel, corn fundamentals remain very solid and prices are pushing firmly at the new highs. I suspect that corn will break solidly through the $6 price and never look back fairly soon. This could cause other grains to move higher in sympathy also.

No Bursting Commodity Bubble to Be Found!

Commodities are higher almost universally in the past few days. Gold has moved higher off its lows, and crude oil prices have moved steadily higher for a week, despite a significant increase last week in crude oil inventories. Grains are also higher on global shortages, and agricultural softs have formed a solid broad-based bottom and are beginning to move higher again. Sugar, cocoa, coffee and cotton, for example, have found solid support at their 200-day moving averages, and are showing signs of strong, renewed buying volume. The commodity bull is alive and well again, and agricultural commodities may lead the way, with metals and energy commodities moving robustly higher as well. The odd card in the deck, however, is that the US Dollar is modestly higher as well today.

Bond Vigilantes Take the Bull By the Horns

Wow! The bond vigilantes have taken the treasury bull by the horns, and are selling treasuries in force today. Apparently, the treasury market is expecting the Fed to cease easing interest rates soon, but they are driving interest rates higher by selling treasuries. Treasuries reached their high on March 17th, and have been trending lower ever since, forcing interest rates higher despite Fed easing. This 15 minute chart today shows the selling activity, with the commensurate interest rate rise. The US Dollar is also modestly higher overnight.

In some ways, this is a good sign, because equity markets have fully priced in a recession, and equities prices have been slowly edging higher as well. Funds are moving out of safe-have treasury investments and back into stocks, albeit on somewhat weak volume. Even bad news for the U.S. economy (investment bank refunding, poor jobs report) over the past week has caused stocks to rally. This is a good example of a case in which the market moves contrary to what would have been expected. It is also an example of the leading nature of stocks and the almost nutty, optimistic nature of equity markets to hope for -- even expect -- improvement soon.

Global Grains Stocks, Especially Rice, In Short Supply

From Bloomberg this evening:

Rice Run Prompts Curbs to Rival Credit Market Seizure

More Commodity Analysis From Deutsche Bank

A Closer Look at Commodity Prices

New Tumble for the Dollar?

Just when it sounds like the Fed has achieved a renewal of confidence and shored up the US Dollar, here is an interesting article published in Bloomberg today. The interesting thing about the article is how many people from some of the world's largest financial powerhouses are all in agreement that the US Dollar is in the cusp of another major decline. Apparently, futures traders agree, with bets against the Dollar doubling since January.

Dollar Bottom Proves Elusive as G-7 Meets, Bearish Bets Double

If this sentiment bears out, there is a very good chance of a renewal of the commodity bull.