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Honored Advisor
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Re: Corn Market Update 11/20

[ Edited ]

The Fed is political and that`s the way congress likes it so they don`t have to make the difficult decisions.  The Fed was tasked with do whatever necessary to make the previous administration look good, QE spending, 0% fed funds rate, ect….well, yes a "recession was dodged" however the can was kicked down the road, more debt and addiction to cheap interest rates in the economy, so when the piper will have to be paid it will be a deeper recession.

 

I`m no economist, but pulling out all the stops to make a economy look artificially good for 4 or 8 years isn`t at all good monetary policy.    And now we see the reverse, a Fed that would like to give the economy a fenderbender before the 2020 election to get a change in administrations.

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Re: Corn Market Update 11/20

I have come to believe that the real problem at the Fed is that they have too many economists and too few decision-makers with investment experience to be able to process quickly the signs that the markets are telling them. We see time and again over long periods that flows of capital based on the supply and demand of critical instruments that react quickly to economic changes occur long before they show up in the economic reports. Hell, we don't officially know we are in or out of recessions until at least three months from when they begin, because GDP is reported on a quarterly basis. And then it takes the Fed economists several months thereafter to confirm what the data reports are telling them. Yet most of the people at the Fed are what former Chairperson Yellen would say are "data-driven". Which means they always are too late to see what is going on in the economy. 

 

Take what's going on now in the oil market, Its 14 degrees outside in New York this morning, yet the price of oil is trading 25 dollars a barrel below where it was in the beginning of October, a 33% decline. This happening in a world where there was barely any excess pumping or storage capacity. Clearly something big is occurring in the world economy, some kind of big slowdown, which the stock market has even started to pick up on even though most stock investors are chimps that have been programmed to buy every dip. Yet it won't be until the end of January before its picked up and reported in the fourth quarter 2018 GDP data, and then at least another few months before the Fed Governors make a decision that the economy is failing. That process is wayyyyyy too slow. By the time the Fed will be able to react, you will have a global economy already six months into a recession. 

 

And at the time when the Fed finally smells the coffee and acts to stop the carnage, the talking head community will blame the Fed for being too tight for too long. And the talking heads will be correct. This is the usual way that the Fed winds up screwing the economy. Its not because of politics in this case, its not because the Fed tries to cause damage to any one or several groups of people or investors. Its because they have an institutional bias towards academics over market analysis. And as long as Presidents keep appointing eggheads who can't trade their way out of wet paper bags, rather than investment managers who know when to sense when economic tides are shifting, the Fed will always be late in carrying out their jobs.

 

The second institutional bias that makes the Fed the villian rather than the savior is their fear of making big moves to reverse the course of the economic winds. This is a lasting result of their analysis of what caused the crash of 1987, they came to realize about a year or two later that their own sharp tightening moves in 1987 were a significant cause of creating uncertainty in financial markets, which ultimately climaxed in the capitalization value of America's economy being marked down by 22% in one day. So based on that analysis, the Fed has since sought to minimize the impact of any one policy decision, and as a result we have this water torture of one-quarter percentage point moves every time they decide to change short-term interest rates.

 

This policy does much more harm than good. Firstly, it indicates that the Fed is not sure its doing the right thing, and so it chooses the action of least harm. That creates an uncertainty in investment communities, and uncertainty causes people to become far less willing to invest. That pullback by investors due to the uncertainty caused by a spineless Fed makes economic downturns happen faster and deeper than if the Fed portrayed itself as sure of what it was doing and acted with the appropriate boldness that such certainty would engender. 

 

Secondly, by slowly implementing its policy change, the Fed actually winds up having to move interest rates more in the course of completing their policy objectives than if they made a few big moves and got the job finished. What's been going on for the last couple of years is a good case in points. A quarter of a basis point of tightening every few months for two years has gotten their short term interest rate to almost 3% before the economy slowed, whereas had they moved two percentage points during their first year of tightening, they could have slowed the economy a lot sooner with less of an interest rate increase. Additionally, the slow moving alternative allows an economy they want to slow to continue moving faster, albeit at slower increases in speed. That is what creates excesses, especially in equity markets, asset bubbles that when burst make for more financial damage than had the Fed moved faster and harder and prevented the late stage bubbles from forming.

 

So, the combination of too much academia and not enough real world decision makers, combined with an institution that appears to be afraid of its own shadow, combines to create poor policy that creates bubbles and then blows them up, the same kind of boom and bust conditions that the Fed was created so as to help end. To me, this is the greatest harm the Fed does to the working person in America, and to the business climate of the nation. I can understand them financing the errors and profligate irresponsibility of Congress to a point, for after all, what is the Fed to do ? Let the country default on its massive debt ? And then face the accusations that if the elected members of the legislature want to in-debt the country, who are seven or nine or twelve un-elected people at the Fed to say that the elected representatives are wrong ?

 

But when it comes to their real purpose, to control interest rates so as to promote maximum long term economic growth, that's where the Fed's feet need to be held to the fire. If they are missing turns in the economy because of too many eggheads on staff, they need to be forced to change that staff composition. If they move so slowly in implementing policy that they wind up causing more harm than good, then they need to be forced to move faster. To me, that's where the oversight needs to be increased and improved. If Congress could do just that alone, they would be doing the American economy a huge favor. They wouldn't solve all of the country's economic problems, most of which they create. But at least they would solve a big one, a menace that works against the interests that the Fed was chartered to defend.

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Honored Advisor
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Registered: ‎07-18-2011

Re: Corn Market Update 11/20

[ Edited ]

Well the value of words took a nose dive with this thread.

 

Not one bit of marketing news 

 

What is your trade position in commodity and contract #s

 

15 words or less........ stop flooding the word market.

Honored Advisor
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Re: Corn Market Update 11/20

SW, doesn`t pretty much everything have to do with marketing?   Without in depth analysis, posts on here are "buy and put and sell a call" and if that one dimensional advice happens to be correct, the poster is hoisted on shoulders and carried around the field.  

 

No one is really sure if buying a put and selling a call will turn out to be a winner, but if the one gives the reasons that conclusion is chosen, then we can better determine if we should follow it. Interest rates, fed action, stock market play sometimes a big role in what the elevator or trader mood will be.  

 

 

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Re: Corn Market Update 11/20

Corn charts look horrible, we are going to drop down to 3.42. Outside chance the March contract taps 3.42 in the future.
Veteran Contributor
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Re: Corn Market Update 11/20

[ Edited ]

Position still as written previously. You should be short about 40% of your expected 2018 production between $3.60 and $3.70. Friday's close below $3.60 in the December contract is a bearish sign, and so you would be wise to be at 50%-60% sold out now. That is where I am now with my spec position, 60% short, and willing to add another 20% on a breakdown through  $3.54. But if $3.54 holds I may just take my profits and watch for a while. 

 

If we break down through the $3.54 level, sell another 20%. Targets now to the downside are $3.54, $3.42 and $3.29. The chances for a rally up to the $3.85 or above level are slim right now, should not occur until the market hits the $3.54 level first. If a strong bounce from there, perhaps a chance for a rally. But with each passing day it sure feels like there are more sellers than buyers, and the sellers are bigger.

Veteran Contributor
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Re: Corn Market Update 11/20

The way prices in commodities have been moving during the last few weeks, you could be at $3.42 in early December, perhaps just before or just after the December crop report. 

 

Watch what happens at $3.54, that will be the guide to the next two months. If it holds there, and then moves back up above $3.60, there still could be a chance for a winter rally. I certainly will be on the look out at $3.54 for a change in trend, because the market is getting a bit oversold on a short term basis and because the long term triangle formation in corn would be so complete if the market touched down trend line of that triangle that will come in at about $4.02 in January and February.

 

But for right now, the market looks terrible on the charts and the time for hoping for higher prices has passed. The market most likely is going lower for at least a bit an perhaps longer, and that is the major risk to the corn farmer right now.

Veteran Advisor
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Re: Corn Market Update 11/20

Allow  ME  -  interest  rates  caused  the  re-session  of  2008   ?   ?   ? 

 

Paul  Volker   message,   April   of    1980,    would  be  helpful   HOW   ?   ?   ? 

 

Reagonomics   was  the  cure  for  all  -  I  was  told  -  -  - 

Honored Advisor
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Re: Corn Market Update 11/20

Allow  ME  -  interest  rates  caused  the  re-session  of  2008   ?   ?   ? Banking and Congress making housing loans for the poor by inflating values so there were kickbacks for all....More likely..... Rising interest because the loans were so bad, no one would buy them.  Congress.... Congress.... and Banks sucking money from the taxpayers... who were on the hook for the bad "political" loans so the poor could afford a 300K home.... furnished -- and would keep voting for congress to steal from future taxpayers.--- I just can't get that into fewer words and stay out of the forum.

 

Paul  Volker   message,   April   of    1980,    would  be  helpful   HOW   ?   ?   ? His words were always as meaningless as the reasons we get for markets moving.

 

Reagonomics   was  the  cure  for  all  -  I  was  told  -  -  -  Borrowing more  ---spending more ---- 

 

Worthless words in a world that is irresponsible for its words.

 

Watch a few home and garden shows on buying houses for young couples who base their budget on what they can borrow.......... idiots still being led around by the parasitic banking industry.

 

Society in decline is ugly.

Veteran Contributor
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Re: Corn Market Update 11/20

[ Edited ]

I don't know from where your questions originated, I don't think that I made any of those claims, but if you would like I will give you my take on the issues you raise, having lived through them and traded through them. 

 

The recession of 2008-2009 was caused mainly by financial institutions making foolish uses of their capital, levering it by excessive multiples to buy the portions of financially engineered deals of mortgages and mortgage backed securities that no one else would buy. This was done solely to collect large fees from these deals that provided enough short-term boosts to earnings that kept the share prices of these institutions high enough long enough for the stock options held by the C-level officers of those institutions to vest at very profitable prices, providing huge windfall bonuses to the executives that held them. When the underlying holdings of the mortgages that constituted the mortgage backed securities that were put into the deals started failing in 2006, the financial institutions were left with terrible assets that were designed to be the first to collapse when the mortgages defaulted. 

 

However, Federal Reserve policy had a role in causing the defaults to occur, and then such policy made a bad situation worse by not acting quickly enough to correct the liquidity trap and credit crunch that followed. In June of 2004, the Fed embarked on a tightening policy that raised short-term interest rates 4% over the course of the next two years, from 1% to 5%. In so doing, they caused adjustable rate mortgages, which were made at extremely low interest rates due to the Fed keeping rates too low from 2002 to the middle of 2006, to become too expensive to pay as their adjusting rates rose as the Fed hiked rates. Those defaulted mortgages were the trip wire that caused the financial crisis which then caused the recession as financial institutions had to curtail the issuance of new credit as their capital invested in the financially engineered deals was destroyed.

 

The Fed then made matters worse in 2007 by waiting until September to respond to the credit crunch that was developing through that year due to the capital destruction that was occurring as mortgages defaulted. Once they started easing they moved aggressively, they just should have started easing sooner. But because the Fed is basically staffed with economists instead of investment managers, they were too late to see what financial markets had been saying for most of 2007. As such, too much damage already occurred by the time the Fed arrived to put out the fire. 

 

So not only did interest rates play a huge role in causing the problems that caused the recession, but they also participated in an important way in making a bad situation worse. 

 

Paul Volker was faced with a massive problem when he was appointed Chair of the Fed in 1979. The US devaluation of its currency to pay the debts of the Viet Nam war and the great society programs of Johnson, combined with the lifting of restrictions on governments printing money once the US left the gold standard in '72-'73, provided the economic and emotional reasons to cause inflation to rise dramatically through the 1970's. This increase in inflation caused interest rates to rise across the yield curve, in rates the Fed could control and in rates the Fed could not control. It caused major problems for savings banks who were losing deposits at a rapid pace because they were restricted by law from raising the interest they paid on savings accounts, as well as because of the emergence of money market funds that paid as much as three times the interest of a savings passbook account. Companies had to re-consider their capital allocations in a world where the buying power of their earnings was eroding by double digits,  consumers were straining under the rising costs of mortgage interest payments as long term interest rates were moving to levels not seen in decades. The problem was caused by a failure of monetary policy, and so the Fed had to employ a monetary answer to stop the damage. Had the Fed not acted as aggressively as they did, inflation would have destroyed the US banking system. How were banks supposed to survive when they had to borrow funds at 15% to finance mortgages made 10 years earlier at 5% ? The US business economy also was set to collapse, as rising prices of inflation were making purchases far too expensive for consumers. whose wage increases were lagging the increase in prices. 

 

So Volker and the Fed in creased interest rates to unprecedented levels in their 60+ year history, and it worked as inflation dropped fairly quickly and the banking system and the US economy started improving,. It was too late for many, as in the farm industry where the costs of credit and mortgage interest wiped out large numbers of farm businesses. But there was no alternative, as to allow inflation to fester at the rates it was growing would inevitably cause a huge economic depression. If Volker and the Fed can be faulted for anything, its that they kept rates too high for too long. Four South American countries threatened to default on their debts to major US banks in early 1982, which led President Reagan to personally lobby the Fed Chairman to ease off the brake. In August of 1982, the Fed started reducing short-term rates, and the stock market started a rally that during the next 35 years would take it from 850 on the Dow Jones Index up to the 26,000 that it hit this year. 

 

Now the reduction in interest rates was not the only cause of the incredible run  up in stock prices since the Fed took its foot off the brakes in 1982. Much of that increase was the result of the advent of the computer making businesses far more productive and efficient. Some was due to the replacement of American workers with cheap foreigners in factories domiciled overseas. And some of it was caused by new business strategies that realized that low tax rates generate more business activity which in turn generates higher tax revenues, along with the understanding that incentives for investors to put capital at risk was a major force in providing the lowest cost way for companies to expand their operations and employment. These two new strategies, the former instigated by something called the Laffer Curve, and the latter called supply side economics, formed the basis of a new economic model called Reaganomics that proved to be the dual-pillared foundation of how American business would grow to record levels of profitability and performance during the subsequent three and one half decades. 

 

Anyone who thought that Reaganomics was the cure all for all of the economic problems that could occur in a vast and complex economy like the one in the US was either a poor economist or a good liar. Reaganomics could not prevent, nor was it intended to prevent, many of the pitfalls that arise in a capitalist economy. While it set the stage and provided the foundation for the greatest economic expansion the world has ever seen, it could not stop the leaders of governments regardless of ideology from seeking to bankrupt their national treasuries in the quest to either secure votes for re-election or to keep the masses calm enough to accept dictatorial regimes that squandered the profits of their national enterprises for their own gain. Reagonomics introduced the means by which economies could grow strongly without fostering the typical inflationary pressures that previously caused boom and bust economic cycles, but it could not prevent future generations of business leaders from incorporating the export of jobs to cheap labor countries as a corollary to the reduction of capital gains taxes to incentivize holders of capital to invest. Reaganomics could not bring better guidance from a Federal Reserve that to this day relies on backward looking policies to drive an economy forward. 

 

Suffice it to say that billions of people around the world have benefited from the implementation of Reaganomics into businesses around the globe, raising the standards of living for these people higher than they ever would have experienced without the advent of these economic policies. But that does not mean that there were not other problems that would arise and have arisen that still can bring the world economy to its knees if not dealt with. And that is the biggest problem affecting the global economy today. National leaders and business leaders allowed the success of Reaganomics to mask the deleterious effects of pother policies that are proving to be lethal to the health of the global economy. The ignorance of those leaders to craft solutions to these problems, even if they were half as successful as Reaganomics, is the lynch-pin that now threatens to destroy the world economy and the standards of living of the people of the world. What is needed is a plan as bold and effective as Reaganomics that will deal with the cancers that now threaten economic prosperity. To my chagrin, I doubt if you will see such innovation until the next financial crisis, one which cannot be overcome with the provision of mountains of liquidity. At that point, the problems that Reaganomics cannot answer will have to be solved with a set of new policies that are specifically designed to cure those ailments.