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4KSU
Frequent Contributor

Market Scenarios

 Would love to hear opinions on this scenario which seems more likely with each day that pases by. Oil finds a trading range between 45-55 the next 2 years. The stock market loses a big part of it's value (25-35%?) sometime in the next 6-12 months. Interest rates steadily climb. If one or all of these play out where do you think the dollar goes? And more importantly how do commodity prices react in this environment? What happens with commodity demand in the world in this environment. How low can we go guys?Would love to hear ALL opinions. Thanks

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24 Replies
Red Steele
Veteran Advisor

Re: Market Scenarios

$60 crude, $4 corn, 4% interest with inflation under control, Dow at $12000.....this would sound like equilibrium based on a dollar that would be worth half of what it was ten years ago. Maybe interest needs to be 6% to get this done.

 

If the US had to pay 6% on its debt, social program spending, military madness spending, etc all would have to be trimmed, substantially.

 

Demand would probably be about what it is now.

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Palouser
Senior Advisor

Re: Market Scenarios

If the stock market fell as much as you've specified then there could be NO interest rate hike. In fact the spector of deflation would be looming large. That infers the $US remains strong. Banks and big bank customers would take a hit and banks would pull back. Less lending, slower currency circulation and less borrowing.

 

Grain commodities do not belong to the industrial economic model. Grain volumes traded would remain the same or higher. Grain trade volumes for human consumption, like wheat, aren't dependent on price. Whatever the price consumption will be the same of higher. Grain for industrial uses MAY change but if it is food or feed related ingredients then volume will be normal or near normal. Those who expect grain volumes to change with price are mistakenly using the industrial model - not the ag model of production and consumption.

 

For instance. The higher the price the more grain the US usually exports. THAT'S a surprise to some who don't understand grain trade. Lower prices mean higher supplies. Food needs are inelastic regardless of price. We've proved it over and over.

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elcheapo
Veteran Advisor

Re: Market Scenarios

Don't get to comfy with your idea

We have things bubbling that the media
Just "forgets"

1. Middle east...in a few months the wheels
Might fall off the buggy.

2. Ukraine ..no news is not good news

3. Wall St/interest...the markets are going
Up world wide, its not because economy
is better, but due to trend. "The trend is
Your friend" what happens when we take
Profits?
We CAN NOT AFFORD INTEREST TO RISE.
Talking to bankers it would be a disaster.
The local economy could not take it.

Ok how many remember the late 70's
And early 80's.

Markets down, commodies down to economy
And markets, cash becomes king, rates rise.

Land market crash, interest rates rise.


No, I do not sleep well any more
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childofthecorn
Veteran Contributor

Re: Market Scenarios

U.S. government can't afford money now let alone if they had to pay hire interest rates.  I just don't see prime coming up of the floor, not unless uncle sam can find a way to raise commercial interest rates and leave theirs alone.

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Palouser
Senior Advisor

Re: Market Scenarios

There are many paradoxes in this mix. If interest rates rise appreciably then they are driven higher by economic activity, and the judgment by many that higher interest rates are not great compared to the return from investing in the economy by increasing production or offering services. If that's the case then the government will get more revenue from a more active economy and currency circulating through deals, higher employment and wages.

 

If the consumer stays home then money can accumulate in somebody's bag but it won't be put to work. That's one justification for job creation on infrastructure, etc. Wages WILL circulate. Cash positions by banks and businesses won't if there's no borrowing by the consumer (or higher wages) or businesses that can't increase sales to consumers.

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BA Deere
Honored Advisor

Re: Market Scenarios

There is something weird going on with stores, shopping malls in particular.  To walk through a mall today, you`d swear that we are in the midst of a depression with all the space that`s empty and up for rent.  Mall parking lots aren`t kept in shape, kind of like someone who`s car is about to be repocessed isn`t too likely to spend the money for a oil change.

 

Target and JC Penny are having tough times and Sears is "dead man walking".  The only stores seeming to do well is Walmart, Dollar General and Sam`s Club.  That sure isn`t a sign that consumers having money burning holes in their pockets.

 

The fact the raising interest rates makes absolutely no sense and no way will happen, tells me that`s exactly what will happen, a raise in interest rates.  🙂

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nwobcw
Advisor

Re: Market Scenarios

the retail sector was way over built and now with people shopping online it just contributes to more stores closing
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westernia80
Senior Contributor

Re: Market Scenarios

The government "says" the economy is rolling along. They need to, to keep up the serade.  When in reality its only wall street rolling, but eventually even they will figure it out.  Higher interest rates would be a disaster for the farm economy. 

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hardnox
Advisor

Re: Market Scenarios

Unless crude production is pared crude isn't going to hold support for more than a month or two. The market is supported by a positive carry encouraging hedged storage but that can't continue when the storage is full.

 

There's no suggestion from data that it's happening so it would probably require either a geopolitical event or a change in heart by the Saudis, which doesn't seem likely.

 

While most here, and many academics, sharply defended passive commodity investments such as index funds back in the heydey, they present a drag to everything on the downside.

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