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hardnox604008
Advisor

Messy macro stuff

The recent downdraft in markets probably has a lot less to do with the SP downgrade and more to do with short term liquidity problems in European banks.

 

Just like in fall 2008, the authorities can assure you all is well but the big boys know very well who is calling them begging for short term lending and once everybody knows it, it becomes self reinforcing.

 

I can't handicap the probability of 2008 type chaos but I think you have to be open to the consideration. It is possible that Europe will decide to go all in and stop the run for some time, also possible that they won't.

 

That is why after some time for thinking about it I'm not unhappy with my sales level even though the average on corn is a bit under the current price and beans a bit over. Looks like a mediocre crop for us and no windfall but good profits.

 

Like 2008, some downside risk exists due to macro problems.

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8 Replies
tom s. in tn.
Frequent Contributor

Re: Messy macro stuff

"  Like 2008, some downside risk exists due to macro problems.  "

 

I'm afraid those macro problems are bigger than ever before this time though. And I'm wondering if it comes to it, who wil print the bail out cash this time. US? I doubt it. There are some new heavy hitters in the Macro Global Marketplace these days.

Tom S. in Tn.

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hardnox604008
Advisor

Re: Messy macro stuff

Hi Tom,

 

Yeah, all sorts of wierd stuff could happen and some of it will.

 

Swiss printed $100 B to try to push the franc lower and couldn't even faze it- it took a (probably false) threat to peg to the euro to get a breather.

 

Japan will print like crazy to try to kep from getting sunk by a strong yen. If the Germans would go along, ECB could end the liquidity crisis in an instant by printing euros.

 

Looks like the Fed kicked the ball into everyone else's court.

 

 

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sonoma72
Veteran Contributor

Re: Messy macro stuff

I agree that the macro level influence will be king.  Unfortunately some of these problems could actually collapse certain countries financially.  In the process some demand could be collapsed because of lack of credit.  For instance, how much world grain demand is influenced or backed by the IMF and or World Bank?  If countries that used to contribute to these entities back off or withdrawal all together how does that influence the world grain market?  Or more precisely, which grain buyers could lose their lines of credit?   I have no idea, but there are so many variables now, it makes your head spin.  So yes, we could have a smaller crop, on the other hand financial chaos could lead to smaller demand.  The weight afforded to either variable is an unknown. 

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Palouser
Senior Advisor

Re: Messy macro stuff

Would you tell me the last time the global grain market suffered a %5 drop in usage (how about 3%?) and what the financial situation was that might have caused it?

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hardnox604008
Advisor

Re: Messy macro stuff

In Fall 2009 it suffered about a 50% drop in paper demand- which was what had it so high in the first place.

 

And in an indirect feedback loop, if there hadn't been a massive global reflation effort then real demand would have dropped a lot more than 5%.

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sonoma72
Veteran Contributor

Re: Messy macro stuff

On perhaps a related but different note...   Assuming China is stuck in a cycle of buying u.s. bonds, for various reasons, do you think this supplies an underlying support for our grain market also? 

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Artifice
Senior Contributor

Re: Messy macro stuff

grain use barely varies,

we eat chickens eat.

 

that is why good producers use futures to collect excess speculation.

speculation doesn't consume, it just cretes a false price.

 

SRW in 3.50 since jan shows its about individual S%D

not the stk mkt.

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Palouser
Senior Advisor

Re: Messy macro stuff

'Demand' is not 'paper demand'. Has nothing to do with 'real demand'.

 

And I don't accept there would have been a 5% drop in physical demand.

 

Like I said - when has it ever happened?

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