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Senior Contributor

OptionEye - Macro Outlook - May 13th

Good morning. 

 

Overnight grains see corn down 2, beans up 3 and wheat unchanged. Beans the big loser after the report yesterday as bulls didn't get enough of a boost and new crop ending stocks sent things sharply lower. 

 

The 10 year yield all over the place yesterday as it sits at 2.22% this morning. Stocks too, were on a roller coaster ride and look to open higher this morning with the S & P future up almost 6 handles. 

 

Oil is higher again, above that $60 level at $61.27 up .52 cents. Gold still not doing anything and sits at $1195.21 up $1.28. 

 

The dollar is basically unchanged at 94.47 down .06 today. 

 

My one question to the investing public is 'Where is the Outrage'? The moves we saw in the markets yesterday used to be moves that would take us a month to cover. Now, with absolutely no news, we see the interest rate markets and equity markets do things that leave 28 year verterans like me scratching their heads. If you don't think it could happen in the grain markets I would argue it already has. 

 

Here is the reason - QE + Zero Int. Rates + HFT's + Algorythmic Traders = illiquidity bubbles. 

 

We are seeing gaps in the market that we have never seen before and things in the economy are starting to get better? What would those gaps look like if the market really took a dive? Where would the liquidity be? I don't even want to think about it. 

 

Be careful. Today's high tech trade and liquidity bubbles make things ever more dangerous and difficult. Maybe someday we will see the central bankers out of our markets, a small interest rate rise and some real 'normalization'. 

 

Until then its trader beware. 

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5 Replies
Advisor

Re: OptionEye - Macro Outlook - May 13th

Virtually all of my adult life runs concurrent with the fall in interest rates and resulting ramp in asset values since roughly 1982.

 

By now we are entirely dependent on those asset prices remaining high because everything is levered- both financially and politically- off of those values. They have to stay up or we're all in a world of hurt, whether we own a lot of them personally or not.

 

But 0 isn't just any 'ol digit. It's the end of the road. Yeah, maybe you can go fractionally negative but that's it.

 

0 acts like a black hole where the normal rules of physics no longer apply and things get weird.

 

I can't tell you how long we can keep the tractor running down the road at 30 with only brakes for steering. Like most things, probably longer than you'd think but not forever.

 

There are no policy fixes for this. The blame for it is pretty broadly bipartisan so I would suggest nobody waste a lot of time explaining why its the fault of the other bunch of wankers. Its just where we are. I'd suggest approaching it like a room full of snakes.

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Senior Advisor

Verified: middle class not spending

Yesterday there were a number of commentaries that supported my thesis - the middle class is staying out for now because they don't see any support for real reforms in the system that cost them dearly. They aren't coming back to help the economy cause they're too busy trying to protect themselves from the insitutions and ineffectiveness of those who have the power.

 

The markets would benifit from a broadbased  expectation of an improvement of the middle class situation. Absent that it makes absolute sense random glitches and bubbles will occur. It's just the sloshing around of cash by institutions and the wealthy looking for that incremental advantage instead of investing in a broader economy the middle class would participate in.

 

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Advisor

Re: Verified: middle class not spending

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Senior Advisor

Re: Verified: middle class not spending

All of them look like great investments !!! Well, a couple are speculative I suppose.

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Honored Advisor

Re: Verified: middle class not spending

The fed`s only real job is to prop up the banks, if we can scrape up a few crumbs as a result of that, it is the best that we can hope for.  So, zero % interest rates is the last tool in the box....well, not necessarily the last monkey wrench is inflation.  They need to print and get it to mainstreet and that will be the fat lady singing in the coal mine.

 

How to get it to mainstreet?  Well, things have to get so bad that even the austerity Republicans will get on board.   Ol` Pocahontas talks about writing-off student loans and giving everyone free college, that would put money on mainstreet.  Maybe double down on the social security problem and actually lower the retirement age, encouraging early retirement making room for young workers. I`m not advocating this, I`m just saying what could be done for the swan song.

 

I used to think what this country needs is a "car that runs on tap water" to pull us out of the mess. Well with the Bakken oil, that was so cheap it basically is running cars on tap water and we see the unforeseen troubles from cheap energy..you get deflation.  We grumbled about $4 gas but we had the money to pay it, now we are going broke on $2.20 gas.

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