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hardnox604008
Advisor

Risk on/off world

Can't find the link but read an estimate that $15 billion left commodity funds last week as the leveraged risk on trade received a major margin squeeze and anything with some weight got thrown overboard to meet calls.

 

The underwhelming response of grains to a very bullish report has to been seen in that context.

 

To the converse- the very bullish response to the 2010 results has to be seen with the risk on hysteria that followed Bernake's Jackson Hole QE2 announcement fully in mind.

 

Unfortunately I can't give you any guidance as to the near or intermediate term macro events.

 

Of course heaven and earth will be moved to try to keep speculators putting a bid under financial assets. But as you know I'm not optimistic as to the outcome but have certainly gained respect for the ablity to get markets to buy a false story.

 

With the QE2 announcement all the major banks and brokerage economic arms had US GDP growth at 3-5% which justified risk on. We got .4 and 1.3 % which in light of the recent balance of trade numbers will probably be revised in the future to negative.

 

Hard to go risk on with negative growth across the OECD but, hey, who knows?

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4 Replies
Palouser
Senior Advisor

Re: Risk on/off world

My observation is that the 'market' is perpetually a lagging indicator and in fact likes to go wildly contrarian on some reports - at least for a week or two.

 

When there is confirmation of widespread pollination and fill problems the market may react to them. Not reports of problems, but likely harvest time.

 

The sheer number of reports of at least mild problems from many quarters, and surpringly unexpected problems in others, leads me to believe the trend of lowering yields is not over.

 

We are nearing the time where it won't matter what the 'outside' markets are doing, the possibility of unnacceptable year end inventories may strike fear in the hearts of users. We will have feed wheat, but corn is what most users are comfortable with.

 

And do we know the outcome of soy yet?

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Artifice
Senior Contributor

Re: Risk on/off world

As you may be  aware, long commodities in the form of futures is a loser over time. Nominal price gains are wiped out by cost of carry/  ROLL costs. Sooner or sooner indexers will learn what the rest of the world knows, and will all come out.

 

REAL speculators don't have margin calls, that is a fallacy. A H-Fund operating at anything over 2xs leverage at Face value, will not be given serious money. Leverage invites death, only lame churn em brokers and novice speculators use high leverage.

High leverage loses, sooner or sooner.

Last week, people who think the world changed go out of lots of stuff. Look at stks, others welcomed the chance to buy great values in this dull but still 15 Trillion$ economy.

Europers bough SWISS, at 130, which they sold in 2000 at 79. Thst is what the do best.

 

Mkts change, commodities seek their VALUE , ngas is 45m SRW 690, because of some marco thingy? No because there is TOO, much..

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Artifice
Senior Contributor

Re: Risk on/off world

Agree Palouser- ENDusers have capital becaue they don't over pay to get spec length on their books.

Mkts are over pricedvs S&D and, spoke em, as harvest approaces and watch em crack.

Endsuers aregoing quiet this time of yr as harvest is underway.

 

artifice

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Palouser
Senior Advisor

Re: Risk on/off world

Artie, my personal experience doesn't verify your generalizations. I don't market according to average patterns, but in light of conditions that develop. Your recommendations always reflect seasonals. The times you've been wrong are times when the market has swung hard to the upside , and during harvest no less, representing a lot of money which I collected. I don't have a crystal ball, but common sense and trends are fairly reliable.

 

If corn yields move down toward a national average in the low 150's there isn't going to be a big 'crack' in the markets. It could be another year when prices rise through harvest and on into the winter. Seasonals haven't been a reliable indicator for some time now.

 

Your prediction of a national yield of 160 would be a surprise - if it happens. I'll be the first to congratulate you if that is near the final figure, though I have no idea how you arrive at it.

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