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hardnox604008
Advisor

Taking the punchbowl away

It appears that the Fed has finally figured out something they don't teach in grad school- that when you push massive reserves into the system your friends on Wall Street and  in Greenwich (who needs friends like that) will use it to game you and lever long on everything. The result is that commodity inflation damps off whatever boost you'd hope to get from financial assets.

 

So now they're out to take oil and comms down a few notches before the next attempt to ramp the financials. As they say, inflation is transitory.

 

Bill Gross says QE3 or a similar interest rate cap will be announced at Jackson Hole in August on the one year anniversary of QE2.  Gross is very good and well connected so his guess is as good as any.

 

Makes sense to me although the next one will have to have enough legs to carry through the election cycle, or at least that will be the intent.

 

But I'm guessing that bodes relatively well for the grains through that timeframe. It is always hard to hold two contradictory concepts in mind at once but odds are good that we will trade lower for the rest of the year but that the tailwind of financial juice will keep air under things for another year at least.

 

In additional the fundamental side doesn't look that bad- enough nicks to the global crop that it sure looks like we're a year or more away from a big build in stocks.

 

The interesting thing to watch will be how the 2012 Farm Bill comes togethr under severe fiscal constraints. I don't know if anyone has a sense of jut how exposed croppers are to wildly increased costs and little support under the market when stocks finally rebuild. Don't know if they have the resources to do anything about it.

 

 

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10 Replies
jrsiajdranch
Veteran Advisor

Re: Taking the punchbowl away

I sadi a few wekks ago August corn would have a 5 in front maybe I shoulda said a 4?

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BA Deere
Honored Advisor

Re: Taking the punchbowl away

This is only a guess on my part, I just can`t see how "taking away the punchbowl" will lower unemployment and get houses moving.  It seems if a "QE3" was proposed right now it would go over like a lead balloon.  Later on from now a QE under a different name will be begged for.  Taking away the punchbowl is the right thing to do, but not condusive for a politician getting relected. High drama!

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hardnox604008
Advisor

Re: Taking the punchbowl away

Hi JR,

 

Lots of the game to go but it doesn't seem impossible to me.

 

The one thing I know is that the pain and regret factor of making profitable sales along the way may be very well compensated for if you  avoid the level of regret that would be associated with being in that situation unpriced.

 

Best, h

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hardnox604008
Advisor

Re: Taking the punchbowl away

You gotta break oil prices first.

 

Take stocks down 20% and hold them there, keelhaul the oil specs to the tune of about $50.

 

Then barring a geopolitical problem you've got a fair chance of keeping oil under 100, maybe even under 80 wihile you're pouring the juice to the economy.

 

Remember the little trick that the Bush administration did before the 2006 election when they had Goldman rejigger the GSCI to sharply reduce unleaded and broke gas prices by a buck?

 

As it turns out didn't do them much good becasue they got masssacred in the midterm just like Obama got killed in 2010 midterm QE2 or not.

 

But doesn't mean they won't try cuz nobody has a better idea. And the people who are putting money in their campaigns expect them to play to win.

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Nebrfarmr
Veteran Advisor

Re: Taking the punchbowl away

It might not work, but getting fuel prices to drop 1/4 to 1/3 would give me a chance to lock in better fuel prices, and hopefully better fert prices, as well.

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cornhead64
Frequent Contributor

Re: Taking the punchbowl away

hardnox, good info, I googled things and look what I found:

 

http://www.infiniteunknown.net/2011/05/05/how-goldman-sachs-created-the-food-crisis/

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hardnox604008
Advisor

Re: Taking the punchbowl away

Hi Cornhead,

 

Yeah, I think I posted that here a while back.

 

It is a complex subject that doesn't sit well with some here and I understand that.

 

We are just little bits of driftwood floating in the current of a real big river. Advocacy aside, all we can really do is try to understand which way the current is going.

 

Best,

 

h

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Artifice
Senior Contributor

Re: Taking the punchbowl away

gold bugs are fanatic anbd are ure someone is playing them.

 

when wheat gets high, more is grown and price plummets

 

is reality..

 

did sticks and corp profits do well vs 2 yrs ago when

tht poster was bearish?

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JonSCKs
Veteran Reader

Re: Taking the punchbowl away

I read the piece..  The thing the article seems to overlook is that IF this is all overspeculation.. then the markets would self-correct.   For instance it talks about the long roll and eating the carry...  However, if the long wanted to hold PHYSICAL product than they would have to pay storage.. OR build a facility to store.. Which is what the carry offers to those who do STORE.

 

The truth is this investment.. from $13 billion in.. 2003 to $318 Billion by 2008 was needed.. (granted.. their may have been a little speculative froth..)  Over that time.. on our farm we have expanded our planter.. traded an 8 row for a 16 row.. bought a larger tractor..  Those two items along today new are a $400 K investment..  Our Coop has built.. sheesh.. 3 to 5 million bushels of new storage.. at $3 per bushel or thereabouts.. $15 to $20 mln in new investment.. bought some dryers.. bigger legs.. etc across the 10 or 12 or 14 storage sites.. It takes something like a $75 million dollar line of credit to carry the inventory..

 

Equipment dealer.. 2 new stores.. four locations.. has probably 50 new $400 K combines on the lots.. again.. probably $20 to $50 million in inventory... Seed... Fertilizer.. Chemicals.. Land.. Bankers.. Trucking.. Railroads.. Accouting.. etc...  Everything has ramped up to produce more.. we employ more people in Ag now then we did in 2003.. there's actual a job for new graduates out of college now if they want to enter the field.. I talked to one today.. who.. although he is doing a lot of traveling as a Crop input Salesmen... likes it.

 

We may have overdone it.. but that is only because the Ag infrastructure was neglected for so long.  There may indeed be a correction coming.. (always has been..) but is it all bad that we have tried to put Rural America back to work...???

 

Actually.. back to the original topic.. taking away the punchbowl.. as much as I love to rail against the current adminstration.. and all their shortcomings.. Actually.. If we would just work on balancing the budget.. that alone will be depressing enough to any inflation.. If the gov't has to stop subsidizing ethanol.. and the prices that ethanol plants can pay corn farmers fall.. and therefore the prices farmers can pay for inputs.. fall.. etc.. and the dollar rallies.. because the rest of the world sees us getting our house in order.. and therefore Crude Oil falls.. etc...

 

we might actually land on our feet...

 

okay.. dreaming.. I know.. but like it or not.. the books are going to have to balance.. and we are still going to have to figure out how to feed, clothe, and fuel a growing world population.. probably some more bumps along the way.. and it hasn't been easy.. but at least we have tried.

 

Frankly for what we've gone through.. it's amazing things are as "normal" as they are... could be worse.. we could be in a depression.. but.. so far.. doesn't appear to be the case.

 

I better stop there before this Monetarist has to admit all the pump priming worked.. and I'm not going to go that far...

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