Grains July 23

Unsurprisingly, funds increased their long positions in corn while commercials sold to them. This weeks price action appears to be waiting and hoping. The bulls & funds are hoping the weather does as much damage generally as it has done in some places. However unlikely (& it is probability zero), should that be the case, we will be looking at $12 to $14 come December. The bears are hoping the rains which some of the midwest saw this week will come in just the right amounts to just the right place, only the right places and at just the right time (a week ago would have been good). If that happens (& we know it can't) December will bring prices under $4. I remain bullish but haven't found quite the right spot to get long.

In beans there is some sort of "quadruple top" babbling going on among some folks who, it seems, have limited knowledge of technical analysis. First of all, quadruple tops are nearly non-existent on daily charts, and have never been spotted on weekly or monthly charts. On five minute charts they are essentially meaningless as well as rare. Second, no such beast has been formed in beans. To confirm such a top, prices need to drop below 1230 basis November. Third, the fourth effort to break out on top is on the order of 90% to succeed, meaning from where we are, chances of going significantly higher are at least  nine to one. Clearly, then, I think the price action is bullish. The CoT numbers show fairly sharp expansion of fund longs (for the the week ending Tuesday, since the government is still in the 1970s in using technology to protect the public) and a concomitant increase in commercial shorts. There is no way to put a bearish spin on those numbers.

Finally, there is last year's pack leader, this year's runt, wheat. Commercials have been taking profits in their long positions for two weeks now, selling both to funds and to independent specs who have been offsetting shorts. Try as I might, I cannot find a way to spin this as bullish. Bearish going towards neutral, maybe, but no stronger.

Check in tomorrow for crude, natural gas, bonds and guesses on the stock market

The Laffer (Laugher) Curve and Reality

 Nobody likes to pay taxes -- unless the alternative is having no income. Nobody wants to pay more taxes rather than less. However, try not to be taken in by simplistic arguments that purport to show less taxes generate more taxes because lower taxes generate more growth. More growth, it is argued, generates more jobs which generate more taxes. Hence less is more.

If you look at the chart below, you will find that the highest marginal rates (the blue line), around 94%, coincided with the highest annual GDP growth in the past 80 years. The second highest growth rate happened when taxes were above 60% in the maximum bracket. And, if you look, you will see that lowering tax rates has had NO DISCERNIBLE EFFECT ON THE ECONOMY.

I see that the Laffer Curve nonsense is being trotted out by the Republican BS artists (mind you, the Dems have plenty of their own -- they are just spewing other nonsense, such as helping Wall Street magically helps Main Street). If the Laffer Curve had any value, any relationship to reality at all, the graph would show some correlation between decreasing taxes and increasing prosperity. It doesn't. The Laffer Curve would better be spelled "Laugher Curve."

My goal here is to keep reality as the focus, not politicians baloney. The graph is real.

 

End of Week Currency

$A remains bullish; an attack on 1.09 is likely in the offing (attack does not guarantee success).

Euros look bullish, but... There is stacked resistance, the first at 4465.

Pounds Sterling have converted a bear channel into a bullish condition. Expect an attack on 6550

$C saw the USD attack the trend today, but fail to turn things around. Stay bullish on $C

The Kiwi and the Yen are both bullish but --- but they are over-bought. Being overbought doesn't mean they won't go up Monday, and it certainly doesn't mean they won't go up next week. Most likely, both will.

Stocks soar, grains wait, dollar plummets

Corn looks like it wants to be done with this correction, beans is insisting they are done but wheat still hasn't got down to $7 and still looks like it wants to go there.

Talk of a "Greek Deal" seeped into the marketplace around 7AM EDT. That triggered wondrous waves of optimism, sending both the worlds bourses and crude oil skyward. The €, the £ and the $A followed suit against the $US. Gold was disappointed that there might not be a disaster, falling slightly ($15).

The US has more than a week to further disappoint gold buyers by putting together a sane financing package. Of course, the big banks think that sane means lots more subsidies to them, either direct or indirect, but the foolhardiness of world governance in bailing out without breaking up the big banks will take another few years to become manifest. In the meantime, it's politics as usual with stocks hating uncertainty and rallying when some disappears.

Incidentally, this week was the average end to a bear run on the stock market.

Lazy Summer Day

At least the markets behaved as if it were a lazy summer day. Corn was down sharply but corn was pretty much the only major item that moved much. Wheat, beans, crude, stocks and bonds all spent the day trying to wake up. Forex response to everything was nothing if not muted. Or maybe it was nothing AND muted.

The elephants in the room that the markets chose not to deal with today were the impending US debt limit expansion or technical default on one hand and the wide-spread European debt crisis on the other. What the worlds stock markets need is an invasion from Mars, one that we know we can defeat. All the countries will find a way to get paid as a result of a global war against a common enemy, the world's bourses will rally happily, OPEC will decide it is time to control the price of crude, which they will do by selling short one billion barrels which will break the backs of all the hedge funds. They in turn will have to put to work all their now-unemployed bright boys inventing ways to defeat Mars -- even if it is a hostile take-over of the Martian Stock Market(s). And everybody will live happily ever after. Don't they always?

They made the money so why should they pay the taxes?

The other day I wrote with some irritation about the Republicans who were more than happy to help Geo. W. Bush push the country deep into red ink by being the only administration EVER to both start not one but two wars while reducing taxes on the richest 5% of the nation. I got a response that I’ve seen enough time before from enough people that I think it deserves attention.

The general nature of that response has been, “Well, I/they made the money, so why should they pay (any) of it to the government?”

Folks, none of us is an island, living alone and providing for all our own wants and needs. Who paid for K through 12 education? The government. And please don’t tell me that K through 12 is cheaper or less important than a college education. The costs of 13 years of basic education far outweigh the costs of college, besides which, without the basic education what good would college do? No one who can’t read can succeed in college; no one who lacks basic arithmetic skills can do calculus; and so on.

What about the companies themselves? Which of them does not use, either directly or indirectly, the interstate highway system, built by the government under the guise of national defense. Which of them doesn’t use the internet, a system created and paid for by the Department of Defense? Which of them doesn’t use the satellite system to transact business, also paid for by the DoD?

Who among us doesn’t use gasoline? If the true costs of all the subsidies provided to the oil companies over the last 80 years were amortized and the costs of the military spending that has been purely to protect our supply of oil were rolled into the costs of gasoline, we wouldn’t be bitching about $4 gasoline – we’d be bitching about $14 or higher gasoline.

Pretty much every farmer in America has abundant electricity. Electrical companies refused to take power to most of America’s farmers because spending money on the much denser city populations was more profitable. LBJ, when he was a congressman, created the Rural Electrification Agency which used both the carrot and the stick to get electricity to farmers.

Getting farm crops to market has always been an issue: it is a long walk from Des Moines to Chicago. The federal government subsidized the creation of the railway system by giving every other acre of ground along the right of way to the railway company. Of course, rail tycoons like Jay Gould found ways to convert that to cash in their pockets rather than cash in the company coffers but that was because there was too little government oversight, not too much oversight.

How many of the largest businesses use airlines and/or corporate aircraft?  More than 95% of the cost of basic development of commercial aircraft has been paid for, often indirectly, by the government through the DoD. The radar systems that make flying safe were paid for by the DoD. Jet fuel, like other petro-products, is heavily subsidized by the DoD.

Business offices use city streets, city water, city sewers, city police, city sanitation works, city transportation systems and the other services provided by the government.

Quantify these costs paid for by every taxpayer, then charge them back in proportion to the amount of profits “earned.” You’ll find that the $2.5 Trillion not paid by the richest corporations and individuals in this country is only a small part of the subsidy the rest of the taxpayers have provided. George Orwell got it right in Animal Farm when he said that all the animals were equal, but the pigs were more equal. Those turned out to be $2½ Trillion Pigs.

Waiting...

The world's bourses/stock markets were down today and gold was up, but everyone else was waiting. Forex markets are presumably waiting to see which of the other shoes will drop next... Portugal, Ireland, Italy, Spain or the US. I suppose that spells PIIGS-US or maybe that's US PIIGS.

The grain markets are mostly likely now getting ready for either a bumper crop (15% chance) or a price rise that will knock the US Federal Reserve on its backside, along with its prediction for markedly lower food prices come autumn.

The Pink Elephant that few are watching is the Chinese economy. Self-admittedly, they have considerable manufacturing over-capacity. Big chunks of capital are going into the real estate market and have made Beijing one of the most costly cities of the world in which to live or do business. And the fat lady has yet to sing: foreign developers are building class A office space at record rates. That guarantees there will be an office space glut, and it is likely to be sooner ( a couple of years) rather than later (five years or so).

Why a pink elephant, a beast Americans normally associate with drunkards? Because the giant developers generally build with all the caution of a drunkard. And because drinking is one of the two or three favorite past times of nearly every developer.

July 17, 2011 CoT Grains

December corn was up better than 60¢ on the week, as reality returned to the market place. Unsurprisingly, the trend-following funds expanded their longs going into this week, and likely expanded them more this week. One might reasonably expect a couple of down days next week, but nothing very serious.

Funds expanded their long positions in beans. Farmers and small specs reduced their shorts while commercials sold to everyone else. Prices are getting near the $14 (basis November) barrier. Actually, I should call it a reflective surface, not a barrier, since there is no particular reason to believe prices cannot or will not go through. The interesting question is whether beans will be towed along by corn or will, instead, develop their own legs. If the unusual weather so much of the country has had this year follows along through summer and into early autumn, beans may under-produce by quite a bit. Weather is tricky business, as farmers know entirely too well.

Wheat, dear old we-gots-too-much-wheat, wheat. Commercials reduced their long positions, funds reduced their shorts and farmers stayed short. Wheat prices struggled, although Tuesday and Wednesday were both strong days. I’ll be surprised if wheat does not drop to $7 or lower, basis December, this coming week. A low above 650 followed by prices nicely through 750 will go a long way towards getting wheat upward bound. Even so, it seems it will be pulled along rather than leading the way as it did last year.