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.

Budget Crisis

Let’s see… George W. Bush was the only president in history to start a war, two wars in fact, while lowering taxes. The tax cuts for corporations and the wealthiest have reduced the government’s income by some $2.5 Trillion. The wars have spent another $3 Trillion and an estimated $1.5 Trillion will be needed for assorted hardware replacement, care of our veterans and the training of replacements for those who will leave the armed services as soon as they are allowed to do so. Congressman Boehner had no qualms about adding that $7 Trillion to the national debt.

Were Boehner even marginally honest with the public, he would admit that were it not for his leadership in pushing through the tax cuts for the rich, and were it not for all the congress’ (including Hillary Clinton) lazy-minded rubber stamp of Dubya’s wars, the current debt would be only $6.8 Trillion, well below the ceiling of $14.3 Trillion.

On the other hand, had first Dubya then Obama not handed out  $600 Billion to the worthless sods at AIG, plus another $200 Billion to GM, that would have helped a bit as well. You may well remember my rant about the foolishness of bailing out the Wall St. Banks as a way to provide liquidity to the system. Liquidity was needed, and confidence that bank to bank transactions would be honored was non-existent. That needed to be done. But the supposedly socialist Swedes got it right: take over the insolvent bank (and AIG), fire the executives and promise them prison cells if they try to cash in their golden parachutes, sell off what works, fix what’s broken then resell it at a profit. If Sweden can do it, why not the US? The answer is that both G.W. Bush and B. Obama have Treasury Departments that are run by either former chairmen of Goldman Sachs or close friends of Wall Street Bankers.

So now Boehner wants to balance the budget by destroying social security and medicare. Helluva Plan, Johnny. And Obama appears to be willing to help him do it. Damn you, Barack; may you be un-elected in 2012.

Who are the damn fools in Ohio that keep reelecting this force of anti-American, pro-corporate socialist? [A corporate socialist taxes the middle class and the poor to support corporations, especially corporations that are large and pay their executives huge salaries.] 

Weekly Grain Update

Open interest in Wheat is quite low; commercials own the long end of things, funds hold about 60% of the shorts and farmers plus small specs the other 40%. Assume for sake of analysis that the wheat crop is going to be much less than a "bumper crop." The position holdings will be nice for bulls, if the "IFs" turn into "WHENs". 

December wheat spent most of the past two weeks reading oversold. Generally, prices do not go straight up from oversold; rather, they tend to go down more but weakly enough that oversold doesn't recur.  September is slightly, but only slightly, less bearish. In terms of targeting, 650 was the first downside target basis Dec. Looks like prices should go on down at least to 620.

Beans are very sideways. In May, prices got just under $13, then bounced. This week was spent bouncing from the same price levels. At this point, a reasonable guess is up to $14 the get tired. If, at any time, bearish news comes from the farms, $14 is likely to be the launching platform. CoT numbers are almost even, with the net longs coming from funds and the short side provided by commercials and farmers.

Corn saw positional CoT shrinkage this report, by which I mean commercials let go of some shorts while funds let go of some longs. Monday saw sharp selling that took prices almost all the way to a mid-March swing low in September's contract. Not quite as much was managed in Dec. Since then, prices have been all up. While I'm not prepared to take permanent position, my short term view is more up motion, likely to reach $7 or $7.20 basis December.

Alan Blinder

Alan Blinder, a well-known and well-respected economist who served, briefly, inside the Beltway in DC, has written a short piece that helps ground the reader whilst the hurricane of rhetoric from inside the beltway tries to blow away any pretense at reality.

The lack of reality testing prevalent in the Republican party these days is enough to qualify most for beds in the nearest insane asylum... as if that will happen.

Daily Blatt July 5th

OK, all over the British media is speculation on whether the US will default before Greece does, and how baaaad it will be, should we have a (technical) default. That must mean that US bonds went down in price, up in yield, because the assorted ratings services are babbling (I do mean "babbling") down grade, right? And the US Dollar went down today because, after all, who would want USD denominated debt, right?

Naturally, the above seemingly logical results were all what did NOT happen. Bonds were up smartly and the dollar was up against at least all the following: $C, $A, GBP, Euro, NZD, and Yen.

"When logic and proportion fallen sloppy dead..." with apologies to Grace Slick.

July 2, 2011 CoT Grains

Wheat CoT was unchanged! against last week. I suspect we will see an increase in commercial longs and fund shorts showing up in the next report, given wheat's price declines this week. Unsurprisingly, indicators read "over-sold" but oversold does not imply "end of down." Look for further declines until things change.

Corn was really hammered by this week's plantings report. 70¢ is a lot of hurt in corn prices. Last week's CoT showed funds shedding longs, commercials offsetting shorts. Next week seems likely to show more of the same. Corn, too, is oversold and likely has more downside to go.

Intriguingly, beans were the least damaged by the plantings report. An argument can be made that a bottom is near -- and maybe it is. Commercials offset shorts, funds sold longs and neutrality of positions is near, if things continue in this vein.