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commodities (2)

Saturday, 04 May 2013 06:39

food commodities could outperform stocks

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stock markets along with other paper assets take a beating on global debt woes and anemic economies.  there has been a rush to perceived safe havens such as gold and us treasuries (downgrade notwithstanding).

a potential alternative according to sudakshina unnikrishnan, commodities analyst at barclays capital: "with agricultural commodities, even in periods of recession or a downturn in global growth, demand doesn't decline in the same way as it does across energy and metals markets."

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caroline henshaw, dow jones on 8-9: in the six months to june, the sector saw total inflows of $5 billion—almost 40% of the total--including the largest quarterly influx on record, according to barcap. this trend reversed in the second quarter, with $2.2 billion of outflows, the first since the financial crisis.

etf securities said that its agriculture exchange traded products have
recouped one-quarter of their first-half outflows over the past month,
"suggesting that much of the first half outflows may have been short term
profit taking".

"we would...expect agricultural prices to outperform the rest of the
commodity complex, especially the more cyclically-leveraged energy and
industrial metal sectors," said goldman sachs.

much of agricultural markets' resilience comes down to tight fundamentals.
hot weather across the u.s. corn belt has raised concerns that this year's crop will once again fall short of demand at a time when stocks are already at historically low levels.

“food related commodities may not be on the same leash to global economic woes as paper assets, but a severe enough slowdown may reach them as well” according to adrian muller, principal of time leverage capital.

agricultural markets have had a bumpy ride this past year – and much volatility may lie ahead.   nonetheless, the sector may be a good diversifier in shaky times.

in sugar too, concerns that output from top producer brazil will fall for the first time in a decade in 2011-12 has pushed up prices and spurred managed money investment to a record 26% of open interest.

jp morgan said it expects sugar and gold to see the most future upside.

"dollar weakness and rising inflation expectations also open the upside for
raw sugar prices to surge far higher than would otherwise be likely, perhaps
doubling or more in a spike," said the bank.

Saturday, 04 May 2013 06:38

weekly wrap

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statistics, observations and thinly veiled references to politicians and unabashed 1st amendment protected opinions.

weekly wrap by adrian muller

the fed can’t track its own books.  dow jones reported that the federal reserve issued a correction on the balance sheet it reported thursday 8-18(?!).

a revised version of the fed's weekly balance sheet report (aka - h.4.1), was posted on the fed's public website.

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the central bank said:

1. its original report understated the average value of u.s. government securities held in custody on behalf of foreign official
accounts during the past week,

2. its original report understated the average amount of u.s. treasury
securities and federal agency securities held in custody for that week.

is this worrisome?

signs of a double dip recession

* the european summit between france and germany was unsuccessful, if you factor in the ecu equity market reaction.   european stocks responded by getting crushed – again.
* jobless claims jumped by 9,000 to 408,000 in the most recent week. is there any reasonable expectation of improvement?  many fear employment will get worse before it gets better – and for good reasons.
philadelphia fed manufacturing crashed to minus-30.7 in august from +3.2 in july. it’s the worst shift going all the way back to the depths of the 2009 recession!
*existing home sales fell 3.5% in july versus expectations for a 2.7% rise. theoretically low interest rates aren’t helping.  sidelined lending capital is scared or unwilling to bite.

* consumer prices surged 0.5% last month – more than twice as much as economists forecast (wrong again…). this number implies the annual inflation rate at 3.6%, far above the 2%-or-less rate the federal reserve typically likes to see.  worse, bernanke has painted himself (and the economy) in a corner with the attempted “bernanke put” – announcing rate policy until 2013.  completely unprecedented…

another round of qe with these kinds of inflation readings gives no political cover for another stimulus / spending attempt. moreover, two regional fed bank presidents yesterday said explicitly that they don’t want to be seen as bailing out stock investors!

philadelphia fed president charles plosser said the fed’s recent pledge to keep rates low through 2013 was “inappropriate policy at an inappropriate time.” dallas fed president richard fisher added “my long-standing belief is that the federal reserve should never enact such asymmetric policies to protect stock market traders and investors.” he went on to decry the perception that the fed has thrown a “bernanke put” to the market.

with all that said…  good luck in the markets.  we hope volatility will be your friend.  call or email with your comments.

adrian muller

p.s.  next week we’ll do a special meeting on the debt.  it will be scary and oddly hilarious at the same time.  please let me know if you want to attend or receive access to a link afterwards.

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Contributing Editors

  • adrian muller has conducted seminars for the chicago board of trade, including a key series in 1999 which cautioned about a top in the equity markets (see his article “top experts and statistics on the dow”). adrian muller has appeared on cable tv financial programs with analysis on the futures markets and equity market directional forecasts. he has been quoted in barron's, the wall street journal, and futures magazine.

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