March 4, 2020
Well, this has gotten pretty amazing and I can honestly say I have NEVER seen markets like this…Where the Dow is swinging 1000+ points daily and multiple commodity markets have done complete nosedives…except, of course, the Soybean Meal market which had another new highest close for the year yesterday…and I CONTINUE TO RECOMMEND BUYING THE JULY CONTRACT, with my target still being at least a 20% rally…or approximately the 360 area.
But I’ll get back to the Meal market in a minute…
My take on what is happening in the economy and markets as a whole…
My number one thought: The CORONAVIRUS, which has become like a mania that is impacting all of the markets, IS A TEMPORARY EVENT. I have no idea as to how long it will take to play out, but I will offer that this is not like the Black Plague, nor Smallpox…nor the Mortgage Crisis that led to the Great Recession. It WILL pass and my guess is that the direction of all the markets we trade will have dramatically reversed their courses during the past few weeks…within a matter of months. In other words, Stocks will be heading higher, and most Commodities as well…and Treasury Bonds, Eurodollars and Gold will be heading lower.
I would also say that Coronavirus was a Black Swan…a one of kind absolutely unpredictable event…that quite frankly was a stroke of blind luck for all the eternal bears out there…that the selloff in stocks had NOTHING to do with the traditional bearish arguments about a “fragile economy,” or “stocks just too high,” or “PE’s too rich,” or “a correction is overdue,” or “the Fed is the only thing holding everything up,” or whatever…AND that what we’ve done during the past 8 days (since the crash began) is provide new fodder for all the bears to…one more time…see every rally from here until new highs are made (and beyond) as an opportunity to be short again…BUT, the markets will keep on chugging higher…As I’ve written for several decades, driven by (1) a GLOBAL commitment to Capitalism (following the 1990’s collapse of Communism), meaning several billion new capitalists and consumers for the planet, and (2) the monstrously and still exponentially expanding Technology Revolution, replete with a barrage of totally NEW INDUSTRIES creating 1000’s of new products/services, and (3) the cheapest money in history (even before this week)…THE WORLD IS EXPERIENCING AN ERA UNLIKE ANYTHING THE ANYONE HAS EVER SEEN…and stocks, as a economic barometer of sorts, will just KEEP climbing…For sure, there will be “gyrations,” but they will still keep making new highs…here in the USA, and everywhere else.
Trying not to get too longwinded…I will just say that I believe a number of commodities represent immediate buys…that what we have seen is a temporary VACUUM of buyers as mob psychology virus fears were being touted 24-7 in the media…which quite understandably influenced actual commodity buyers to semi-unanimously hit the “pause” button regarding their near term purchases (and NOT, say, for their needs 6 months in the future), and the result of this “no buyers anywhere this week” is really what tanked so many commodity markets…However, with world demand for feed and food stuffs still hitting record levels, and NOT in any way contracting in the long term, it is my firm conviction that those buyers WILL quickly be back…and probably already are…and that virtually all of these traditional commodities will fully recover on the upside…and then some.
And in one other area, Interest Rates, I will also say that I believe we have finally hit levels in rates from which it is impossible to go any further…that during the past few weeks we have seen an almost unbelievable rush to buy the “safety” of Treasury Bonds…at prices in the stratosphere…and that while I have been wrongly saying “Sell Bonds” and “Sell Eurodollars” for quite some time now, I do NOW think this has become the biggest interest rate trade of my 40 year career…to GET SHORT THESE TWO MARKETS, BONDS AND EURODOLLARS, AT THE HIGHEST LEVELS IN HISTORY.
Enough talk. Here are some charts…
As I have noted for years, the chart below is THE chart when it comes to predicting the USA and World Economies...and generally speaking, besides the Great Depression, it never actually goes down. For sure, there can be sharp retracements or bear markets, but in the big picture, they are only pauses as the WORLD continues to expand economically, WHATEVER supposed “crises” become the big news du jour.
And I recommend BUYING any or all of the markets below, ALL of which I believe have been ARTIFICIALLY depressed by the Corona “scare.” And in my opinion, they ALL have high odds of roaring back to where they were a month ago…and beyond. As always, I am obligated to say, however strongly I feel, I might be dead wrong.
With the strength we've had in Soybean Meal, when EVERYTHING else was going down hard, I think I have shifted my expectations to seeing more than 360 by expiration...which doesn't matter at the moment...I continue to recommend buying 1&1's here.
And I KNOW the average Cotton grower will think, “He’s nuts. 77 cent cotton?” BUT…I would remind you that we were at 74 just two months ago…AND…I DO think we’re headed at least into the low 80’s…Cotton has a long history of FREQUENTLY moving in 20-30 cent increments…Every Cotton farmer, and analyst, I talk to is always talking about the next 2-3 cents like it’s a dream, when, as I have pointed out in previous newsletters, Cotton repeatedly makes MUCH bigger moves than that.
And Feeder Cattle are EXTEMELY interesting in that, similar to Soybean Meal, Feeders have remained relatively firm in the face of other collapsing markets…And this IS a market that also has a tendency to, at times, get a little crazy with the size of its moves...With our expansion of exports, especially to China, I AM BASICALLY BULLISH THE MEAT MARKETS AS A WHOLE...AND THIS IS MY FIRST CHOICE AS TO WHERE I WANT TO POSITION.
I have other markets I like…LIKE CRUDE OIL IN A BIG WAY…but this is enough for one day..
As they say, “Buy Low”? And “Buy when there is blood on the tracks”?
Give me a call if anything here interests you.
All charts by Aspen Graphics
All option prices in this newsletter include all fees and commissions.
The author of this piece currently trades for his own account and has a financial interest in the following derivative products mentioned within: Bonds, Soybean Meal, Cotton, Feeder Cattle