May 19, 2010

As of today, I have moved completely out of our Long Treasury Bond and Long US Dollar recommendations. While I still believe both Bonds and the Dollar are going much higher, my thinking is these two markets are ready for a pause, and I think it makes sense after their recently fairly sharp moves to take the money and stand aside. I still think Bonds are headed for the 130’s and will be looking to reinstate our long positions from lower levels…

We have taken profits in Treasury Bonds…

 Also in the Dollar Index…

 Soybean Oil has been inching down…

 Meanwhile, Soybean Oil has drifted about 4 cents lower during the last five weeks. I STILL believe any given day is when this market begins to fall STRAIGHT down, with a target in the mid 20’s. And this is STILL absolutely one of the best 2 and 1 set ups I have ever seen…I firmly believe speculative buying from commodity index funds has been the single factor holding this market up…As it becomes evident that inflation is NOT something to bet on, all of that “buy only” fund money will end up on the sell side, and as those BILLIONS of purely speculative dollars leave the table, I look for the soybean complex to be a major candidate for what I can only describe as crashing prices…This stuff ALWAYS goes too far up…and too far down…and with record world soybean production, DOWN, and in a big way, is all I can see from here…

Gold is still “up”, but….?

Gold has continued to trade higher, most recently due to fears the world currency system might collapse (ludicrous, I believe) or that the European version of our TARP would lead to inflation (ours didn’t). I continue to see this market as a game of “Who’s the last fool?”, and that when the air comes out, the size and speed of its descent will be stupefying (I’ve been there). As it quickly becomes evident that all of the European powers that be have not just thrown up their hands and said, “There is nothing we can do! Let the EU and the Eurocurrency cease to exist!”, I believe you will see at least a few $100+ down days in this market. Gold moves more on perceptions and mob psychology than anything else, and they have milked this baby for about all it's worth…The world is NOT going down the tubes. Hyperinflation is NOT in the cards. The world fiat currency system is NOT going to be replaced by gold bars…and this market is NOT, in my opinion, worth anything even remotely close to $1200 an ounce…

Inflation? Greece, Spain, Portugal, Italy, Ireland are just a few of the big names that have serious economic issues involving pay cuts, pension cuts, public service cuts, job cuts, etc., and NONE of what is going on over there is what I’d call inflationary. When the public is scratching around just trying to keep their jobs and feed their families is NOT when you get hoards of consumers running around buying up every and anything in sight…Put that together with the fact China (the big commodity gobbling story) is raising rates on almost a monthly basis to slow their economy? Where’s the inflation coming from? To me, DEFLATION is much more of a risk than inflation…

At any rate, with all the emotion and hurrah surround the falling Eurocurrency, I have the feeling this was somewhat of a key week and the fear factor driving gold probably hit its apex, providing just enough gas for gold to make ONE MORE NEW HIGH (fake out break out)…And now the stage may be set for a reminder of just how fast commodity markets can go down…Yes, I’ve been bearish this market for a while, and been wrong, but my opinion has not changed…Is this it? Don’t know, but I am staying on this…and continue to recommend buying puts…I think this trade has monster leverage, and I still would not be surprised by ANY size move on the down side…

 Here are some very recent bull markets that “inexplicably” became bear markets…and in a hurry.

Here are just a few examples of markets that have recently gone from bull markets to outright disasters from one day to the next…I keep talking about Soybean Oil or Gold going “straight down” because this sort of thing happens all the time in this business. Believe me, if you have come to the futures markets in search of rationality, you’ve come to the wrong place. Futures (and stocks) are nothing more than a big game and I constantly remind myself that, in this sh*t, ANYTHING CAN HAPPEN…Truth is, big moves are the norm in futures, and any of the next three charts could be exactly what is coming in Soybean Oil or Gold…I certainly don’t know if this will be the case but I am mentally prepared for the possibility…

 Think anybody saw this next one coming…? Relatively straight up for 8 months, then REALLY STRAIGHT almost all the way back down in 3 weeks?

And this? Sugar was one THE big biofuels stories coming into 2010. In January, according to the experts, there was “a world shortage”. Say what? It’s dropped like 40% in value in the last two months?

My sister is in town so this goes out very quickly written and unedited…I continue to think Gold (or silver) and Soybean Oil are big potential situations. Give me a call if you are interested. I’d remind you we are entering the most volatile part of the year in the agricultural markets and I do especially believe the odds have gone sky high that SOMETHING BIG is coming in the bean oil, one way or the other, and the 2 & 1 strategy is the perfect way to put your money on the table and have an excellent chance of either getting it all back OR making what I think could be a really big hit. Obviously, if it does continue sideways, you could also lose everything you have in the trade…but for my money, I am absolutely willing to take the risk…

Thanks,

Bill

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