July 19, 2020
While it absolutely does not mean I will be right, I think the commodities markets currently present the biggest bull market opportunities I have seen since I entered this business in 1980…following the roaring 1970’s when commodity prices went fairly crazy on the upside…
To say the Fed and Congress have been flooding the market with liquidity and financial stimuli doesn’t even come close to describing the aggressiveness with which the powers-that-be have been acting…Literally trillions of dollars have been, and continue to be, pumped into the system (both here in the USA and abroad),and without even beginning to outline the basics of fiscal economics, MY OPINION IS THAT THIS AVALANCHE OF MONEY SLOSHING THROUGH THE ECONOMY…AND THE MARKETS…WILL RESULT IN HIGHER PRICES FOR JUST ABOUT ANYTHING YOU WANT TO NAME…WITH SOME OF THOSE PRICE ADVANCES PROVING TO BE ENORMOUS.
There are charts of 11 markets shown below. To me, they are all in varying stages of bull markets, with a few having already made fairly gigantic moves…in spite of the economic slowdown…and my point here is: In the course of the next 6-9 months, I think that all of these markets will end up looking pretty much the same…with potentially all of them having had astoundingly large moves to the upside…
One - You don’t just dump trillions upon trillions of dollars into the economy without the obvious inflationary implications.
Two - All of these markets have been/are coming off of extreme, blow out type lows. Just to even get back to “normal” (or just to cost of production) price levels represents big contract moves for many of these commodities.
Three – Do take note of what the markets below have been doing, again, in spite of the fact that we are still squarely in the midst of fighting the pandemic…And then ask yourself where those markets will likely be as the news gets better…There IS evidence in some states here in the USA, and in nations around the world, that the virus can be brought under control…not 100% for sure…but that it can become manageable…And also, sooner or later there will be drugs that fight it and/or vaccines to stave it off. The point is, better news WILL be coming…and if these markets have already either bottomed, or are already unquestionably staging roaring bull moves in the face of the bad news, where will they be by the time we get past the current crisis? And I might be dead, dead wrong, but for my own money, I have virtually zero doubt that they will ALL be definitively and/or dynamically higher.
Before showing you the charts…Regarding my ongoing “Buy Everything” recommendation (since March 18th) , my current mentality has become to semi-aggressively position in each of my targeted markets, if/as any of them begin to look like they are breaking out…which IS happening in several of them right now…and then to assume a very big EXTENDED move.
Starting with the markets that HAVE moved substantially…
And lastly, not because it’s probably the biggest move we’ve seen, but because the bottoming action here is the perfect example of what I am talking about…
So, what about the row crops…
Corn, Cotton, Soybeans, Wheat?
And the Meats…
Live Cattle, Feeder Cattle, Lean Hogs?
Before getting to the charts, consider this…
I have repeatedly stated, for months, as all of these markets have either been storming higher…or forming what I believe are solid sideways-to-higher bottoms…that virtually all of the analysis I see…in ALL of these markets…has been, and continues to me, nothing but bearish…that ALL I ever seem to hear from analysts is commentary along the lines of: “Covid may weaken demand, supplies are abundant. Therefore, there is NO real upside potential for any of these commodities,” and “Farmers and producers should be selling here, even though prices might be below their costs of production.” And I mean, that opinion is EVERYWHERE.
However…I TOTALLY DISAGREE WITH THEM.
What nobody seems to be taking into account is the possibility of either advance commodity stock piling due to the possibility of future supply side problems, wherein COVID spreading into rural areas (anywhere in the world) begins to impact production…OR that some world importers, the two monsters, China and India, become WARY of importing from their traditional suppliers…
Think about this…Brazil and Argentina are the top two Soybean exporters on the planet, and are number 2 and 3 in Corn…as well as bring major global exporters of Beef and Meat products …which is why this news item Friday definitely caught my attention: ”7-17-20 - China has stopped beef exports from six packers in Argentina after reporting virus was found on shipments.” When you consider that COVID is RAGING in those two countries, it doesn’t take much forward thought to understand that virus infections could (or probably WILL?) become a problem in ANY product those two MAJOR export nations produce…with the result being that the odds certainly would then that the USA then becomes the next (only?) major SAFE source for Corn, Soybeans, Beef and Pork…And beyond that, I would add that China, as the world’s biggest ag importer, is NOT the only country in the world that would be in the same boat. In my opinion, THE BOTTOM LINE IS THAT WITH SOUTH AMERICA (where I have family) GETTING WORSE, I CAN ONLY SURMISE THAT AGRICULTURAL EXPORTS FROM THE USA ARE ABOUT TO JUMP DRAMATICALLY…AND THAT PRICES WILL BE DOING THE SAME…
And finally, that doesn’t even take in to account the fact that we are still a LONG way from a successful harvest…that weather can become a part of the equation, literally, overnight.
On to the charts and my immediate recommendations…
Part of this game is trying to be on markets when they are moving, which, for me personally, is specifically addressed by two of my trading “reminders” posted on the wall in front of me:
THERE IS NOTHING THAT MATTERS MORE THAN THE CHART. ANYTHING YOU HEAR, OR READ, OR FEEL IS IRRELEVANT TO WHAT THE CHARTS SAY, AND GENERALLY, THE DIRECTION IT IS POINTING.
THE BEST WAY IS GOING WITH IT.
And when I can put those two ideas (basically saying go WITH markets that are leaving consolidations) together with a scenario that incorporates my own analysis, I believe the set up becomes even stronger. As always, it does NOT mean the trade will work…but I do think it increases the odds that my “guess” will be correct.
So to begin with, the first three charts here are EXACTLY in line with what I mean…I AM BUYING THESE MARKETS HERE AND NOW…LITERALLY.
Again, and it does not mean they will do the same, but several of these look very much like the classic bull market charts of Lumber and Copper shown above…I encourage you to go scroll back and make the comparisons…
I’ll pause here and say that if I could only make two trades…right now…it would be in the Cattle Complex and this Soybean Oil contract…simply because the action in both places, again with nothing but BEARISH sentiment everywhere, suggests that these markets may be “lifting off.” And per my wall reminders, I am “going with it.” This is NOT to say, however, that I don’t want to own every other market that follows here…I DO OWN THEM…and on potential “confirmations” like we now have in Cattle and Soybean Oil, I will be adding to all of them.
The truth is, I wish I could just put these positions on…forget that I own them…and come back two months from now and see where they are…knowing I might lose…but also knowing they COULD all just turn into something like Lumber or Milk…In my experience, this stuff ALWAYS goes tremendously further (for you or against you) than you are EVER expecting.
So my advice is still the same…Don’t think too hard…Just BE LONG EVERYTHING. I think all of these markets will become the Lumber market…and other Bulls that are fairly roaring.
And one more sign on my wall…the big one really: ONE GOOD TRADE IS ALL IT TAKES…You can wait and wait, and suffer and suffer, but all it ever takes here is to be looking for a particular move…and finally get it…and as a function of the leverage in futures, in the paraphrased words of George Soros (whatever you think of his politics, one of the greatest traders ever), “You don’t ever KNOW when it’s coming, but sometime you position for it…and the money just comes in globs.” By no means does that mean this is about to happen, but with what I perceive as SO many dynamic set ups…and all of the liquidity out there…AND the uncertainty/volatility of the markets today, as I opened with, I DO think the commodities markets currently present the biggest bull market opportunities I have seen since I entered this business in 1980…
And what I really don’t want, for myself and all of you, is to be looking back this 6-9 months from now and thinking, “How did I miss it?”
Give me a call if you want to talk about any of this.
All option prices in this newsletter include all fees and commissions.
All charts are from Aspen Graphics.
The author of this piece currently trades for his own account and has a financial interest in the following derivative products mentioned within: Feeder Cattle, Live Cattle, Lean Hogs, Soybean Oil, Soybeans, Cotton, Corn, Wheat