Dec 20, 2020
Still Buying Cotton, Cattle and Sugar
Since liquidating our long positions in Wheat, Corn and Soybeans in late October-early November, Wheat and Corn have essentially gone nowhere, while Soybeans immediately moved higher after our exit, then went sideways before making new highs this past Friday…AND I REMAIN COMFORTABLE WITH BEING ON THE SIDELINES IN ALL THREE. When I first began my “Buy Everything (except Gold)” recommendations back in the Spring, EVERY analyst I could find was adamantly and extremely bearish all three of these markets…and they remained that way as Corn, Wheat and Soybeans ALL rallied significantly for months…until 3-4 weeks ago when I watched all of those same people suddenly conclude that the “fundamentals had turned bullish,” with guys who were calling for $8.00 Soybeans NOW talking about “Beans at $13-$14.” And together with their NOW bullish commentaries, the commodity news wires seem to NOW be full of nothing but bullish stories, all of which I believe are now only reflecting what HAS happened…and NOT what is coming in the near future…The truth is, I think that Soybeans, which were my primary focus among the these three crops on the way up, have a great shot at trading down $1.00-$1.50 during the next 3 months, so again, I am content with being on the sidelines there…and in Corn and Wheat as well.
Market 100% of Your 2020 Soybeans Now…
We exited our long positions and have been sidelines since early November...With seemingly the whole analytical world NOW bullish, I suspect the next big thing will see is a setback to, at a minimum, under $11.00...My view is as follows: AFTER the Chinese WERE buying Soybeans with both hands...and analysts were all resolutely bearish for months...a MAJOR component of their NOW bullish story is, "If the Chinese start buying again, prices could see $13-$14!" My answer to that is, they WON'T. They are not stupid. They are the world's biggest consumer and they know everybody watches them...So they WERE buying at LOWER prices when nobody thought they were interested...And now? With Soybeans $3.50 off their lows? My guess is they are DONE with buying for a while...and while talking heads keep repeating, "If China buys more," this market will do nothing but sink lower and lower...maybe even all the way back to $10.00...I mean, really, I have seen this if-China-keeps-buying “logic” on MANY occasions in the past in a number of commodity markets, and the end of the story was always the same…They DON’T…and those markets all seemed to do nothing thereafter but slide lower while everybody kept saying, “Buy!” With this in mind, I would recommend that farmers get 100% of this year's crop sold...Here and Now. Literally.
Still Long and STILL Buying Cotton
As I have repeated time and time again, Cotton is in a protracted bull move and I still continue to see nothing but bearish opinions from everybody in the Cotton community…And it is my firm (and I think experienced) opinion that when this market IS ready to quit, all of those same people will be all but screaming, “BUY it!” (If you are familiar with Cotton, you will know what I mean). Bottom line right now though? It’s making new 18 month highs and I have yet to see a single analyst express anything more than, “maybe it could go a cent or two more.” For my money, I HONESTLY THINK IT COULD BE IN THE PROCESS OF GOING RELATIVELY STRAIGHT UP FROM HERE.
To me, as can be clearly seen on the chart following, Cotton very much resembles the Soybean market several months ago…And no, just because the set up looks very much the same does NOT mean it will go that way again…BUT, this IS a chart I have seen a 1000 times, and in conjunction with all the supposed “experts” STILL thinking, while new highs are being made, that Cotton is going down? I’ll take the other side of that bet EVERY time I see it…And yes, I DO think we could see Cotton in the 90’s. Easily so I think. As always I might be dead, dead wrong but I STRONGLY RECOMMEND BEING LONG…AND BUYING MORE HERE.
Still Long and Still Buying Cattle
As the pandemic eases, I think consumers are going to go nuts as to activity and consumption next Spring and Summer…Restaurants WILL reopen…People WILL be getting together to eat, cook out and socialize together…And demand could go thru the roof for Pork and Beef…Even so, virtually all of the “professional” analysis I see out there remains steadfastly bearish per current consumption and supply side numbers…My singular thought here is: We are trading the FUTURE and NOT the PRESENT…I LOOK FOR CATTLE AND HOGS TO MOVE SHARPLY HIGHER IN THE COMING MONTHS….I THINK YOU CAN BUY ALL THREE BUT MY IMMEDIATE FOCUS (for brevity’s sake) IS ON FEEDER CATTLE.
Still Long and Still Buying Sugar
Sugar has been frustrating in that it seems to start and then go nowhere…BUT, I long ago learned that sometimes you just have to sit and wait…especially as long as a market, in the big picture, still looks “right.” And this is precisely the case with Sugar…I essentially view call options as extremely cheap here and offering quite big leverage if and/or when this contract does get it going…I CONTINUE TO SEE THE STRONG POSSIBILITY OF A 4-5 CENT MOVE ON THE UPSIDE…AND CONTINUE TO KEEP TELLING MYSELF, “OWN SOMETHING HERE.”
A New Recommendation:
Buy the US Dollar
Short the Eurocurrency
One of the things I am constantly doing as a trader is just listening…Listening (and reading) for TOTALLY UNANIMOUS OPINIONS that are out there among all the “experts” and internet Yakheads…
VERY briefly, as I have written forever: I long ago concluded that all of the markets are nothing more than a giant mob psychology game, and that ALL of the values of every piece of PAPER we trade are only a matter of current perception…of money flows…of investors first chasing…and then fleeing (as losers)…ideas that have been generated by the banks, brokerage houses, economists, “strategists” (Wall Street’s most laughable term), etc. who ARE the basis for pretty much EVERY opinion that 99% of what all those investors act upon…And putting it bluntly, most of those “analysts” are just point blank wrong FAR more often than they are right…Believe me, after 11 years at Merrill, and another 30 on my own, I speak from what I hope is objective, first hand experience…And no, I also know that I personally can look like an idiot in the markets…but I also know that I DO sometimes get it right…But all of those “pro’s” working for financial institutions looking to get your business? NOT SO. THE “PRO’S”, FOR THE MOST PART, ARE FOREVER ON THE WRONG SIDE OF WHAT IS HAPPENING.
S0…Every so often it becomes obvious that all those guys are UNANIMOUSLY spouting the same “logic,” and are therefore UNANIMOUSLY on one side of the fence….And right now, if you follow financial media at all, you should easily be aware that they are ALL talking about the “weak” or “collapsing” US Dollar…And I could not disagree more. I THINK THE DOLLAR IS A BUY…AND CONCURRENT WITH THAT…THAT THE EUROCURRENCY IS THEREFORE A SELL.
Anytime I consider a trade in the currencies, I always heed the two following quotes from Alan Greenspan while he was Fed Chairman, and would point out that he was at the very top of the information chain, and that he had more expert opinion, computers, economic data, etc. at his disposal than any human on the planet…AND this is what he had to say about predicting the currencies:
“Given the recent intense interest in the future course of the dollar, I would like to raise a technical issue and a flag of caution regarding those forecasts---or, for that matter, any forecast of exchange rates (currency values). There may be more forecasting of exchange rates, with less success, than almost any other economic variable….Although measures such as real interest rate differentials, differential rates of productivity gains, and chronic external deficits are often employed to explain exchange rate (currency value) behavior, none has been found to be consistently useful in forecasting those values…even over substantial periods of one or two years.”
“Statistics have shown that forecasting exchange rates has a success rate no better than forecasting the outcome of a coin toss.”
In other words, Alan Greenspan is saying that he doesn’t care who they are, or what brokerage house they represent, when it comes to currency opinions…HOWEVER intelligent their analysis sounds…they are probably dead wrong.
THEREFORE…WHEN IT BECOMES APPARENT TO ME THAT THE ENTIRE FINANCIAL MEDIA WORLD IS ON ONE SIDE OF A MARKET…I START LOOKING IN THE OPPOSITE DIRECTION.
Put your ear to the ground yourself…and see what you hear. ALL of those guys are talking “Short the Dollar,” and “Buy the Eurocurrency.”
MY RECOMMENDATION IS TO BUY CALLS ON THE DOLLAR INDEX (which is thin) Or BUY PUTS ON THE EUROCURRENCY.
Here is what I would do here in the Eurocurrency…
As always, I recommend taking all of these trades as one “unit,” currently costing about $5100, banking on the math that if just one of them goes, and everything else is dead wrong, you still have a chance to come out ahead…and if several go, you will do even better. And obviously, if I am wrong about all of them, you can lose 100% of what you have on the table.
Two final personal notes:
To own up, I know that for many months I have looked relatively smart with a number of markets having gone my way…And those of you who have been there with me saw some hefty percentage increases in your account values…BUT…due primarily to recent retracements and sideways action (before recovering) in Cotton, Cattle and Sugar…WE PRETTY MUCH GAVE BACK ALL OF THE HARD EARNED PROFITS MADE DURING THE PAST 4-5 MONTHS…And I feel enormously stupid and guilty for letting that happen…This is not the first time I (we) have experienced this…and probably not the last (I am always either an idiot or a genius) but hopefully when the next “run” comes (which I think will be the case with this set of recommendations) I will handle it better. And this apology is worthless dollar-wise, but part of who I am is to always “tell it like it is,” and the truth is, I just F’d up BIGTIME…And just be glad you don’t have my own account…
I will be out of the office…
I will be out of the office from Christmas until the second week of January. Like most of you, Dorka and I have been holed up all year and consequently have not seen our two sons (in Rhode Island and California) since LAST Christmas. With an obvious strong desire to see them, and not wanting to get together after any of us have been on airplanes, I formulated a plan in which we will be meeting, via a good bit of driving, next weekend in southern Colorado for three days of skiing…and then driving to Grand Canyon where we will backpack down to the Phantom Ranch at the canyon bottom and camp for three nights before making the trek back up (hoping I do not need an airlift)…after which the boys will fly out from Phoenix…and Dorka and I will make the two day drive back to Atlanta…getting back, I think, on Saturday, January 9th.
Most of you know that my TRUE philosophy regarding trading is to work out hopefully smart ideas, buy options in that market, and then to “forget you own them for a few months.” With this in mind, I personally will be leaving town with these four positions on, and while I will be checking the markets periodically, I basically really don’t want to even think (or wonder) about them until I return…with the expectation that all (and yes, or none) of them will have moved in my favor while I am gone…but NOT enough to warrant getting out…For those of you who do have positions, I will be talking with you within the next few days about how to place any orders that you may have…directly with the ADM 24 hour order desk.
Cutting myself off here…Time for Dorka and I to make our last training hike, with backpacks, for a good 5 miles through the nearby Kennesaw Mountain Battlefield Park.
Merry Christmas to all…
All option prices in this newsletter include all fees and commissions. All charts, unless otherwise noted, are by 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: Cotton, Feeder Cattle, Sugar, Eurocurrency, Soybeans.