Trading and investing in commodities are two different things
Note: I do not endorse any trading service or blogger, including the ones listed in this article. I apologize for not being more active on the blog.
Yesterday morning I opend a small long position on corn because i knew… the USDA report would be bullish. As expected by several insiders, climate cooling trend at least in Canada and northern US will be negative to crops.
Yesterday CORN futures increased 4% and you can see there is problems on this crop: https://twitter.com/CRMagri/status/1178947505419116544
I know you don’t believe in doomers like Michael Snyder, but do you think that are now material facts you can’t ignore ?
Three factors adversely affecting commodity prices
- The dynamics of the globalized commodity markets suppress price inflation similar to the globalized markets for manufactured goods.
- As interest rates drop over the longer term and a firm’s cost of capital declines, production and supply will rise as the marginal costs of production fall.
- A strong US dollar has been knocking the knees out of any bullish situation.
The reason why I have not been bullish on commodities for many years now is fairly straightforward. These commodity markets are fully globalized and any deficiency in corn production in one nation can be made up by the other nations. Moreover, many of the lower-cost nations have been ramping up production as the larger multinational firms work to keep the prices of their input factors low. Since the price we see on the screen is the marginal price, I see it difficult for prices to rise on a sustained basis, unless we see a change in the fundamentals.
Over the long-term, commodity inflation roughly mirrors the general rate of CPI, which is much lower than monetary inflation. I notice that over the very long-term, gold is the only commodity that mirrors money growth, which is why I usually only recommend gold as a long-term hold.
Let’s analyze what we observed earlier this year. Although we saw crop-bullish weather and climate data coming from the U.S. (supporting prices), the other nations filled much of the void and raised their supply. I predicted that this Spring’s weather-related problems in the U.S. would not have any lasting effect. If the grains were entering a secular bull market, the price retracement after the large spike earlier this year would have been much less severe.
The deflationary forces are just too much for any long term price climb. With respect to the monetary system, what are the two primary causes of the deflationary forces? Lower interest rates and a firm dollar. The lower rates go, the more likely the markets will be oversupplied, all other things being equal. This is true with oil, nat gas, soybeans, lean hogs, cattle, and corn. The marginal cost to produce will be less as the farmer and producer costs of capital decline.
In addition, any longer-term commodity investor needs to hope that the USD will fade from here. Thus, a commodity investor is swimming upstream. In order for commodity prices to rise, we need to see interest rates to climb and for the USD to fall. Good luck getting that to happen. As long as this system remains intact, the opposite will occur. Essentially, a commodity investor’s best hope is to watch this monetary system unravel. If you are familiar with my blog, you already know my analysis.
Of course, there’s a lot of money to be made trading commodities over shorter time frames. But as my trading mentor once told me; trading futures is a great way to make a small fortune… from a bigger one.
Climate change and monetary printing cannot offset the deflationary forces
I understand that many are concerned with the inflationary monetary printing and I am, too. But if this money does not make it to the end user (you and me) how can prices be bid up more than the general rate of inflation? They cannot. This monetary production, designed to keep the governments in business, has been effectively sterilized; the debt generation must be serviced and most of this money remains in the financial shell. Much of the US dollar printing flows overseas and as long as the dollar remains supported, price inflation growth will continue to falter.
With respect to crop production and climate change; any adverse transformations in climate in one area of the world will probably be offset by other auspiciously-timed modifications in another region.
The only definite outcome I see from the climate change discussion is higher taxes. Of course, these taxes will be based to supposedly rid the environment of carbon emissions, but they will all be used to keep the governments in business and service their debts. Taxes based on climate change are designed to suppress our self-autonomy and to tax us into oblivion. But first, the youngsters in school need to be conditioned to believe that humans are causing this slow motion catastrophe.
Just an observation; the more carbon dioxide humans produce, the more plants should benefit. God created a self-healing mechanism and it still operates well. I find it astounding that trees and plants generate oxygen as a byproduct of transpiration and plant metabolism. Plants actually take a lower-energy-state carbon dioxide molecule and produce a higher-energy oxygen atom.
In the new world order, humans are the enemy and we need to be viewed with disdain. Thus, the carbon dioxide we give off when we breath needs to be terminated.
My contentions with the alt-financial media
I am always careful not to use the word “believe” in my analysis, since that denotes a subjective opinion and I have plenty of facts to back up what I discuss. However, I have two beliefs that underpin my blog and my writings;
- Jesus is my savior and was the propitiation for my transgressions,
- Satan is in charge of this world, and he is currently gaining more by keeping this monetary system intact. If I thought this system was going to collapse, I would have to conclude that Satan lost control.
With this out of the way, I want to enumerate the three reasons why I view the alt-financial media with a sense of contempt.
- The writers, editors, and bloggers in the alt-financial media are usually more disingenuous and less knowledgeable than those they pillory. These writers take many honest and truthful observations and poison them with their hardwired biases. Moreover, many in the alt-financial media rely on services to make money; I often think of Martin Armstrong in this regard. It’s imperative that they cause a need in the reader, so the reader acts as desired. Perhaps the writer wants the reader to buy silver for a 30% markup. Perhaps the writer wants to convince his victim that his services are vital for his well-being. There really is no difference between these charlatans and the most crafty Madison Avenue marketers. Many alt-financial writers are just copywriting for sites like ZeroHedge, RT, and the Daily Reckoning. The more sensational their headlines, the more clicks they receive. These writers will write anything that makes it to these “mainstream” alt-financial sites.
- As a result of the first reason, their conclusions and predictions are almost always antithetical to the actual outcomes.
- Because their predictions are awful, their advice has been some of the worst I come across.
Okay, so do I believe Michael Snyder? Let’s break this down. Mr. Snyder often makes a number of sober and true observations, especially when he enumerates all the reasons why the United States is a Talmudic toilet bowl. Unfortunately, I can easily verify that he is often fast and loose on his facts and has always twisted them to conform to his predetermined outcomes.
So, what do I believe about Michael Snyder? I believe he does a lot of damage to the sheep who read his words. Moreover, I believe readers of the alt-financial media would be best served by discarding anything Mr. Snyder says. That’s my belief.