Commodities as a whole have been trending lower in the face of the rising Dollar. We believe this “trend” is temporary at best. We all know that in the long run supply and demand determines price of just about anything of value on this planet. Well the US government in its “wisdom” has in the last few weeks alone agreed to print over 1 Trillion new Dollars to fund all of these bailouts. While the Dollar may be enjoying some strength we continue to see it as a sucker rally. Unless supply and demand no longer matter, which would be a first since the Earth started revolving around the Sun, so call me krazy but this idea that all of these bailouts are good for the Dollar is laughable at best and an outright insult to intelligence at worst. So we remain longer term bulls of commodities and expect to see them begin to find support in the coming weeks.
Energy Complex (NYMEX)
Crude Oil:
Crude Oil has seen a huge pullback, while as consumers we welcome this, but as traders we realize that this temporary reprieve is just that. While many would have you believe that high prices have destroyed demand, just ask yourself this basic question, have you decided to stop driving to work? Most of you, unless you live in a major city, do not even have the choice not to drive. So the idea that demand has been destroyed is also laughable at best. And even if it was true, do we think that the Chinese will also slow demand? I mean are they really going to slow the pace of modernizing down, even if they could? Let’s be honest about these major agencies that are forecasting the Price of Oil to be at or near $60.00 later this year, did they correctly forecast the rise from 20 to 150 or the fall from 150 to 70? The answer is none of the correctly called either of those events. So are we now to believe that all of a sudden they are going to get it right? LOL
Equities
SP500, DJIA, NASDAQ:
The S&P 500 has seen an amazing few weeks. Now simply pull up a daily chart of the S&P and what do you see? If you are being honest you have to admit that it looks a lot like a bear flag pattern. We are near term bullish the market as a whole but it is a very short term call. Longer term we expect stocks to go down and stay down for many years to come. We are not trying to be pessimistic, just realistic. This crisis is far from over and far from solved so anyone who thinks that we have clear sailing ahead has simply not done the math. Buy stocks on dips for short term gains but if you are a medium term investor you should be using the rallies to sell or even enter into shorts. Shorting stocks is NOT un-American, making it illegal to short stocks IS!
Financials
U.S Bonds:
Bonds have seen enormous volatility in the face of this crisis. While we expect the road ahead to be rocky we do not expect bonds to continue to enjoy the flight to safety that they do in times of crisis. As rates continue to fall owning Treasury bonds becomes less and less attractive. While we do not expect rates to fall much further, unless the Fed. wants to start paying people to buy bonds, which they may have to if current policies remain unchanged and or unchecked. At the same time we do not expect rates to rise anytime in the near future. Look at how long Japan has had to keep rates low in an effort to get the economy rolling again. Many of you may scoff and say we are not Japan, and that is true, this situation is much worse than Japan in the 1990’s so it stands to reason that we may have to keep rates low even longer than they have.
Metals
Gold, Silver, Copper:
Gold has seen another sharp pullback in the face of this crisis. It is hard to reason why this is happening. There are many stories and ideas and we do not need to rehash them. No matter what we continue to view these sell offs as sales and are buyers of each and every major dip that we see. Overall we continue to see this metal as a long term store of value in a world where most other things are losing value. Also as global interest rates continue to come down, owning Bonds in almost any country will continue to be less attractive. Investors will have little left but Gold to turn to when the next crisis comes, and come it will, the only constant in human history is that we consistently create problems that we then need to work our way out of. History repeats, and those who do not learn from their history are doomed to repeat it.
Grain Complex
Corn, Soybeans, Wheat:
Grains have suffered in the face of the rising Dollar. But as we already mentioned we expect this Dollar strength to be temporary at best. So do not be fooled into thinking that “beans in the teens” was a one time event. We expect much higher prices in the grain complex especially if we are talking about the 2009 or 2010 crops. We see a number of things on the horizon that point to much higher grain prices in the years ahead. Bottom line here is simply buying these dips in grains and hold. Inflation is real and our government continues to fuel it by creating more and more money every day. In the long run fundamentals do work and the fundamentals have set up a situation where inflation will not only rise but explode.
Softs (NYBOT)
O.J, Cocoa, Coffee, Sugar, & Cotton:
Softs have, as a group, also sold off in the face of the recent Dollar strength. We are buyers of Dips in the OJ market at this time with stops below .75 basis Jan. Cocoa has also seen a steady retracement back towards the 2000 level. We are expecting this market to turn higher but we do not yet have a clear long signal. Coffee has done better than many other commodities in this sector but it too has been beaten down. We are short term buyers of dips with stops below 110 basis Dec. Sugar is a longer term buy at these levels. We suggest longer term traders to look at buying OTM calls for May of ’09 and beyond. Cotton has really been hit hard but we read the volatility of the last few sessions as a sign that this market is also putting in a bottom. Market turns are almost always violent and if nothing else you can see that we are going through a very violent time in the markets so it stands to reason that many of these markets are at or near macro turning points.
Odom & Frey Futures & Forex
toll free: 866.636.6378
international 904-247-0232
www.odomandfrey.com
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