2018-06-25 Week - Bonds - Stocks - Oil - Gold - Bitcoin - Corn

This Week

A couple of bond auctions this week may be good for a tick or two chop (see below).

Fear this week's government rhetoric, because that may be a driver of market fear and thus lower prices.

Bonds

A couple of minor bond auctions (UK, Italy) are this week. Brexit still looms over the UK economy, yet investors are buying British bonds. Italian bonds are also dodgy, yet the hunt for high yields proves buyers are still willing to take long term risks. With both of these auctions, there will be hedging into USA and EU bond markets which could make for a quick chop in futures.

Stocks

Stock markets are on edge. Prices are moving lower with a few bigger names being bought to prop indexes. I have had a negative opinion of the USA stock markets market for many years, and lost quite a bit of money getting short, but I remain negative. Timing the market collapse is the challenge.

Vix will not help gauge direction because so many traders are profiting from selling volatility that a collapse spits them all out. HFTs use Vix to bump price higher into close. Leveraged funds have to balance books on Vix (2x, 3x require excessive buying and selling), usually at the end of the day. That means any big moves become blown out, then requiring more rebalancing and larger blow-out. So a market failure will be a massive failure. The real questions are:

When? And will a move be sustained?

Oil

Crude had a big move higher at the end of the week. This looks to be a move higher out of a recent down trend. Such a move may be on Opec news or traders might be expecting utter failure from South American producers. Regardless, it has stopped out a few shorts. If the move is sustained, expect it to materialize into broader markets.

Gold

Buy physical, store it yourself.

Price is still weak, i.e. lower than it should be considering all of the risks in current markets. Texas now has a physical depository with linked accounts, so gold may again become a REAL currency.

Russia, China and much of the EU has been building stockpiles. Many countries have repatriated their gold from foreign vaults.

The USA has not had an audit of stocks in over 50 years, so much of the holdings are likely listed as deep-reserve (still in the ground and yet to be mined). The bullion banks have taken all of the physical out of storage, and more since they are mostly trading paper. They have sold this into the market, and will one day need to buy it back. However, the bullion banks will likely just go belly-up requiring a taxpayer funded bailout. However, that doesn't recover any of the USA gold. So after the audit, the USA (ex. Texas) will be SOL (Sh** out of luck).

Real market risks will often materialize in gold buying. However some of that risk-cash is moving into crypto for liquidity reasons. Risk buying will not be in the futures market because any gold trader (investor) already knows that the futures prices are manipulated and do not reflect real world demand or costs of production. When (NOT IF, but when) the gold (silver) futures market collapses, holders of physical gold will be doing a dance to the bank.

Price is still in a good place for a long term investor entry point.

Bitcoin

Another news story about a crypto market having issues (Japan) has put some more selling action into market. But this action will not be sustained long term. This is because value buyers (Buy-and-hold long term buying action) have consistently come into market under $6000. Buy-and-hold investors are slow to respond to daily price perturbations, so don't expect fast action. These buyers also tend to make decisions on weekends (in stocks, this mentality materializes as buying strength on Mondays and fund buying on Tuesdays).

I am not worried about current price action. Yes, I am in a position entered at a higher prices, but I am not leveraged. I won't be spit out of market on margin calls. If you are on a time dependent position with leverage, then you should evaluate your own risk levels. For me, I can wait for price to move higher (but as a trader, I want it to move in my favor as soon as I get a fill on a position).

Broad markets are still a risky play. Currency devaluation is still a thing. Failing economies have people hedging in anything they can get their hands on, which is often crypto currency (because everyone with a phone can be their own banker). Gold is illiquid by comparison, so the masses will continue to move wealth into crypto regardless of price.

Corn

Yep, price dipped again. So I added to my position (a little, risk et all) because how low will price really go? ($3.50/bushel)

There was a lot of short action in corn. Most of those shorts are going to need to exit their position. Smart shorts will do so before any weather changes cause a price surge. Action on Thurs/Fri in corn should have given price enough of a bump higher that shorts are headed for the door. That short-exit action will drive price higher (near term).

Estimates of a good to excellent harvest year have pushed prices lower. These estimates are very early in the growing season. Rains across the grain belt are considered good for crops, until those rains keep coming. Then it leaches the nitrogen from the soil at rots the roots. Weather will always be an issue for farmers. It is too early in the season to think bet on rainbows-and-sunshine.

Because government subsidizes corn (under $4.20), the bushel/acre is a critical value. When the yield is good, each acre yields more corn and thus more money to farmers. Each acre takes a known amount of fuel, fertilizer and pesticide to produce. So as the price of fuel goes up (the price of diesel), as it did on Friday, then this translates into higher grain production costs for farmers. If production costs creep near the $4 to $4.20 level, farmers will store grain until price moves higher so that they can make a profit at higher real market prices.

Total real world volumes will be the most critical factor for price. Corn plantings are down this year from previous years. Stockpiles are being sold off, which accelerates at lower prices. Diminished supplies mean that there will be less of a buffer to market if crops fail.

The other major worry to corn price will be the trade war. This puts instability into markets as it seems the whim of governments will bounce the tariffs about, changing the international flows. Demand will not change, just the location of supply. Ethanol manufactures will also be looking for bargains (like sorghum) changing grain demand flows.

So the current dip in price is still a good time to get into a long corn position (Sept or later).

DISCLAIMER:

YOU ARE AN ADULT and must make your own decisions. ONLY YOU know what level of experience you possess. ONLY YOU know what level of risk you are willing to take. ONLY YOU know what your financial goals are, and to what lengths you are prepared to go to meet those goals. You will be the one to wear your losses, so trade with caution and do your own research.

Henry Ledyard is an independent trader. He has NO affiliations with banks, brokerages, funds, trading houses or markets. He trades for himself and posts trading ideas merely to share information. He does NOT want your money, advice or opinions. He does NOT want your unsolicited emails. If you require further financial advice, seek it elsewhere. Henry`s opinions should be considered as addled as his blog site:

www.addlepated.com.au