“Woe to the land whose king is a child and whose leaders are already drunk in the morning. Happy the land whose king is a nobleman, and whose leaders work hard before they feast and drink, and then only to strengthen themselves for the tasks ahead”. (Eccl 10: 16-17)


"When misguided public opinion honors what is despicable and despises what is honorable, punishes virtue and rewards vice, encourages what is harmful and discourages what is useful, applauds falsehood and smothers truth under indifference or insult, a nation turns its back on progress and can be restored only by the terrible lessons of catastrophe." … Frederic Bastiat


Evil talks about tolerance only when it’s weak. When it gains the upper hand, its vanity always requires the destruction of the good and the innocent, because the example of good and innocent lives is an ongoing witness against it. So it always has been. So it always will be. And America has no special immunity to becoming an enemy of its own founding beliefs about human freedom, human dignity, the limited power of the state, and the sovereignty of God. – Archbishop Chaput


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Wednesday, December 10, 2014

USDA Reports - Focus shifts to Global Supply Numbers

USDA issued its December Supply and Demand report today and as usual, it set off some expected reactions across the grain floor.

About the only surprise in the report that I can see at this time came in the corn numbers. The trade was looking for a corn carryover near last month's numbers of 2.008 billion bushels. Instead USDA upped usage reducing the amount of corn leftover to 1.998 billion bushels. However, they also raised the expected GLOBAL stockpiles to 192.2 million metric tons from last month's 191.5 million.
Apparently, corn sweeteners will find the cheap corn prices attractive and as a result use more of the stuff in making HFCS. They came up with an additional 10 million bushels worth of demand from that sector ( note that it includes the feed sector but based on what I can see, USDA had already factored in the livestock and poultry industry numbers last month.

Strangely enough, they also RAISED the US export numbers by 10 million bushels. That makes ZERO sense to me since corn exports thus far this year have been lagging behind expectations in the trade. With the projected increase in global supplies increasing combined with the US Dollar as strong as it has been, (and with the greenback expected to resume its uptrend next year,) I have no idea why USDA would expect US exports to increase given the fact that corn is plentiful and cheap globally. The US is not the only game in town anymore when it comes to corn and currency differentials make a big deal when it comes to sourcing grain by foreign buyers.
 
On the bean front, everyone and their dog was expecting USDA to lower the projected marketing-year end supplies. They got that. The trade has been looking at the recent spate of huge bean inspections and export numbers ( CHINA, CHINA, and more CHINA) and had guessed that the initial export number estimates from USDA were too low.
 
I guess USDA did as well since they raised the export numbers by 40 million bushels. That is where the drop in the carryout came from as it was reduced from 450 million bushels to 410 million bushels.
 
Beans did sell off on the data however as the market has already priced this in due to the huge rally off the lows that we have been seeing which began back in October. However, what USDA did do was to lower the total global carryover from 90.28 million metric tons to 89.9 million. That would be friendly as well on the surface but the trade was expecting a smaller S. American crop as thus a smaller number on that global carryover than USDA gave it.

Also today, and I think it is significant, the Brazilian equivalent of our USDA released some data which has somehow managed to get completely lost in all the hoopla surrounding the USDA numbers. They raised the current year crop in Brazil to an expected 95.8 million metric tons. That is a WHOPPER. The agency cited improved weather conditions and a larger acreage number. Last month, that same agency, had expected a crop in the range between 89.3 - 91.7 million metric tons. Depending on which end of that range one wants to start from, that is an increase of either 6.5 million metric tons - 4.1 million metric tons! WOW!
Here is the thing - USDA also plugged some numbers into today's global supply report for Brazil but they used a 94 million metric ton number. CONAB came in nearly 2 million metric tons higher.
 
If the trade really comes to grips with this ( and it needs to be kept in mind that it is still very early in the growing season down there and we have to deal with weather for a while longer ), this CONAB number implies a greater global carryover than today's USDA report suggests.

Also, the soybean/corn ratio remains too high in my view and that is going to encourage more US farmers making the move to beans next year for their planting intentions unless the ratio corrects significantly from current levels. Translation - bean prices are too high in relation to corn and the market needs to do something to either lower the price of beans or raise the price of corn for next year to encourage more acreage going to corn. If not, we will be awash in beans at the expense of corn.
 
More on this later... I have to get back to some other markets... The Yen carry trade unwind is on full display today with the Forex markets now being thrown into convulsions as the price of crude oil falls, alongside of equities.

it never ends....

Thursday, December 4, 2014

Draghi and Company Disappoint Euro Bears

Expectations were high heading into today's ECB meeting that the Central Bank would issue some news detailing the start of another round of stimulus for the lagging Eurozone economy.

'Twas not to be.

Draghi TALKED doing more stimulus at some point as he went through the same litany of things that he has been saying seemingly forever at this point:
 
"Economic risks remain to the downside"
"our projections suggest lower inflation"
"we now see GDP growth at 1.0% versus 1.6% in September"

BLAH, BLAH, and more BLAH. The problem is, as far as the market is concerned, they did NOTHING! Just talk.

That is NOT what the market wanted to hear so guess what? Time to cover all those short Euro positions were loaded in this week in anticipation that they would do SOMETHING. Up went the Euro, now over 100 points and once again, the currency markets are roiled by another yapping Central Banker.






Ah yes, another moment in the "CALMING" affect of Central Bankers on the financial markets. Thank heaven for these people - without them, chaos, instability and turmoil would be the norm in our lives!

Note the words dripping with sarcasm.

This is an example of how these monetary lords mislead markets. Draghi has been sounding like the uber dove for quite some time now and hinting about further measures, then - This - a big, fat egg.
It was amusing to see his excuse for the ECB's inaction - OIL PRICE CHANGES!  Personally I think the ECB is scared to death to follow in the footsteps of the US Fed and the Bank of Japan/ Abe government and get aggressive on the QE type front. I wonder what the Eurozone exporting related industries are going to think of their latest "plan" seeing that the Euro is going the other way than from what they were hoping?

Perhaps, some time during his current press conference, Mr. Draghi will look at this cell phone to check and see how the Euro is responding to all this, and then make some statement promising more definitive action next time around. Who knows?

I wonder what it must be like to have financial markets responding to every syllable that proceeds forth from one's mouth?

By the way, while this circus show was going on, Saudi Arabia cut all January oil prices to the US and to Asia! Crude oil went "thump" as a result.

Monday, December 1, 2014

Moody's Cuts Japan's Credit Rating

Moody's Investors Service, a credit ratings firm, cut the credit rating of Japan one notch this morning to A1, down from Aa3.
This has further spooked gold bears and we are seeing a rash of short covering in the gold market as a result.
Let's see how long the impact from the Moody's decision will last and whether or not it can attract any concentrated NEW buying.

Wednesday, November 26, 2014

US Dollar Relieving Overbought Condition

(Please note that this article is taken from www.traderdan.com).

It is no secret that the currency flavor of the year has been the US Dollar. King Dollar has reigned supreme over the Forex markets especially since this summer when it began a torrid bull move higher breaking out above 81 and making a run to near 87 before it caught its breath and backed down a bit. It decided to run some more, this time to 88.50 before again pausing.
 
Right now, the currency markets are rather subdued thanks to the US holiday ( don't blink however because it all might change!). There has been some movement in the major crosses but not that much to speak of in terms of anything significant. It seems that for the moment, traders are content to let the various pairs meander in some tight ranges.

Chart20141126174513

In looking over the chart of the US Dollar Index (USDX), the currency unit seems to be consolidating in a tight range between 88.50 on the top and 87.50-87.25 or so on the bottom.
 
I have drawn in a shaded rectangle to denote the region where it is encountering some buying.

If you look down at the indicator on the lower plot, you will see the RSI or Relative Strength Indicator, an old but helpful measure of buying or selling internals. Note that since the strong bull trend started in July, the RSI has ranged exactly where it ought to range for a market in a bullish posture - it has not dipped below the 40 level ( see the lower dashed line).

Chart20141126174513

To show the strength of this move, look at how long the RSI has remained above the 80 level, which is considered overbought.

The recent leg higher has produced a negative divergence ( higher high on price not confirmed by a higher high on the RSI) but the market thus far is unconcerned about this, so we will also remain unconcerned. We know this because the lower part of the range remains intact.

Chart20141126174513

The market appears to be working off the overbought condition by moving sideways, allowing the RSI to fall towards the 40 level ( see the shaded rectangle on the RSI insert). The longer the Dollar can move sideways with the price remaining above the support zone on its plot AND the RSI remains above the 40 level ( and the rectangle), the more the odds increase that this is just another pause before the next leg higher in the US Dollar. Traders will want to monitor this closely the next week or so.

If the Dollar were to fall through its support, we would not want to see the RSI fall below 40. That would introduce some doubt as to the staying power of the current leg higher and would bode for a deeper correction. Let's keep an eye on this.

Those who are actively working gold, especially, will want to monitor this most closely.

Monday, November 24, 2014

A Special Announcement


Dear Readers;

 
When I first began this site, more than three years ago, I did so for two reasons.  First, I wanted to use it to both freely express my own personal views of the markets, without feeling constrained by the fact that I was a guest at the sites of others. Secondly, I wished to convey some of the knowledge I had gained from trading for many years to those who were attempting to learn how to understand and look inside the markets for themselves.

 Regarding the latter of these, when I first started trading, I had no mentor, and no one I could look to in order to make sense out of what was happening. You talk about confusion and bewilderment! The sums of money I lost in gaining my experience were quite large to be honest.  One could say that I paid dearly for my education at the School of Hard Knocks! Along that line there is an old joke in our profession:

 
“How do make a small fortune trading commodities?”

 
“Simple – start with a large fortune first!”

 
Some might think it rather quaint but in response to many emails I received back then from those who had read my writings, I was convinced that it might be a good thing to actually try helping these many wonderful folks learn how to make some informed trading/investment decisions on their own and thus rid themselves of dependency on others when it came to making wise choices into which to put their precious wealth.

 After so many years of doing this, I think I might have succeeded in a small way based on some of the responses I have received from this, my current site. The old adage comes to mind: “Give a man a fish and feed him for a day. Teach a man how to fish and feed him for a lifetime”.

 
That being said, the amount of time and effort that this site takes from me can be overwhelming at times. I mentioned this a while ago when seeking the comments of some of my readers about trying to actually cut back or opening the site to accepting Donations or possibly going to per click advertising.

 After much hesitation and with the friendly encouragement/ arm twisting from some of you kind readers, I decided to go with the Donation button.

 I wish to publicly express how grateful I am too all of my readers who were gracious enough to reciprocate and make a kind donation. I understand how valuable that your money is to you and the fact that you have felt moved to freely contribute something towards my efforts, speaks volumes to me about your generosity of spirit and your thoughtfulness. From the bottom of my heart, “Thank You!” You will never know how incredibly encouraging your gifts were – especially when at times it seemed the vast majority of emails in my box were vile, insulting and rude ( coming from members of the gold cult – as we have come to expect).

 As those of you know who have read here for any length of time, I make my living entirely in the markets as a trader. Nothing I have ever written in public, or spoken in an audio interview, has ever netted me a cent as I did it willingly and without charge. There does come a time however that the Scripture: “A laborer is worthy of his hire” becomes apropos. In discussions with my wife and some friends, I believe that this is that time.

 I want to therefore announce that I will be starting a fee-paid site, Trader Dan’s World. Before some of you completely panic, I will be keeping the free site up and running so that the posting community can continue to have a place in which to swap notes and such. I intend to post one or two articles there during the week. That will allow for the current posting regulars to continue to interact; however, the new site will contain the bulk of my work.

 The truth is that I have grown rather fond of some of my regular posters and although I have never met them, feel like I know them rather well as individuals because of the length of time that we have spent reading one another’s comments. I do hope some of you will be moved to come on over to the new site and give it a try.

 I fully understand that for this decision, I will catch some grief from some of the gold bugs, especially those who love to somehow manage to accuse me of always having some sort of agenda ( what that is escapes me but I trust that these all-knowing and all-wise individuals, who somehow know me better than I know myself, will be more than happy to enlighten me as to exactly what that might be). Suffice it to say, that one of the pure delights in having a fee paid site that I hope to enjoy is to finally rid myself of having to deal in any form with such people. And I must also say that having to put up with their non-stop attacks and insults, merely for calling the market as I saw it in the charts, was ONE of the factors that went into my decision to move to this fee-paid site.

 I suppose if they wish to continue their verbal assaults, they will have to fork over some cash for the privilege of so doing! Then again, considering the fact that none of them had the common trading sense to recognize a bear market and protect the value of their metals during a period of lower prices, I suspect that they are too busy nursing their many financial wounds to have any surplus cash available with which to contribute to my fee-paid site for the opportunity of continuing to insult their host. Let them grumble, murmur and complain therefore. I think the rest of us understand their kind!

 A quick word about the new site – I intend to focus on more markets that just gold or mining shares. I have been introducing other markets here at my site for those who are interested in looking at some of the other futures markets. Believe it or not, there is an entire universe of commodity markets which can be traded and which offer profit potential for those who like doing something besides watching gold prices all day long. As some of you know by now, my special areas of expertise lie in the agricultural markets, the livestock and grain markets. Those are the markets that I cut my trading teeth on and the ones that I spend the most time dealing with during the normal trading day.

 There are currency markets, and energy markets, as well as the bond market and of course the equity markets, that are all potential topics of articles that I will post and analyze from time to time. One thing that I can tell you, is that I will continue to call these markets as I see them, with no apologies for so doing. As I have said many, many times now, the business of a trader is to profit. Successful traders profit; those who fail make excuses. It is indeed that simple!

 As a way of introduction, we are going to provide a one month free trial period for my current readers so that they dip their toes into the water and check it out. I am excited about the forum that we will be setting up as well as some of the social media inputs. We plan on the site being an ongoing work in progress, making improvements and changes to it as needed or suggested. Also, I am trying to work up something extra for all those who made Donations to this site as an extra way of saying “THANK YOU”.

 In closing, I would like to thank all of my readers who have come here to read my thoughts over the years. It is an honor to have one’s views respected by a wide audience but it is also an honor that brings with it the responsibility to be truthful and to be honest. I have tried to take that charge seriously and I trust that you as my readers have seen this in my writings.

Sincerely,

Dan Norcini

“Trader Dan”

 

Friday, November 21, 2014

Corn Comments

Trading the grains the last two months has been akin to "Ted and Bill's Excellent Adventure". We have seen hedge funds pour money into the corn and bean markets in spite of the fact that we are dealing with record crops heading into the end of harvest season. The speed at which they have switched sides in these markets, going from big NET shorts to big NET longs has been breathtaking. The end result has been that speculative buying has caused farmers to become stubbornly bullish refusing to let go of their freshly harvested crops as they look for even higher prices.

The move higher was led by the meal, which dragged the beans higher and that in turn pulled corn higher. Of course, it does not hurt the bullish cause when China comes in and gorges on US beans. Grain traders are essentially watching to see when they will start cancelling US bean orders and move to sourcing elsewhere.

In the interim, hot money flows have forced a substantial amount of short covering as there was simply not enough commercially-related hedge pressure to absorb the buying from panicked shorts and bottom-picking bulls. Throw on top of that the usual index fund buying and you can see the result - corn prices have come well off of their late September lows.



The question now becomes - what next? Farmers have been holding back newly harvested grain in those nice shiny new grain silos that they were able to afford when corn prices were above $7.00 and bean prices were in the teens. that has keep the price relatively supported. But while US farmers are the best in the world when growing food they are oftentimes rather poor when it comes to marketing (pricing) it. No matter how one measures it, there is a HUGE amount of grain out there in the nation at this time. Farmers seem to forget this.

They get bulled up at precisely the wrong time and depressed at the wrong time. It is human nature and good business sense to want to obtain the highest price possible for one's goods - the problem occurs when farmers start thinking like speculators instead of business men. Specs take on risk in the hope of making gains - sound business policy involved AVOIDING or MINIMIZING risk as much as possible.

Farmers who are watching prices at the Board working higher and thinking: "I am not selling anything as prices are going higher" are essentially gambling with their farm's income. It makes sense, considering the soaring US Dollar (which is making US corn extremely expensive compared to corn from other source nations ) and the fact of the massive harvest and the fact that this rally has been primarily driven by short-covering (see below) to start taking advantage of this rally to price some of that newly harvested grain.

If a farmer is inclined to try holding out for even better prices, they are betting that weather problems are going to hit S. America or some other extraneous event (like the binge buying related to a modest Chinese interest rate reduction) will provide even better prices at which they can sell later on, but what if none of that happens? What guarantee do they have that weather will not be benign in the southern hemisphere? They are essentially rolling the dice and hoping and that is not a sound risk management plan. It is one thing to hold off some grain for "gambling stocks" but an altogether completely different ( and foolish in my view) thing to not price any grain at all.

That being said, take a look at the chart and notice the move off of the lows. This shows closing prices only so it does not reflect the fact that the front month contract touched $3.89 last week.


Now look at the Commitment of Traders report through this Tuesday where I have broken out the large speculative component and charted their long and short positions.



I have posted this chart up previously but wish to do so once more to make a point - notice that the number of long positions in this category have not varied by a substantial amount since late July/early August.

But look at the red line showing the short positions and note how incredibly volatile it has been. Shooting sharply higher as prices fell and then dropping off equally sharply as prices rose. What this tells us is that it is large spec activity that has been behind the move lower in corn since May of this year and the move higher in corn since October. A goodly portion of the short positions they put on over a 5 month period since late May, have now been taken right back off since October.

The question that should be asked by any farmer is simple - once these big specs are finished covering shorts ( buying back those short positions and closing them out) just who is it that is going to pay these kinds of prices for corn given the massive size of the crop out there?

Today might have been a sign that this short covering has run its course - it is hard to say given the horrific volatility in these markets of late - given the sharp drop heading into the closing minute of trade today. If it is, and again, it is not yet clear, farmers who failed to price any grain during this recent rally are going to end up kicking themselves for not doing so especially considering the amount of revenue that they might have passed up by not pricing any of their grain.

We might have to wait until after the first of the new year before we really see some heavier grain movement off of the farms, as there might be some farmers holding off selling for tax reasons. That being said, there is no guarantee of this rally lasting that long, especially with the US Dollar hitting a 51 month high today.

US corn, driven higher in price by speculative short covering, and a soaring US Dollar, are not the ingredients that go into the recipe for making US origin corn cost competitive on the global market.





Dollar Comments

I am going to keep these comments short mainly because I am utterly exhausted after the roller coaster ride from this week's markets.

The one thing that stands out, now that the dust has settled, is the action in the US Dollar.



One look at the chart and you can easily see the desired currency of choice among global investors. For all its problems, and there are many, the US Dollar remains the "Go-To" currency. The reason I say this is very simple - The Dollar put in the highest WEEKLY CLOSE in 51 months! It is also less than a full point away from taking out the peak made in June 2010. If it does, it is headed to 90.




Now, there are two things that were at work today which created the "Madhouse" that the commodity futures markets became.

The first was the expected inflationary outcome from a Chinese rate cut/ECB monetary stimulus measure. The latter was a deflationary outcome from the soaring Dollar and bond markets.

Interest rates are going down, not up. Many look at this as spurring more borrowing, more lending, more consuming and thus more economic growth. That group bought everything in sight today. The speed at which they did so was terrifying. I chose that word to describe it to see what a tsunami of hot money flows can do to markets when it invades them.

The flip side was another set of traders looking at the strength in the Dollar and drawing the connection between it and a general deflationary wave engulfing the commodity complex. They were big sellers.

The first group won out when the dust settled but you could see some impact from the latter during the session in the grains, and in gold. Gold had regained the "12" handle and then when the latter group came in and start selling, it promptly flopped and lost it. By the time trading ended in the pit, it managed a good close but failed to close above $1200.

Corn did something similar. It went flying higher with shorts being obliterated by the wave of hot money coming into it but in the final minute of trade, it surrendered all of the gains and closed lower.

Soybeans managed to close higher, which is even more bizarre as they had started off with a bang much like corn but during the middle of the session lost every single bit of their gains, went negative and then completely reversed and surged higher again to go out near their highs.

The thinking behind the bean move was that increased credit availability in China will mean more bean purchases from the US's largest foreign bean buyer. Frankly I don't see that connection but the people with the most money decided that was the reason to buy them and there was no one large enough by the time of the end of the session to take them on.

I can see what is taking place in the bonds and frankly, I think the group worried about inflation is greatly overlooking something but based on the bizarre and huge price swings that are being produced by all these infernal Central Bank actions, as well as Chinese actions, I honestly have no idea where all this is headed. Guess what - based on the type of trading we are seeing, no one else does either.

Here is the bond chart in closing. Note the general direction that they have been heading - UP...

 
 
Here is the yield on the Ten Year Treasury - same thing, except in reverse (yields move inversely to price) - it is moving lower reflecting the lower growth.
 
 
 
Lastly, here is a glimpse of the platinum chart - a metal that much like copper, tends to reflect sentiment towards global growth. It had a big up day today as the China news had industrial metal buyers giddy for some reason. It looks as if it might try to make a run towards $1280. If the inflation guys are correct, it will easily better that. If not, back down it will go.



What a week - there are times when I love these markets and then there was this past week, when Charlton Heston's classic line from the original "Planet of the Apes" is exactly how I feel.

My thoughts on today's action

See the link... no other comment offered could say it any better.

https://www.youtube.com/watch?v=VFCM6TZgTMI

Euro plunge below 1.2400 reversed the money flows from the "Buy China" interest rate cut to "Sell out because of the Strong Dollar".

Where the hell this ends today is anyone's guess.

Central Bankers and other foreign government officials have essentially destroyed the integrity of the entire financial system with their constant meddling.