Timothy Hughes | 602-859-4100 | thughes@pricegroup.com
9/9/11 General Comments:
*Lawsuits filed against banks regarding fraudulent mortgage securities.
*30 year mortgage rates this week fell to lowest levels in 60 years while at the same time sales of new homes are on pace to finish the year the lowest in 50 years.
*The Eurozone political leaders have shown the same character as our politicians. A Eurozone breakup is inevitable.
*President Obama pushes a $447 billion jobs plan that may save his job.
Corn : The range of estimates for Monday’s USDA reports is quite wide. According to a Reuters survey yield guesses are 143.3 to 152.5 bushels/acre with an average guess of 149.1. Most analysts don’t expect the USDA to cut it’s ending stocks forecast by any significant amount. Seasoned traders would probably go home “naked” position with such wide range estimates on the report and funds appear to have lightened their positions with open interest falling 9,233 coming into Friday.
Soybeans: Estimates for beans show yields between 40 – 42.9 bushels/acre. Our big question is demand with China continuing to buy beans from South America. Open interest dropped 1,100 contracts yesterday.
Cattle: Packers remain profitable even though fed cattle traded sharply higher late yesterday afternoon and the futures market has risen faster this week than many expected. $4+on the October contract since last Friday. I continue to believe this market can move higher based on the total number of cattle remaining in the US herd and the record pace of beef exports. There will no doubt be corrections because of the instability of the financial markets but I expect the next test for October cattle to be $121.80 especially with a close today near 119.60.
Treasuries & US $: I can’t even mention the US dollar without talking about the Euro. My sentiment remains the same as in last week’s letter. I understand the long gold argument against the dollar but as the Eurozone implodes we will continue to see the dollar and US bonds be safe havens. Earlier this week, Greek 2 yr. note yields surged above 50%. That’s a rate even hard money lenders in real estate aren’t able to charge. That is a serious debt crisis. Italian bonds fell in value for 11 straight days. Belgian bond yields went to the widest premium against German bond yields since 1999. The cost of protecting against losses on senior bonds (in the Credit Default Swap market) issued by 25 major European banks just surged to the highest level ever—278,000 euros/year for every 10 million euros in bonds.
Ultimately I think that our dollar and bond markets stay strong until a total capitulation in the Eurozone and the stronger economies there split on their own or in combination with each other . When we get indications of that happening then I would consider shorting the US dollar again and the bond market. I believe a prudent person should consider owning puts in the US stock indices right now.
Have a great weekend.
Questions? Ask Tim Hughes today at 602-859-4100
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