The recent volatility in the metals, treasuries and stock markets have forced me to reflect on exactly what I think is causing these markets to react this way and how to plan trades accordingly.
I believe that we are now entering a prolonged period of declining stock markets here and abroad. It will continue to be volatile with large daily moves to the upside and then continuing down longer term for two to three years. A continuation of deflation that began with the real estate market.
Counter intuitive to my deflation argument is that I think gold may continue to be strong because of a lack of faith in the dollar. We all know there has been massive dollar creation by the Fed, however it seems ironic that by most accounts everyone is hoarding their money or just seem cash poor.
The cash was never was loaned out in mass but seems to have been used to offset bad bank balance sheets. I believe that is one of the reasons that inflation isn’t what we should be afraid of at this point.
Corn and Cattle: Two truly supply driven markets. USDA corn report estimated an average national of 153 bu./acre — Less than the average guess. Specs should be buying breaks down to the $6.65 area. Although demand appears very good and numbers low I believe all cattle and corn producers need to be hedged start to finish. Even low production numbers can be offset by a terrible economy.
Treasuries: I continue to believe that a short play in the treasuries may be one of the best. I haven’t initiated this trade yet. I expect to see more sharp breaks in the stock market and more flights to safety in the treasuries that will present an excellent entry point.
US Dollar: If I was a gambling man, with extra speculative money, and believed that deflation and not inflation lay in the future. I might want to invest a small amount into ` _ deferred US dollar call options. Maybe along shot but a wise old man told me “cash is king in a depression.
Questions? Ask Tim Hughes today at 602-859-4100
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