The Bernank spoke and the market took it in stride. Clearly, the larger issue is the European debt mess. The market opened on a down note because of Europe and the words of the Chairman did nothing to change the worries and fear. All week, the chatter pointed to Bernanke’s speech, and then the big fizzle. All eyes are on Europe, and rightfully so …
So, here comes Irene, and the chatter begins in earnest. Although the media tends to hype these weather events, the fact is that hurricanes can cause enormous amounts of damage, which can impact specific markets, most notably oil and soft commodities. In this is part of my answer to the reader’s question below.
Have the Grains run out of steam?
When one looks around the world, the one thing that always stands out is the sheer number of people inhabiting the planet. Global population is growing and that means more mouths to feed, and since meat is an expensive food source, and given a large part of the global population is poor, grains will always have demand. As well, weather and weather events also affect the grains market, as does the demand for grains as a food source for meat production and, now, fuel production.
Specifically, the recent severe drought in the American southwest and serious floods in the Midwest, as well as flooding in other parts of the globe, are putting a crimp in the supply side. Consider as well the end of ethanol subsidies and the ending of quantitative easing in the U.S. Both these realities remove some pressure from the market. Removing some speculative pressure and removing the “propping up” from subsidies takes the market closer to the true reality of supply and demand. I don’t know if grains have “run out of steam,” but I do know that both supply and demand pressure still exist to a large degree, and that will not change …
In times such as these, the market talk always turns to “safe haven” investments. Investors fear the “risky” assets of the equity markets and so they seek out gold, U.S. Treasuries, and specific currencies, such as the U.S. dollar and the Swiss franc. An article that came out on Reuters today presents a different perspective on this most traditional market thinking. The excerpt below sums up the thought …
This year’s heady bout of risk aversion on financial markets has ratcheted up demand for gold, U.S. Treasuries and the Swiss franc to levels that suggest they may no longer be the “safe havens” they are billed as.
The bottom line here is nothing is a safe investment if everyone is investing in that thing. Just like the grains market, “safe haven” investments are subject to demand pressure, and when that demand comes off after a long period of being on, well, so much for safe …
Trade in the day – Invest in your life …
