DRY HEAT
Timothy Hughes | 602-859-4100 | thughes@pricegroup.com
10/28/11 General Comments: The announcement from Europe of their mega-bailout plan (nagging details ironed-out by next June) proved stronger than the reality of the plan. The idea that problem countries such as Italy and Spain borrow money to put in the bailout fund, so that fund can then spend that money to buy up those countries bonds, seems laughable. Hope against hope and the markets of the world liked it. I also found it disingenuous that the Institute of International Finance considered the 50% write down, of bank’s holdings of Greek bonds, to be voluntary. That means that the firms that sold $3.7 billion of credit protection on Greece will not be required to pay buyers of the swaps. Sure seemed like some kind of default to me. Uh oh.. Greece problem taken care of and new ECB figures show that real M1 deposits in Portugal have fallen at an annualized rate of 21% over the last 6 months. Portugal’s public and private debt will reach 360% of GDP next year and their money supply is contracting. This is a different type of shell game.
Corn : Export sales seem to be lagging and farmers seem to be holding onto inventory at this time. I still expect a test of $7.00 in the December corn.
Soybeans: Not much new to talk about yet. Stuck between $12 and $12.84 in the November. Waiting.
Cattle: The packers and feedyards fight to maintain their margins. Smaller production numbers and strong exports will translate to beef available for US consumption to be down about 6% next year. What price is too high for consumers I believe that eventually the packers will be at a bigger disadvantage than the producers. Right now the market action in the December contract appears to point toward more downward correction. I look for breaks to buy.
Treasuries & US $: Yesterday was interesting. After the above mentioned European announcement the dollar broke and the Eurodollar rallied huge. I was stopped out of short Euro but will live to short it again. The market action I found interesting yesterday was that gold rallied and treasuries broke. It would appear that gold traders are more focused on the printing of Eurodollars or US dollars. I am still awaiting the final flight to safety in the treasuries to sell. There will come a point when buyers of US or European bonds will become a scarce as hen’s teeth and interest rates will be forced higher. We have already seen this happen in Eurozone bonds in the last few days. Ten year bonds in Italy 5.95%, Spain 5.55%, Portugal 12.38%, France 3.32%, Germany 2.12%. Oh yes, Greek 10 yr. bond rates hit 24.04% this month.
Have a great weekend.
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