Tuesday, November 9, 2010

[Table] Best Commodity Performance in Past 3 Months

Not even a month after the first hints of QE2 at Jackson Hole, Wyoming when Bernanke opined only if economic conditions deteriorated "materially" would he unleash the tsunami of liquidity, I penned a piece [Sep 22, 2010: Bernanke Lied to Us] when it became clear via speeches and hints dropped in major papers that Bernanke had found his weapons of mass destruction.  He was going to move ahead, no matter what the economic conditions did... the language he used was just for show.  Indeed, one can argue economic conditions have improved since late August... rather than flattening out or "materially weakened".   Hence, there are again no WMDs but like Bush, he is a man on a mission and facts on the ground won't get in the way of the REAL reasons (laid out in multiple pieces) for this fiasco strategy.

You should be very peeved. Everything in this country is run for debtors, speculators, multinational corporate interests and the banking oligarchy. This is just another one.... under the guise of whatever reasoning is convenient to use.

Now, about 7 weeks later many of the things I predicted have come to be - already!  And actual QE2 has not even begun.  In that piece:

We saw in late 2007 to mid 2008 the effect of food price inflation on 2nd and 3rd world countries. Mud cakes anyone? [Jan 30, 2008: Hungry Haitians Resort to Eating Dirt] But who the hell cares about pricing foodstuffs out of the reach of "those people" [Apr 14, 2008: Food Inflation, Riots Spark Worries for World Leaders]- we have speculators to please in the U.S. The biggest sin in American policy is "making the markets upset". As long as the speculator class can take primary dealer money, lever it up 7:1 (down from 20:1 in 2008) and run up the price of any soft or hard asset - it's all good. [Apr 28, 2008: Wall Street Grain Hoarding Brings Farmers, Consumers Near Ruin] Heck who the hell cares about Americans affordability of food either [Nov 14, 2008: Wall Street Journal - A Run on (Food) Banks]... thats what the food stamp program is for right? [Nov 29, 2009: 1 in 4 Children, and 1 in 8 Americans Now on Food Stamps] [Oct 30, 2009: Costco to Roll Out Food Stamps Nationwide] As long as the banking oligarchy and stock pickers on CNBC are pleased, I am pleased. [Apr 6, 2008: Agflation Hits Rice - Prices Up 50% in 2 Weeks] Cramerica style.


Back in early to mid 2008 I was writing a lot of pieces on the damage being caused by the 'speculator' class, backstopped by immense leverage in the hedge fund community (this was pre Lehman, Fannie, Freddie) in the developing world.  Much of the world still devotes the majority of its income on food and energy, especially food. (in many cases 50-60%)  It is not *as much* of an issue in America because food and energy are a relatively smaller part of the budget, generally 20-30% depending on income strata.  The one exception (per a piece by Jim Bianco) is the bottom 20% of Americans.  In his research he found that group spent as much of income (60%ish) as most "3rd world" country type people.   But our modern soup lines (known as the food stamp program) are/is hiding it.  Screwflation is alive and well, and frankly the scary thing is we have not even embarked on the actual QE2 yet.... everything thus far has been a front running of the program, both in dollar and commodities.  [Oct 19, 2010: Doug Kass Unveils "Screwflation"]

To that end, while there is no inflation in the Fed's eyes because food and energy is 'volatile' and hence not to be used as part of their base case, it is real for actual humanoids who don't live inside of an ivory tower textbook.  And with the lag between when commodity prices rise.... then producers lose their hedges.... and then try to pass the costs along to consumers - the full effects of what has ALREADY happened have not even begun to be seen.  This will be a Q1-Q3 2011 issue... and again, that is if commodities stop in their tracks today.  And we have not even seen a real run out of oil, which will be the most regressive tax on an economic system.    

Anyhow at this time the market could care less about the ill effects - someone is going to have to eat these costs (no pun intended) - and with a hobbled consumer, I find it hard to believe all these cost increases are going to be taken by the end user.  Hence producers will see margin compression (net negative for stocks), and/or they will begin to layoff people to make up for their increased costs (which goes opposite for the public reason the Fed says QE2 is necessary - to try to help employment).   Truly this reminds me of Fannie and Freddie when I had a litany of posts in 2007 through mid 2008 on how these things were going to blow up.  As the housing market degraded, rather than act in more conservative nature to try to stem the coming disaster you'd see new rules passed by our housing powers that be (and Congress) to put even more pressure onto these 2 entities as they loosened guidelines to try to kick the can down the road.  Some examples

Instead their actions worsened the situation, and there were not enough fingers to plug the bursting dam.  " [Sep 7, 2008: Bailout Nation Continues - Fannie/Freddie Now Owned by You  So what does FanFredron have to do with the Fed?  It's the same line of thinking - the eternal kick the can down the road, and only 'successful' by ability to print money and never face the music.  So just as then, I'll write posts on the internets and they will be ignored as those who live in textbooks go about their merry ways, blowing things up in their ever so predictable pattern.

Here is a table of performance the past 3 months with most major commodities - again, before QE2 even is instituted. 

[click to enlarge]

The top winners:

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