Futures Commentary and Analysis


Head Scratching & Jawboning
Jerry Welch - IF - Fri Apr 21, 12:10PM CDT

Below is my weekly newspaper column from April 13. Hope there is something in the article that is of interest.


Commodity Insite
Jerry Welch
April 13, 2017 Head-Scratching & Jawboning

There are times when markets move north or south and the reasons for doing so are clear. There are also times when market movement is not so clear. There are times when markets move opposite of conventional wisdom and history, confusing both the bulls and the bears. Over the past month, the Big Four: the stock, bond, currency and commodity markets are as puzzling as any time I can recall.

Taking an up close view of the Big Four here are some of my thoughts and forecasts in today’s tumultuous environment.

STOCKS: The Dow hit an all time high on March 1, around 21,106 but this week closed at a two month low around 20,414. The Russell 2000 ended near its worst close since early December. Here is the rub. For the first time in 6 months, the Dow and S&P closed under the 50 day moving average which in the past has suggested more pain is coming for the stock market. The animal spirits supporting stocks appears to be coming to an end.

BONDS: The Fed has been raising interest rates with a promise of even more to come before the end of the year. When the Fed hikes rates, bond prices move south. But this week, bond prices defied conventional wisdom, rallied sharply and ended at their highest levels since mid-November. The rise with bond prices hints of two possible scenarios about to unfold. One, the Fed will not hike rates. Or, two, a host of markets from stocks to commodities are on the verge of pain with values moving much lower.

CURRENCIES: Late this week, President Trump in an interview stated boldly that the US dollar is, “too strong” and he wants lower rates rather than higher rates as the Fed planning. His words caused the dollar to drop sharply and was a contributing factor in the rise with bond prices. His words also caused gold prices to rise suddenly and end the week at a new, 6 month high.

Never before have I heard of a sitting president bad mouth the U.S dollar. But that is exactly what did. Understand. Mr. Trump’s, jawboning the dollar lower will have consequences. And not necessarily good ones.

COMMODITIES: The rule of thumb for commodities is clear as gin. There is an inverse relationship between the value of commodities and the U.S dollar. When one goes up, the other goes down. With the President jawboning the dollar lower, it explains why gold prices hit a 6 month high and kept other hard assets well bid.

Here is another rub. The Fed is hiking rates with the promise of more to come this year and thru 2019. Higher rates are intended to slow economic growth and keep a lid on prices and inflation. Thus, the jawboning coming from the White House regarding the dollar and a desire for low rates is the very opposite of what the Fed is trying to achieve. Fed policy and Trump jawboning looks to me to be two trains heading for each other at high speed. And train wrecks are never pretty.

GRAINS: The USDA just issued another monthly stocks report and the data was bearish showing no shortage of any major grain. In the case of US wheat stocks, supplies are the largest in 30 years. Corn and soybean stocks are not necessarily burdensome but supplies are more than ample. However, the growing season lies ahead and if it is troublesome, grain prices may rise from current levels. On the other hand, if the growing season is trouble free, ending stocks for all grains will be even larger, setting the stage for lower prices yet in 2018.

LIVESTOCK: The USDA pegs the U.S hog herd as the largest in history amid signs that producers are increasing their herds. Such data is bearish. Of course, there is a tendency for hog values to rally in the April to June period and that may happen this year. Still, there is no shortage of hogs and once the market tops out and rolls over sometime before the end of June, the downside potential is great. Especially if feed costs remain cheap.

The USDA also claims that beef production this year will be up 5.1%, the largest since 2002. Lately, cattle prices have been doing stellar thanks to fund buying. But once the, “hot money boys” turn seller, I would not be surprised to see summer and fall cattle futures at $100 to $105. Or, as low at $96.

The Big Four; stocks, bonds, currencies and commodities are caught in a baffling period where confusion, and a lack of conviction reign supreme. Add to that unfortunate scenario the White House using jawboning as a policy and what you have is a recipe for more head-scratching and heightened volatility. None of which is bullish.


As I type furiously away, the CRB Index, weighted towards grains and livestock is 155 points lower at 181.47. A close here or lower represents a new, 5 to 6 month low for the widely followed market. The weakness with the Index suggests strongly that where commodities are concerned, "if you are long, you are wrong."

Thus, my advice today is the same as it has been since January. Simply put. Avoid the long side of all hard assets.And sometime between now and early September, stocks, equities, shares and the Dow Jone will peak out, roll over and drop 30% to 40% over the following 2 to 3 years. I am widly bearish stocks and commodities.

The time is 12:09 p.m Chicago

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