Wheat Continues to Push Higher, Defying Fundamentals

Wheat continues to push higher in very volatile trade.  Fund buying appears to be the primary factor, but many shorts have also been forced to liquidate positions as their positions are just not working.  While I believe the market is going to work lower, I cannot fault people for blowing out of short positions.

Although the market has been pushing higher, the trade hasn’t exactly been easy for the bulls.  Moves higher have generally been followed by sharp moves lower.  That being said the market has not broken the trend line.  One day it will and the result is going to be a very sharp selloff.  That’s not to say the fundamentals are going to be a factor.  Personally, I hope they do become a factor sooner than later.

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Strange Bed Fellows

What does OPEC and the International Energy Agency have in common? Well usually not too much but there are exceptions.

OPEC represents the interests of oil producers whose club pumps about 40 percent of the of the global oil supply and the International Energy Agency (IEA) which acts as energy policy advisor to 28 oil consuming nations rarely see eye to eye to eye on many of the big energy issues of the day. Yet it seems in this era of economic stress even this odd couple may share some of the same ideas on energy without driving the other one crazy.

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Don't Fight Last Year's Battle

In the midst of last year’s severe economic downturn the best place to protect capital was in the U.S. Treasury markets.  In fact, long positions in the Treasuries did not just protect capital, but actually resulted in substantial gains.  Treasuries enjoyed their biggest advance in many years, while stock index futures were in a freefall. There was a myriad of reasons to be long Treasuries and short the Stock Index futures.

Last year it was paramount to seek the safety of U.S. Treasury issues, while avoiding long positions in Stock Index futures during their extended bear market. At the height of the credit crisis there were some estimates that global write downs, due to losses in the credit markets, could be as high as $1.3 trillion. This was substantially more than the International Monetary Fund’s estimate of $945 billion. The usually optimistic Federal Reserve chimed in when the president of the Federal Reserve Bank of Minneapolis said that the credit problems in the U.S. markets might get worse. One money manager said banks are only “one third through” their credit related write downs. All of this was very Stock Index unfriendly and bullish for the Treasury futures market.

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