March 16, 2023

Banking Crisis?

Much ado about nothing…

Okay…The “crisis” related to Silicon Valley Bank (which I’d wager 99.5% of you had never heard of), Signature Bank and Credit Suisse is a function of poor management more than anything else, and not in ANY way indicative of some inherent weakness in the US banking system, nor is it a reflection on the state of the US Economy.

My view remains that all of the big negatives from the last few years (the pandemic, supply chain disruptions, inflation, the Ukraine war, rising interest rates) have become either old and unsurprising news, or are simply behind us, and the USA and World Economies are now in the full blown upswing we have been in since the 1980’s. Obviously, there have been relatively brief negative periods during those 4 decades, but as I have written for almost 30 years now, the still massively expanding Technology Revolution, together with the 1990 victory of Capitalism over Communism, represent two monstrously bullish economic forces for the entire planet. For one, the computer has created, and continues to create, an avalanche of TOTALLY NEW INDUSTRIES, products, services, jobs, etc…and I would emphasize that the economic impact there, even after 40 years, is STILL accelerating. And secondly, with the 1990 collapse of the Soviet Union and China’s conversion to capitalism, several billion new capitalists and new CONSUMERS were added to the global equation that has produced the unprecedented worldwide ONGOING growth that can be seen in these two charts (and many others).

Gross Domestic Product (GDP)

There have been only two "dips" in GDP since 1950 (2008 &2020) and my guess is it will be a long time before we see another...And the relatively UNENDING growth you see here, which actually appears to be accelerating, is not just limited to the USA. It's GLOBAL...For sure, every so often you're going to have some period statistically defined as a "recession," but short of another Depression (which won't be happening), in the big picture, the term, I believe, is essentially meaningless.

The Stock Market

I have been in this predicting-the-future business since 1980...And I cannot count (really) all of the "crises" we have been through in those 43 years...with each and every one of them that called for "disaster ahead!" ending the same way...eventual new all-time highs in Stocks. And I don't think 2023 will be any different. YES, I DO THINK THE STOCK MARKET WILL MAKE NEW HIGHS THIS YEAR.

The truth is, with all the pessimism regarding coming recession that the majority of Wall Street’s geniuses are preaching, you would think that the Stock Market was “on its ass” and that the American consumer was hunkered down at home, absolutely too worried, scared and poor to even walk out their front door…but from everything I see, that is NOT the case. The Dow is fully 3300 points off its last October low...And the consumer? From what I see, in spite of the interest rate raises we have HAD, the highways, shopping centers, airports and even construction sites, are STILL jampacked with activity…with the biggest “problem” (?) we have being not enough people to fill all the jobs…I’m not going to ramble on and on here and just say  this: ANYBODY WHO WANTS A JOB HAS ONE. INFLATION PEAKED LAST YEAR AND IS FALLING SHARPLY, ESPECIALLY AT THE PRODUCER LEVEL. THE ECONOMY IS FINE…AND WILL CONTINUE TO GROW…AND GROW…AND GROW…AND STOCKS WILL BE GOING UP.

Again, THE FED IS DONE…not because of these banking headlines, but simply because the Pandemic inspired, supply chain Inflation Surge is Over.

 SO…

BUY THE STOCK MARKET

That the inflation surge is over does NOT mean we won’t have any Commodity Bull Markets…Even in the mildest of inflation periods, every commodity we trade spends time going both UP BIG and DOWN BIG…Year in and year out, this is the norm, whatever the economic circumstances.

 AND

BUY COTTON

…which I believe is now ready for a “typical” 20 to 30 cent move (at least) on the upside

Last May, with Cotton trading above $1.50, the overwhelming majority of farmers and analysts were talking one of the most bullish commodities stories I’d ever heard, kind of an ”impossible for it to go down” sort of thing…BUT, in classic futures market form, by late October Cotton had crashed by 50%, when, together with the low in the Stock Market, it bottomed out at about 70 cents and has been sitting here sideways ever since. And quite notably, during these past 5 months, I have watched opinion, along with stocks, become more and more and more bearish, constituting an absolutely complete reversal of what everybody was thinking last Spring.

ALONG WITH RISING STOCKS AND A SURGING WORLD ECONOMY…I THINK COTTON IS A MAJOR BUY HERE (along with Crude, Copper, and Lumber) AND RECOMMEND BUYING BOTH “OLD CROP” JULY AND “NEW CROP” DECEMBER COTTON.

Corn and Soybeans are already in a Bear Market

THE CORN MARKET MADE ITS HIGH LAST MAY. SOYBEANS MADE THEIR HIGH IN JUNE…Ever since, however, virtually every analyst on the planet has still been focused on nothing but references to the “bull market” and the “bullish fundamentals” in both of these commodities…And with every farmer in the USA having all of those unanimously bullish analysts as their only source of information, the overwhelming majority of farmers have quite naturally bought into the story, and subsequently are still sitting on billions of bushels of unsold Corn and Soybeans as they wait (hope) for another big rally to sell crops that they once could have marketed at much higher prices…but again, were deterred from doing so by all the bullish press…However, the 50 years of historical evidence I have repeatedly presented here suggests that they won’t get that chance…As I have documented over and over, when Corn and Soybeans are “done,” at some point they tend to go almost straight down 25%-35% within 2-3 months, simply because all of those unsold mountains of crops constitute MOUNTAINS OF GRAIN THAT DO HAVE TO BE SOLD…and inevitably, unexpected price declines (which we are seeing now) are the primary catalyst in spurring farmers, in fear of watching more money disappear, become sellers, more or less, ALL AT THE SAME TIME…which IS why all of those 50 years of charts I’ve previously shown you frequently DO go almost straight down.

Beyond the statistics, in recent conversations with a number of farmers, I know that this is the case right now…that many of them are still sitting on 40%-%50 of their crops harvested last fall…AND…even though prices for new crop (to be planted this spring, harvested next fall) are at levels they would have considered a dream several years ago, they have sold almost nothing of their expected harvest this fall…BOTTOM LINE? One more time, THERE IS A TON OF SELLING, IN BOTH OLD AND NEW CROP, THAT IS COMING SOONER OR LATER…AND MY ANSWER IS SOONER…AS IN RIGHT NOW…AS BOTH OF THESE MARKETS DO UNDERGO THE COLLAPSE I HAVE BEEN LOOKING FOR.

A psychology of the markets observation…

After making their highs 9-10 months ago, simply because both of these markets have “stayed up” at these historically high levels, and accompanied by almost unanimously bullish sentiment from analysts…farmers have quite naturally leaned towards staying bullish themselves…And consequently, any number of sell offs have been brief, then over and over, have rallied back up (but NOT to new highs)…thus leading to still more bullishness, as in, “They just won’t go down!”…BUT, to paraphrase my old buddy Saul (one of the few dinosaurs like myself still in this dumbass business): “Yeah, they come back up every time…until the LAST time…when it DOESN’T rally and DOES just go straight, straight down…and all the longs get blown out of the water.” Which, IS the way this stuff works…as was the case, VERY recently, in Cotton, Crude Oil, Lumber, Wheat, Natural Gas, etc…And WILL be what we get in Corn and Soybeans. ALL OF THE MARKETS WORK IN DIFFERENT CYCLES…AND CORN AND SOY ARE NOT IMMUNE TO WHAT HAS TRANSPIRED IN JUST ABOUT EVERY OTHER COMMODITY ON THE BOARD.

Short Corn

Know this: According to virtually ALL of the bullish rhetoric that's been out there since last year, there is NO WAY that Corn was supposed to now be anywhere even near $6.00...But STILL, every time China buys a bit of Corn, those same voices, along with farmers, start talking "Going UP from here!" But we're not. Just like Corn wasn't “supposed to” hit $6.00, it's not "supposed to" get down to $4.50. But that is a situation I've seen 1000 times before...and what I absolutely am looking for.

SHORT SOYBEANS

Still just hanging here…and everybody still bullish…and waiting for that next rally…

I would emphasize, if you think anything here makes sense, and want to act on it, do NOT sit there and wait for some sort of “obvious” signal, or sharp movement to tell you, “Now is the time to do this!” Look at Corn…It has dropped as much as 80 cents in the past 3 weeks, with 50 cents of the move having taken place in the first 5 trading days…on no particular news or event. And do understand that both Cotton and Soybeans have exactly the same tendency…literally to just erupt from one quiet day to the next…

Thanks if you read all this…My own opinion of course, but I think all of this is a fairly accurate read…of the present…and the potential future. Call me if you want to know more.

Thanks,

Bill

770-425-7241

866-578-1001

All option prices in this newsletter include all fees and commissions. All charts, unless otherwise noted, are by Aspen Graphics and CRB.

The author of this piece currently trades for his own account and has a financial interest in the following derivative products mentioned within: Dow, Corn, Cotton, Soybeans