March 23, 2020
BUY THE MINI DOW JONES INDEX
BUY SOYBEAN MEAL, WHEAT AND THE MEATS
BUY SUGAR (NEW RECOMMENDATION)
BUY CRUDE OIL
Typically, when a catastrophe like this is taking place, fear drives waves of money into supposed “safe havens,” with Gold and US Treasuries generally considered to be the top two candidates. However, both of those markets fell sharply and massively as stocks plummeted…indicating, in my opinion anyway, that ALL of the money exiting equities was going into CASH…as, if it had been flowing towards Gold and Bonds, we wouldn’t have seen Bonds drop some 20 points during the past few weeks, while at the same time Gold was about $250 an ounce…Therefore, with everything else on the board, including commodities, crashing, I can only assume that all of those exiting funds were not going into anything else…Just sitting in CASH.
That is, until the beginning of last week when virtually all of the major food related commodities began to rise and have continued to do so right up until today…on NO particular news…especially including Wheat (bread)…and then Soybean Meal (feed for livestock), which has rallied about $50 a contract ($5000 per futures contract) off of last week’s lows…and is now into new 18 month highs.
Trying not to get longwinded, I will say that the demand for Food has NOT been curtailed by Coronavirus (quite the contrary I expect), and with the fact that most of these agricultural commodities CAN BE STORED FOR YEARS…and with the fact that many of them have just dropped by 20-30% in value…I WOULD OFFER THAT THIS SECTOR, CALL IT SOMETHING OF AN “ASSET CLASS,” IS NOW ATTRACTING INVESTMENT CAPITAL, NOT ONLY FROM THE STANDPOINT OF EXCELLENT VALUE, BUT HAS ALSO BECOME THE NEWEST “SAFE HAVEN.”
Beyond that, I would add that if just the smallest fraction of the TRILLIONS of Dollars that have left equities is moving towards the agricultural markets, it could have a MASSIVE, potentially unprecedented bullish effect on markets like Corn, Wheat, Soybeans (and obviously Soybean Meal), Cattle, Hogs and Sugar…to the end that I believe we could see upside moves of a size and speed that could be stunning…and like I said, unprecedented.
Ok…This is my opinion…and I might be dead wrong...but I simply cannot see it any other way…I mean, the proceeds from stock sales can’t just all be going to cash, forever to just sit there doing nothing…and hey, the agricultural markets as a whole have been on their lows for years, and even before this last major hit, I already had been writing that, to me, they represented THE most undervalued asset class on the planet…and now they are even more so…Again, my opinion.
The bottom line is I continue to recommend being long all of the markets shown below…I would also add that I think the Stock Market….right here, right now…is a buy…that the odds, TO ME, have now become extremely high that the crash is over…NO question, the market came down more than I ever thought it would, but I, nor any of my clients, have lost as single dollar in stock indices as the decline took place…mainly because my hardest focus, as you know, has been on Soybean Meal and the other row corps…The point being, I AM NOW RECOMMENDING ACTUALLY BUYING THE MINI STOCK INDICES…WITH THE DOW OPTIONS BEING MY PRIMARY VEHICLE TO DO SO.
Here are charts and some specific recommendations…
SOYBEAN MEAL has been ripping it on the upside…but I think the move is only just getting started…
And I would caution you against thinking, “I missed it,” or “If I buy it here, it could immediately pull back on me.” For one thing, I DO think that just as we have seen enormous downside moves in many markets (not this one however), we are going to see something of the same on the way up…wherein you might think, “This just CAN’T be going any higher from here.”, when the move might only be 20% done…And as for fears of a “pullback,” using the 1&1 means that set backs in the market should just give us the opportunity to sell both sides of the 1&1 and reposition at better prices…Obviously this does not mean it will work out perfectly…or that you can’t lose…but that IS the basic premise and objective of the strategy….Again however, my point is, don’t think, “It sure looks like it is going up but I don’t want to buy it right now.”
Wheat has been my second largest position…My attitude has been, and continues to me, “I don’t want to be out of it…Not for a single day.” Doesn’t me it will, or that it can’t go straight back down, but Wheat can FLY sometimes…It’s kind of like the row crop version of the old Pork Belly market.
And the Meat markets may be shifting into a high gear…Limit days are becoming quite frequent there…
Now Buying Sugar…
And this is where I am definitely the most aggressive about new positions…Sugar has dropped straight down and has just barely made what I think is a turn back up…and will soon/imminently be looking like some of the other markets noted above. I think this market is absolutely a buy…but more importantly, relative to what Sugar can do pricewise, I consider the option numbers here to be nothing less than excellent…I might be dead wrong but the LAST thing I think we will see here is sideways…and IF this market does have further to slide, the 1 & 1 will give us the opportunity to position at even lower prices….I WOULD ALSO ADD THAT I MAY BE TOO CONSERVATIVE HERE…IN THAT I PROBABLY SHOULD BE POSTING THIS AS A 2 & 1…But it’s late…I’m tired…and want to get this out..
Does NOT mean this will work…but this IS my number one recommendation right now… GREAT numbers I think.
And Cotton at almost 50 cents is just mindboggling…and a perfect example of how over-reactionary this giant mob psychology game can be…Cotton has a history of making some fairly large moves at this time of the year…and I think the next move is going to be sharply higher…As always, I might be dead, dead wrong…but with this crop not even planted yet, my guess is that if we are still here in the 50’s a month or two from now, a LOT of Cotton won’t ever get planted this year…
I VIEW THIS MARKET AS AN IMMEDIATE BUY…I CAN’T IMAGINE THAT THERE ARE ANY LONGS LEFT HERE…AND THAT IS WHEN MARKETS TURN…WHEN EVERYBODY HAS LOST THEIR SHIRT…AND ARE SCARED TO EVEN THINK ABOUT BUYING IT.
Buy Crude Oil as well…but enough for one day…
A lot happening guys…I keep saying it…Don’t just sit there and watch…Put your money on the table and use the both sides thing.
Give me a call if you think any of this makes sense and is worth talking about…
All charts are by Aspen Graphics.
All option prices in this newsletter include all fees and commissions.
The author of this piece currently trades for his own
account and has a financial interest in the following derivative products
mentioned within: Dow, Soybean Meal, Wheat, Live Cattle, Sugar, Cotton, Crude