"Shootin' The Bull" Weekly Analysis...
For the week ending September 17, 2021
In my opinion, there has been little to change this week in the cash markets, processing speeds of packers, cattle on feed, or consumer demand. Hence about the only thing to expect from this would be further convergence of basis. By weeks end, that is about all that transpired in the cattle markets. Of great concern this week is China's real estate woes and increased scrutiny in gaming and taking a larger percentage of proceeds. These factors from the country that we actively trade with is troublesome. If their economy softens, so to would ours. Exports would decrease and imports from likely to slow. A closer look at home suggests the current political administration is attempting to redistribute wealth at an alarming pace. Raising taxes, increasing mandates and threats of action if not abided by, does not lead me to anticipate a rush to expand business. As well, companies of over 100 employees are struggling with the aspects of meeting requirements and have been noted as to having a meeting with the administration on clarification of who is responsible for what and who pays the fines. This will come with extensive oversight that will have to be added, increasing government employment and increasing costs for businesses. Then there is the automatic enrollment of a retirement account if over 5 employees. When throwing in the IRS and Janet Yellen's wishes to snoop on your banking transactions, to pay for the significant 3.5 trillion social spending program, the creativity to increase the means for seems extremely overreaching.
All of these factors will work on the consumers’ psychological aspects when directing or redirecting discretionary spending habits. Higher unemployment is anticipated as Covid cases rise. The more restrictions placed on the employee or employer will only go to further reduce employment. The fewer that are working, carrying a heavier workload, are losing patience with the public that has money and is frustrated with wait times and higher prices. Retail grocers have raised prices. Box beef price is nearing the $300.00 level. If traded under, it only has another $50.00 lower to go to reach what was the previous high for multiple years. Incentive for consumers to increase consumption, or willingness to pay a higher price, is slipping. Box beef prices are moving lower, and retail prices higher. Packers have no better facilities or labor increases to work with than when this situation began to materialize. Lawsuits won't entice employees to go to work for packing plants and apparently money is not that good of an incentive either. As this is the issue of chain speed for processors, I am unsure how this issue will be resolved anytime soon.
With all of that said, the consumer, having lost freedoms, loved ones, and social ties, has attempted to continue as normal as possible. What if we take the consumers wealth away from them? Remember how the Duke's took all of Winthorpe's possessions and turned him into a bum in the movie "Trading Places"? (I highly recommend you watch this movie if you have not) If the equities market begins to break lower and the consumer sees the amount of wealth they have acquired in just a few short months, or maybe a few short years disappear, how will they act then? I have a feeling we are on the verge of seeing it firsthand in the coming months. Why do I think that equities are on the verge of moving lower? The Federal Reserve presidents are getting out of the stock market and since it is foolish to fight the Fed, then seemingly I should be selling stocks to. This week we found that multiple Fed presidents had been actively trading stock in 2020 and last week made it record that they have now sold those stocks.
Through the week, I have explained that their participation in trading was not my angst. What is bothersome was their smug attitude when informing us of their actions. They stated they did not want to seem as if there were in a conflict of interest or being unethical within the job they are tasked to do and the trading of equities, that are directly impacted by the decisions they make. That smugness from supposedly some of the smartest people we have, entrusted with information and decision-making powers that wield great influence over markets, appears to be a slap in the face, or worse a sense of entitlement. Nonetheless, going forward, I will always now interject all Fed's statements with an ending clause of "because we have already sold our stocks". When they state at the next FOMC meeting, that they are going to start tapering the bond purchases, just add at the end of that sentence, "because we have already sold our stocks" and you will be in awe of the impact that has. You may consider the above as useless when attempting to decipher the next most probable move of cattle prices. I think it some of the most important analysis there is out there as all of the factors above impact consumers, their discretionary spending habits, and therefore, willingness to increase/decrease consumption or pay more/less for the product.
I think grain prices want to go higher and are being impacted by some of the factors above. The quickest way to stall grain prices is to increase the currency exchange rate. The factors mentioned above are apparently influencing the US dollar index to move higher. So, when the pressure is on the US dollar, grains tend to firm, but when the US dollar rallies just a little, grain prices get hammered. I fall a little short of calling this manipulation but know that the government does not like high commodity prices and will do everything in its power to reduce the price of to keep the population fat and happy. So, although I do realize I am fighting an uphill battle with grains under these conditions, I have yet to have either a technical factor or fundamental that changes my analysis. A lower trade into next week may, but if so, I think it will be due more to outside market forces causing a disruption than harvest pressure, or maybe a little of both. Note two things and study them this weekend. First, the energy markets made a mad dash towards contract high this week but failed to exceed them. Similar to the aspect that transpired in the cattle market of a huge transfer of risk, the same maybe taking place in the energy markets. If there is an economic slowdown in China and the US, oil producers may be wanting to let someone else own a little oil at these prices. Second is the bond market.
This week, high volatility pushed bonds prices initially out of the triangle to the downside. At mid-week, traders punctured the top side of the triangle. At weeks end, bond prices were nearing the bottom trendline again. A false breakout to the upside or down? It is still too early to tell, but at the moment, I am looking for bonds to move lower. If they do, I will recommend being short bonds, buy bond put options, or urge producers to lock in any variable rates or adjustable mortgages that can be. This is a sales solicitation. The Fed has warned us repeatedly they want to taper the bond and mortgage-backed securities purchases and then start to raise interest rates. They have already taken action by having sold their stock. So, they must be thinking that if buying stock was good when they were lowering rates and stimulating the economy, selling stocks must be a good idea when raising rates and pulling money out of the system. Tell me what you think.