I went to a cattle auction yesterday in Trousdale County, Tennessee. The first offering was a breeding pair of Buffalo. Taken with my phone camera.
The Grains, Oil, and precious metals are all going ballistic. Yet beef, pork, and poultry prices are trailing by a wide margin. The average price for over 50 head of cattle sold yesterday at this auction was only 41 cents ($.41) per pound, less than half the price of the Live Cattle Futures traded in Chicago.
There were 40 or 50 farmers in the bleachers and I spoke to a number of them. Every one of them said that with feed prices being so high they were selling off their marginal animals for slaughter. This is not indicative of higher meat prices in the near term, but might be more constructive next year. As for grains... the U.S. cattle herd head count is at its lowest in years, and it would appear that it is headed lower. Yes, this could easily be offset by cattle head count elsewhere in the world... but I have lost my bullishness for grains (though Oil price could force ethanol higher). Cattle, unlike hogs and poultry, cannot be bred quickly.... more importantly, it appears that producers (cattle farmers) are not able to pass costs onto (beef) consumers.
Precious metals are still going ballistic while housing continues its price decline. Silver has caught somebody BIG in a short squeeze I' wager... while Gold seems unstoppable. Short squeezes always end up in the same place - though I have no idea how to trade this one. Gold may not be finished, but it ain't cheap. In 2008 when Oil was at 138, Goldman came out and said it was going to $200. I called the Mad Scientist and told him on the next time Oil started to pull back I was selling every last contract we had. Gold could go to $2,000 for all I know. It could go to $1,000, too. Sometimes when trading you get an unexpected "kiss".
Every commodity has a historical ratio with every other commodity. Gold/Silver, Wheat/Corn, Gold/Oil, Gold/Dow.... I like Gold/Food. My favorite? You are going to laugh... Gold/Cow (Beef). The Gold/Cow ratio is all out of whack. Remember, Gold has been used as a store of value for centuries... but it has little industrial or practical value... and Cows do - milk, meat, leather, bonemeal.... stuff that is actually sold to consumers. As of now, those consumers have been unwilling in the extreme, or unable, to absorb producer's increased costs... not exactly a sign of inflation... just something to think about...
Of course, markets have been known to stretch ratios to the outer limits... remember a 125 p/e NASDAQ in 2000? Those that sold (or worse, shorted) at 75 p/e were ready to kill themselves.
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Energy equities rise or fall on the price of Oil and Nat Gas. Keep that in mind if you trade this market place.
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Got a cool link from one of my buddies working on Wall Street: "Preparing Kids for the Unknown".
The best passage from the article (if you are a parent):
“When education started in this country, the goal was to round off people who were already practically skilled,” McKibben says. “Most people grew up knowing how to do things like raise their own food and an astonishing number of tasks that we no longer know how to do. You went to school to read the classics and get some polish.
“We’re now kind of in the opposite situation, where kids spend 100 percent of their time in a mediated environment. We learn about the world through one school or another. So we might need to be thinking more about using school to introduce us to those practical things that we don’t know how to do anymore."
Of course, the article goes on to suggest the laughable - horseback riding and archery are just as silly as it gets - but the larger point, that as a society we have arranged our children's experiences in such a way that they usually come of age having literally no idea how to swing a hammer, weed a garden, repair a roof or deck, or change the oil in a car (but they do know how to download music to their I-Pod)... and I am speaking from personal experience... I grew up learning how to play the violin and how to play football... and in my 40's I bought a small farm only to learn the hard way that I did not know even basic carpentry or animal husbandry.
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Even the well-to-do are shopping at Good Will and other second hand stores? Join the club! I had never been in a dollar store or second hand shop in my life until I bought my farm. Now, I don't buy anything new. I outfitted my workshop and got all of my farm implements from Craigslist.com, and ONLY buy my books at the multitude of second hand shops around Nashville. I'd be only too happy to buy my clothes there, but at my height that just isn't much of an option.
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A healthy second hand market is not indicative of an inflationary environment, either... so what's up with the commodity market? In a word - the Fed. As I have said a bizzilion times before, if I knew for sure what the policy response was going to be... my predictions would get a whole lot better.
Who knows what the change up in Congress and posturing for the 2012 elections means for the Fed?
Not me.