Three Tiny Words

Jerry Welch, Commodity Insite!
Call me at 406 -682 -5010
Ennis, Montana 59729

Follow me on twitter@commodityinsite

Jerry Welch, Commodity Insite!
Call me at 406 -682 -5010
Ennis, Montana 59729

Follow me on twitter@commodityinsite

In my new, one-of-a-kind book, "Haunted By Markets" in a Chapter entitled, "Three Tiny Words" published on March 21, 2014 I commented about the potential for higher interest rates. The reason for posting this column on Inside Futures today is because the Fed on this coming Tuesday is expect to hike rates.

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Three Tiny Words

March 21, 2014

"Nothing ends a bull market for stocks and or, commodities quicker and with more certainty than higher interest rates. Nothing. However, since 2009, the Fed has held interest rates at historically low levels thru and including the opening months of this year. The low interest rate environment, cheap money as some describe it, allowed stocks and commodities to appreciate greatly over the past four years.

Stocks, shares and equities are at new all time highs. Commodities, as measured by the CRB Index are not doing as well as shares but the value of individual markets from grains, to livestock to metals and crude oil are dramatically above the depressed levels of early 2009. There is no doubt that cheap money or low interest rates has been the driving force behind today's bull markets with stocks and commodities.

But in her first press conference, the new Federal Reserve Chairwoman, Janet Yellen threw a hand grenade into the middle of the Big Four: stocks, bonds, currencies and commodities when she uttered three tiny words. When the trade heard those words the Dow fell sharply as did the CRB Index. The next day, stocks did recover what they lost but commodities per se remained defensive.

What were the three tiny words the Fed Chairwoman uttered you ask? Federal Reserve Chairwoman Janet Yellen spoke for an hour at her maiden press conference but the trade only heard or focused on these three tiny words, "around six months."

When asked how long the Fed would wait after tapering down the stimulus measures in place since 2009 before raising interest rates she said. "So the language that we used in the statement is, ' considerable period.' So I, you know, this is the kind of term it's hard to define. But, you know, probably means something on the order of around six months, that type of thing."

Her words set off a firestorm within the Big Four: stocks, bonds, currencies and commodities. Most analysts expected the tapering of the stimulus measures to end in the fall of this year and a rate hike not in the cards until the fall of 2015. Based on the words of the new Fed Chairwoman, the first rate hike will take place in early 2015.

Higher interest rates will likely impact the commodity markets before the stock market. Higher rates will slow economic growth and lend support to the US dollar. Down thru history, a stronger dollar has always placed an enormous amount of downward pressure on commodity prices of all kinds. And one commodity in particular that is a leading indicator market for other commodities as well as the stock market is copper prices.

A few days ago, copper futures fell under the 2.900 level the lowest the market has been in 44 months. That compares to the first day of this year when futures jumped to 3.400, an eight month high. In other words, since the first day of the New Year, copper has moved from an eight month high to a 44 month low, with a low interest rate environment, a cheap money scenario. Copper has been heading south in face of relatively positive news. And when a markets goes down on good news it is a sign of a market that wants to go down.

Here is the rub. If copper, a leading indicator market, cannot rally on good news, what will happen moving forward if US rates are hiked, economic growth slowed and the US dollar begins to show unusual strength? What happens then?

From munknee.com written by Lorimer Wilson, editor. Historically, copper has been a barometer of economic growth exhibiting a high positive correlation with the performance of the S&P 500. Six months ago (the end of August, 2013) the two categories began diverging from each other not just a little bit but dramatically and continue to do so (the S&P 500 is UP 13%; copper is DOWN 11%). That suggests that there is less demand and that growth is slowing down.

Mr. Wilson went on to state, When copper performs well it indicates increases in cyclical growth or, at the very least, expectations for growth. The 36% decline in the price of copper since July 2011 suggests there is an ongoing demand for less copper and that, as such, growth has been, and continues, to slow down. This, in and of itself, strongly suggests coming lower levels in the value of the S&P 500.

Since the first day of February, the CRB Index and virtually every US commodity on the board and in particular, grains and livestock have rallied upward as if on a mission. The rise was about as bullish as any rally I can recall in the absence of a weather related problem. And thru and including this week, grain and livestock prices remain well bid and far over the low levels of early February.

Nonetheless, my bias towards most markets is that of a bear. The three tiny words uttered by Fed Chairwoman Yellen will some day, sooner than later, come back to haunt grain and livestock prices exactly as the copper market is now predicting.

My advice moving forward is: Do not allow today's lofty prices with grains and livestock slip away. The rally since February with both markets was a godsend for farmers and ranchers. The copper market and the Fed can smell that higher rates are coming. If so, today's lofty price levels with the US ag markets will be short lived. Short lived."


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My one-of-a-kind book, "Haunted By Markets" can be found at commodityinsite.com. Seach for, "sneak preview" and judge for yourself if the book is one-of-a-kind.

When investing or trading the Big Four: stock, bond, currencies and commodity futures, there is no better reference book than Haunted By Markets. It is 758 pages long and offers an excellent view of the past. And the past is always the bridge to the future.

The time is 10:23 a.m. Chicago time March, 17.


This material has been prepared by a sales or trading employee or agent of Midwest Market Solutions and is, or is in the nature of, a solicitation. This material is not a research report prepared by Midwest Market Solutionss Research Department. By accepting this communication, you agree that you are an experienced user of the futures markets, capable of making independent trading decisions, and agree that you are not, and will not, rely solely on this communication in making trading decisions.


DISTRIBUTION IN SOME JURISDICTIONS MAY BE PROHIBITED OR RESTRICTED BY LAW. PERSONS IN POSSESSION OF THIS COMMUNICATION INDIRECTLY SHOULD INFORM THEMSELVES ABOUT AND OBSERVE ANY SUCH PROHIBITION OR RESTRICTIONS. TO THE EXTENT THAT YOU HAVE RECEIVED THIS COMMUNICATION INDIRECTLY AND SOLICITATIONS ARE PROHIBITED IN YOUR JURISDICTION WITHOUT REGISTRATION, THE MARKET COMMENTARY IN THIS COMMUNICATION SHOULD NOT BE CONSIDERED A SOLICITATION.


The risk of loss in trading futures and/or options is substantial and each investor and/or trader must consider whether this is a suitable investment. Past performance, whether actual or indicated by simulated historical tests of strategies, is not indicative of future results. Trading advice is based on information taken from trades and statistical services and other sources that Midwest Market Solutions believes are reliable. We do not guarantee that such information is accurate or complete and it should not be relied upon as such. Trading advice reflects our good faith judgment at a specific time and is subject to change without notice.There is no guarantee that the advice we give will result in profitable trades.




This material has been prepared by a sales or trading employee or agent of Midwest Market Solutions and is, or is in the nature of, a solicitation. This material is not a research report prepared by Midwest Market Solutionss Research Department. By accepting this communication, you agree that you are an experienced user of the futures markets, capable of making independent trading decisions, and agree that you are not, and will not, rely solely on this communication in making trading decisions.


DISTRIBUTION IN SOME JURISDICTIONS MAY BE PROHIBITED OR RESTRICTED BY LAW. PERSONS IN POSSESSION OF THIS COMMUNICATION INDIRECTLY SHOULD INFORM THEMSELVES ABOUT AND OBSERVE ANY SUCH PROHIBITION OR RESTRICTIONS. TO THE EXTENT THAT YOU HAVE RECEIVED THIS COMMUNICATION INDIRECTLY AND SOLICITATIONS ARE PROHIBITED IN YOUR JURISDICTION WITHOUT REGISTRATION, THE MARKET COMMENTARY IN THIS COMMUNICATION SHOULD NOT BE CONSIDERED A SOLICITATION.


The risk of loss in trading futures and/or options is substantial and each investor and/or trader must consider whether this is a suitable investment. Past performance, whether actual or indicated by simulated historical tests of strategies, is not indicative of future results. Trading advice is based on information taken from trades and statistical services and other sources that Midwest Market Solutions believes are reliable. We do not guarantee that such information is accurate or complete and it should not be relied upon as such. Trading advice reflects our good faith judgment at a specific time and is subject to change without notice.There is no guarantee that the advice we give will result in profitable trades.