By: Dan Hueber –
While there could be a number of analogies we could make, often times markets are like reading a suspense or horror novel. The author tries to lull you into an unsuspecting state, feeling safe and secure that nothing shocking will occur, but of course once you come to believe that, BOOM, the murderer steps out from the shadows or the creature from the deep erupts onto the surface and the safe secure world where we thought we had everything figured out has now been shattered. I suspect that is part of the psychology that makes contrarian opinion work as when everyone is confident something can or cannot happen, it does and when that belief is shattered, the corresponding move can be rather exciting. We have all heard the old saying of “If I had a nickel for every time someone said (take your pick) I would be a wealthy individual”, and I can confidently say that after nearly 40 years in the analysis/brokerage side of the commodity business, I can safely say that if I had a nickel for every time the vast majority became convinced that nothing could change, I would be a wealthy man. Granted, with the exception of Minneapolis wheat and to a lessor extent Chicago and KC, the reversal that we are witnessing in the grain/soy markets have not really elevated us into what would deemed “bullish territory” but nevertheless, it was barely a week ago that the bears were preparing to pound the final nails in the coffins of the remaining longs, so much has changed.
There was an interesting article in Bloomberg News this morning pertaining to the commodity performance that has been achieved at Goldman Sachs so far this year and seems correlate to the first paragraph. As you might suspect, it has been less than stellar, and in fact it has been the worst start for a calendar year in the division for a decade. The commodity group at Goldman grew from less that $500 million in revenue in 1981 to around $3.4 billion at the peak of the cycle in 2009 and last year had slid back to $1.1 billion. Granted, any well-run business will review department performance and by no means does this suggest that Goldman, who is still one of the dominant forces in the commodity trading world, is ready to abandon the arena, but evidently the group was a key topic of discussion at a recent board meeting held in London. I would venture to say, these are the type of stories you hear when markets at a low water mark. While I suspect he may have embellished the story a bit, famed investor Jim Rogers has stated that he divested from equity investments and began his long only-commodity fund back in 1998 after reading an article that Merrill Lynch had announced they were completely leaving the commodity realm as they could see no future (no pun intended) value as an investment vehicle.
I recognize that as this is a shortened trading session and markets will be closed tomorrow so lighter volume could be creating exaggerated moves but, wheat, corn, and beans have all gapped higher this morning. We shall see if that can hold into the close today and just as importantly, once trade resumes on Wednesday but it would not be uncommon to see substantial advances begin in this fashion.
We wish you all a happy and safe Independence Day Celebration.