The two days leading up to the presidential election and the four days after were among the most volatile in history for stocks, bonds, currencies and commodities, the Big Four. The two days before the election were mostly bullish, but the following four days quite bearish except for the stock market and the U.S. dollar.
And, in my column from last week, I highlighted how gold, bonds and soybean prices simply collapsed election night — inflicting huge losses on the bulls as the votes were being tallied and thereafter.
The one market I did not highlight last week, however, was silver futures. I will do that now. The Friday, after the Tuesday election and early in the morning, silver futures rose to a high of $18.85 an ounce, but in late-afternoon trading, values fell to $17.18 an ounce.
Those bullish and bought the high and held on as it collapsed lost as much as $8,350 per contract at one time. They were losing $1,341 per hour, or $231 per minute.
Keep in mind there was no bearish news out that day that shoved silver prices deep in the red. The only news was the presidential election and the volatility it spawned with silver, gold, soybeans, bonds and a host of other markets.
And those who may have bought silver that day and carried the position into the new week lost even more money. The following Monday, silver futures dropped to $16.63 an ounce, leading to another $2,750 loss per futures contract.
Add the Friday loss of $8,350 to the Monday loss of $2,750, and in the short space of two trading sessions, silver futures lost more than $11,000 per contract.
This week, a semblance of stability settled in, and the volatility was reduced from what it has been since election day. But this week, the U.S. dollar suddenly jumped to a new 14-year high, promoting more uncertainty and setting the stage for additional volatility.
In the column I wrote for this newspaper dated Dec. 31, 2015, entitled “Outlook for 2016,” I stated: “Not only was 2015 a bummer for commodities and a huge disappointment for stocks, bonds and cash, but the volatility increased dramatically in the final month of the year, which simply sets the stage for more of the same in the New Year. Stocks, shares, equities and the Dow, for example, endured the most volatile and capricious December since 2008.”
In other words, 2015 ended with a great deal of volatility, and the same scenario is rearing its ugly head here in late 2016. But the wild card moving forward, which may spark an even more intense bout of violent price swings, rests with the U.S. dollar.
Here is what I also wrote in Part II of “Outlook for 2016”: “The New year will be known as the, ‘Year of the Dollar.’ In 2015, the dollar rose 9 percent and is off to a good start in 2016. The Fed hiking rates will provide the ‘ol greenback with a stiff tail wind for all of 2016 and likely beyond. When President Reagan was in office in the ‘80’s, the dollar rallied to 128.00 and in the 2000s, when Mr. Clinton was president, the dollar rallied to 112.00. This week, the dollar kissed a one-month high of 99.73. My work suggests the dollar will peak a bit above where it was when Mr. Reagan was in office before the rally ends.”
With the exceptionally violent market swings seen since the presidential election the one market grinding higher and higher with little notice and fanfare is, believe it or not, the dollar, the ‘ol greenback. This week, it hit a high of 101.54, the best it has been since late 2002, 14 years ago.
I stated clearly in my column, “Outlook for 2016,” that is year would be known as the Year of the Dollar. I also stated clearly what tends to happen to commodities per se when the dollar becomes king.
Hard assets, commodities if you will, tend to work lower to sharply lower. Rallies when they unfold are feeble and short lasting. That is an absolute fact based on the history of the dollar and its relationship to hard assets.
Unfortunately, U.S. ag producers are facing a double whammy. Not only has the ‘ol greenback rallied to a new 14-year high, but at the same time, the Chinese currency, the yuan, has fallen to an eight-year low.
For nearly a decade, the saying, “as China goes so goes U.S. ag prices,” has been as right as rain. China has been the main buyer of U.S. soybeans and, in recent years, a major buyer of U.S. pork.
But the landscape has changed dramatically this year with the dollar being so strong, the yuan so weak and Chinese purchasing power sharply curtailed.
There is a great deal of uncertainty everywhere when it comes to markets of all kinds. But the double whammy of a strong dollar and a weak yuan is not uncertain at all.
It is a bearish scenario for U.S. agriculture. And, hopefully, I am wrong about that, and it would not be the first time I was wrong. But only time will tell as the New Year draws near.