July 26, 2021

Commodity Insight: Hard to turn despite improvement

My June 5 column was entitled, “Erroneous assumptions.” The substance of the column, the main message, was “do not assume anything where markets are concerned.”

I penned that phrase because at the time most experts assumed for the U.S. economy the worst is behind us and better times are coming in terms of job creation and coronavirus infections. And I went on to state, “let’s all hope those assumptions are not erroneous.”

Since the March-April period, all markets — and I do mean all — have improved in value led by equities and followed by commodities. Still, I remain a skeptic.

With the current unemployment rate at 11.2%, the highest since the 1930s, and cases of coronavirus surging to record highs each week in the United States and abroad, I am skeptical about buying stocks or commodities. Frankly, I have little or no desire to trade the long side of anything.

In order for me to be more comfortable about becoming a born-again bull, I need to witness something suggesting better times are indeed coming rather than rely on what the markets and experts are suggesting.

Yes, stocks and commodities are doing far better today than they were in March and April. But as a skeptic I seldom “assume anything where markets are concerned.”

To fess up, on my computer is taped an old Scotch-Irish prayer that goes like this: “Lord, grant that I may always be right, for Thou knowest I am hard to turn.”

It is true that I am stubborn as a mule and only change when the facts or the supply-demand fundamentals have changed. If those things don’t change significantly, I am indeed “hard to turn.”

And, unfortunately, that is where I now stand with stocks and commodities, though both have improved sharply over the past months. I see and acknowledge the strength, but do not trust the markets.

Helping justify my skepticism where the markets are concerned, consider the following from CNBC News with a headline, "Bernanke and Yellen say the Fed needs to find out why the market broke down in March."

The opening paragraphs stated the following: “Former Federal Reserve chairs Ben Bernanke and Janet Yellen are raising questions about the role hedge funds played in the March market tumult. The duo pointed out in an essay that says the Fed was pushed into action as a result of a breakdown in market functioning triggered by massive hedge fund selling in the early days of the coronavirus pandemic declaration.”

Here is my own personal opinion on what brought forth the sharp decline seen with stocks — and commodities — in the January to March period. First and foremost, stocks and most commodities bottomed in March; they did not break down as the article above states so erroneously.

Commodities peaked in January and bottomed in April. Stocks peaked in February and bottomed in March. From the lows, both markets improved dramatically.

The reason stocks and commodities began to decline precipitously was because the hedge funds, the algo boys, the high frequency traders and Wall Street money managers began to see weakness with values.

As the markets showed more and more weakness, they began to sell more and more aggressively. The more they sold, the lower values declined, which in turn sparked more selling.

However, since the March-April period the very opposite is taking place. The hedge funds, the algo boys, the high frequency traders and Wall Street money managers have now embarked on buying spree programs because the markets they were once selling are now showing strength.

The strength has generated heavy buying, which in turn has sparked even more buying — and, of course, higher values.

And now the Nasdaq is at a new all-time high while the S&P 500 is higher for the year. Gold and silver prices that bottomed the very day as stocks have rallied dramatically. Gold prices are now at an 11-year high and silver a six-year high.

Commodities, per se, are at a four-month high and stocks a five- to six-month high. Everything has improved, though the fundamentals that broke the markets have not, in my view, improved.

Never ever “assume anything where markets are concerned.” Simply because most markets are now moving higher, I need to witness for myself a change in the unemployment rate or a decline in COVID-19 cases before I am comfortable with the long side of any market.

I have been skeptical of being a bull, but woefully wrong since March and April. But that is not much of a surprise to those that know me well. I am indeed hard to turn.

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