December 08, 2022

Commodity Insight: Events that move the markets

In the marketplace and in politics, nothing changes the outlook and direction of valuations and policy more quickly and more dramatically than an event. An event can be a shock felt around the world.

And such an event took place the Friday following the Thanksgiving Day market holiday.

The event I am referring to was news of a potentially vaccine-resistant new COVID-19 variant that surfaced in southern Africa. The new variant is named Omicron.

The markets feared that Omicron was the new COVID-19 Delta and countries across the globe began scrambling to reinstate new travel bans and lockdowns. The news was a huge market mover and pushed a number of nations into policy changes in a matter of hours.

The day after Thanksgiving, the Dow closed 905 points lower, the largest decline since February and a two-month low. Crude oil dropped more than $10 in a day to a three-month low.

Stiff losses were seen with the major commodity indexes, led by grains, lean hogs, cotton, coffee and most precious metals. The trading sessions following Thanksgiving were brutally bearish and the result of an event, Omicron, that no one anticipated.

And, as always, a host of commodity markets that have bullish fundamentals were also slammed hard.

History shows that is not unusual because markets tend to shoot first and ask questions later. Pessimism became the norm. Optimism was nowhere to be found.

A similar scenario surfaced in March 2020 when COVID-19 became a pandemic and markets of all stripes simply collapsed.

I wrote about that ugly period and included it in a chapter my book, “Haunted By Markets.”

The chapter was entitled “Or, A Herd of Ponies.” I wrote: “Allow me to reprint one of my favorite stories about President Reagan, an eternal optimist and a joke he often told.

“The joke concerns twin boys of 5 or 6. Worried that the boys had developed extreme personalities — one was a total pessimist, the other a total optimist — their parents took them to a psychiatrist.

“First the psychiatrist treated the pessimist. Trying to brighten his outlook, the psychiatrist took him to a room piled to the ceiling with brand-new toys. But instead of yelping with delight, the little boy burst into tears.

“‘What’s the matter?’ the psychiatrist asked, baffled. ‘Don’t you want to play with any of the toys?’ ‘Yes,’ the little boy bawled, ‘but if I did I’d only break them.’”

“Next the psychiatrist treated the optimist. Trying to dampen his outlook, the psychiatrist took him to a room piled to the ceiling with horse manure. But instead of wrinkling his nose in disgust, the optimist emitted just the yelp of delight the psychiatrist had been hoping to hear from his brother, the pessimist.

“The pessimist clambered to the top of the pile, dropped to his knees and began gleefully digging out scoop after scoop with his bare hands. ‘What do you think you’re doing?’ the psychiatrist asked, baffled by the optimist just as he had been by the pessimist. ‘With all this manure,’ the little boy replied, beaming, “there must be a pony in here somewhere!’”

I wrote the chapter above on March 13, 2020. From that month on, markets of all stripes rallied sharply in value for one year and nine months.

There were bull markets all over the place until the day after Thanksgiving a few weeks ago. Today and in light of the major decline seen with most all markets due to the Omicron I would bet heavily there are a number of undervalued markets — “ponies,” if you will — buried under all this week’s huge pile manure, just as there was in 2020.

However, out of all the markets anywhere, I continue to see only three that are high in probability and high in profitability. Of course, back in March 2020, after the COVID-19 scare, all markets moved sharply higher, for one year and nine months.

Today, there may be another herd of ponies out there under all this week’s huge pile of cow chips, just as there was in 2020. Only time will tell.

Finally, allow me to pontificate. We are in the early stages of a commodity supercycle that will not end anytime soon. Price spikes upward will be breathtaking.

Stay alert. Stay bullish. Use stops. Cross your fingers.

And please check out Or, call me at 406-682-5010.

I would enjoy hearing from you.