The Federal Reserve began hiking interest rates more than a year ago to fight inflation. In June 2022, inflation was nearly 9%, but has since dropped to 3%.
The Fed has been touting further rate hikes this year to get the rate of inflation down to its target of 2%.
It remains to be seen if the Fed will eventually meet its goal, but it is determined to keep pushing rates north. And thus far the Fed is doing a good job of keeping inflation in check.
However, over the past month several markets have shown unusual strength and reluctance to move lower despite Fed policy. The first that comes to mind are cattle prices that again in recent days have posted a new all-time historic high.
The U.S. cattle market is bulletproof thanks to the cow herd being the smallest in 62 years with no hopes of increasing supplies until 2025 at the earliest.
But there is also strength seen with crude oil that recently hit a four-month high. Silver, copper and cotton prices rose to a two-month high.
Soy oil is at an eight-month high. Bitcoin and the S&P jumped to a 14-month high. The Nasdaq hit a 16-month high.
A few days ago, orange juice prices hit an all-time historic high. The Japanese stock market is back up to where it was in 1990.
The Fed may be hiking rates and inflation on the decline, but a number of markets are showing independent strength. I am always on the alert for markets that show independent strength.
When the Fed is on a monetary policy of hiking rates, I view such a development as bearish most all markets.
But that does not mean markets that show independent strength cannot still be bought, or for that matter be sold. There are no easy answers when it comes to investing or speculating.
And now, a bit about the legendary Jesse Livermore. From Wikipedia, the free encyclopedia: “Jesse Lauriston Livermore (July 26, 1877-November 28, 1940) was an American stock trader. He is considered a pioneer of day trading and was the basis for the main character of ‘Reminiscences of a Stock Operator,’ a best-selling book by Edwin Lefèvre. At one time, Livermore was one of the richest people in the world; however, at the time of his suicide, he had liabilities greater than his assets.”
Few in finance are quoted more often than Livermore. If alive today and looking at the list of markets that are showing independent strength, he would say something like this: “Remember, markets are never too high to begin buying or too low to begin selling.”
He would likely go on to mutter, “The human side of every person is the greatest enemy of the average investor or speculator.”
And one of my favorite Livermore quotes tumbled from his lips, “Markets are never wrong — opinions often are.”
Over the past few weeks, a number of markets are showing independent strength. The ag markets are among those because the weather in the U.S. Grain Belt is worrisome with several services calling for extreme heat in the final week of July and into August. Such weather conditions are worrisome should excessive heat blast the Grain Belt as I expect.
But it was not the weather that spooked me this week. It was the war in Ukraine that has been underway for more than 17 months.
Earlier this week, Russia backed out of the “grain corridor deal” that kept Ukraine grain exports moving into the marketplace. Over the next three days, Russia bombed the port of Odessa and destroyed 60,000 tons of grain.
From CNBC: “Wheat prices soar for a third day as Russia-Ukraine tensions stoke fears of major food crisis.”
However, here is the headline that caught my attention and those following the grain markets, “Ships bound for Ukraine will be considered hostile, Russia says.”
From the New York Times: “Two days after Russia pulled out of the deal allowing Ukraine to ship grain through the Black Sea, Moscow took another step to hinder shipping, saying the Russian military would regard any ship bound for Ukraine to be a potential carrier of military cargo and their home countries to be Kyiv’s allies in the war.”
The intensification of the war in Ukraine with Russia now treating any ship bound for a Ukrainian port as “the enemy” is a new bullish force impacting grain prices. And I will bet that ships being bombed is next.
But the key to the grain markets still comes down to the whims and ways of Mother Nature. And it is impossible to accurately predict her every whim.