Tim Hughes’s weekly newsletter, Dry Heat, summarizes the week’s latest activities and potential opportunities in the markets that he follows. His focus is primarily on the agricultural sector - cattle and grain futures. Contact Mr. Hughes at (602) 859-4100
Timothy Hughes | 602-859-4100 | firstname.lastname@example.org
12/14/12 General Comments
The original argument for the creation of the Federal Reserve in 1913 was to promote monetary stability. The money supply when the Fed began operations in 1914 was $11.6 billion. Today it is approximately $1,695.9 billion. That’s 145 times larger and doesn’t sound like stability. In the past 18 months alone the money supply has increased 24%. Our fiscal cliff has taken the spotlight off of the EU. Their problem is much more acute and can’t really be dealt with as easily because of all the different fiscal policies in each country. The EU is, however, expert at can kicking and that now seems to be the only option available to the Fed. Our fiscal cliff isn’t the most dangerous threat. A failure of our government to come to agreement will result in a serious hit to our incomes via taxes and Federal spending cuts will seriously hurt our economy but a failure in Europe will cause some of their big banks to fail. That could create a worldwide depression. The Fed, ECB and the Bank of Japan are all expected to continue easing policies that weaken their currencies. The Bank of England will have to follow and probably South Korea. Any nation that needs to protect its industrial exports will follow suit. The easiest prediction to make is that so much central bank money creation will make all of those currencies worth less in the coming year. The benefit of diversification into real assets seems a given.
Gold: Fundamentally my belief about gold is expressed in the above general comments. There seems no way to avoid inflation, a currency failure or both in the future. How far in the future is a guess. From a trading perspective I would buy Feb. gold on a further break. It may test the recent low at $1674.70 but it shouldn’t close below $1671.80 this week. That would be my stop point for traders.
Corn : March corn held my trend line on Friday and my indicators gave me a couple of buy signals. I would buy it on a break to 7.25 and risk it trading below 7.15.
Soybeans: Beans broke during the week only briefly. The long term trend remains higher and the shorter term trend has turned higher. I missed buying last Monday, so I am out for the moment
Cattle: The Feb contract held above 130.00 last week and rallied. This market is going higher but it will be a fight to move the cash beef higher near term. The first quarter of 2013 will see new record prices. The February contract hit 135.80 on March 1 of this year and it looks like it will revisit that price. There should be good support at 132.17 now.
Hogs: I had a daily sell signal on Friday. I would sell a rally to 85.77 and risk a close above 86.25. This would only be a short term trade expecting a break back to the 83.80 area.
Treasuries & US$: I am bearish stocks. The Fed has forced yield seekers into stocks and now we wait to see how much higher taxes will be raised on dividends and capital gains. It seems like there would be a hasty exit by many before the end of the year. I have been wrong to this point but I will wait and see.
Questions? Ask Tim Hughes today at 602-859-4100
Futures and options trading involves substantial risk of loss and may not be suitable for everyone. The information presented is from sources believed to be reliable and all information is subject to change without notice.
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