Soybeans traders continue to talk about a “short-squeeze” taking place in the meal market and some large bear-spreaders being blown out of their short JUL16 positions. Keep in mind meal has now moved to highs not seen since late-2014 and the traditional fundamentalist are scratching their head as the “cash market” seems somewhat non-responsive. Most of the traditional fundamentalist will tell you a setup like this could end at any moment with the bullish rug being ripped out from under the market in the blink of an eye. I would agree, especially if we are talking about the markets a few years back. Today’s markets however are much more complex and different than in years past. Sector allocations and cross-hedging by the funds have added a new twist. As we can see in today’s market the funds continue to defend their extremely long position in the front-end, just as I had anticipated. Their position is not based on traditional fundamental reasoning or on historical supply and demand data. It is more complex and wide-reaching. They are trying to protect assets in various classes and dark-pools and are using markets we are not accustom to seeing them in… i.e. the soybean market! Unfortunately, as a spec I was looking for a much deeper break in price to be buyer, so I missed this weeks recent move higher. I should also point out that I’m not going to chase the market higher. Like other fundamentalists I’m afraid the music could stop playing at any given moment and I will be the one without the chair. I’m also not going to play the short side, even though I believe we are getting a little toppy. It just makes no sense to try and apply fundamental logic to a market that’s clearly not listening. Therefore my only position is to be a bull, but I simply can’t pull the trigger at these levels. As a producer I’m simply going to sit on the sideline and watch the fireworks. I’m keeping a close eye on both the NOV16 and NOV17 contracts but will need to see another +40 to +50 cents to the upside before I get more aggressive in regard to reducing additional price risk.
I can’t tell you how many times I’ve heard producers tell me they missed a sale or that they wanted to make a sale up near the high, but just didn’t have an order in place. In my opinion this is the craziest thing I’ve ever heard. This is like saying you didn’t have an order in place to buy seed or fertilizer. Selling your crop is equally as important, so how can you not have a price placed on the goods you are going to sell? Spending time analyzing the markets and building a strategy is great, but if you can’t execute it’s all for not. I’ve heard great business leaders debate for years “strategy” vs. “execution”. Some say without a well laid out plan that allows for a series of educated choices to be put in place to help win or maximize long-term value then you never have a chance to “execute” as a winner. Others say you can have the greatest “strategy” or plan in the world but if you don’t have a well-oiled plan for “executing” that “strategy” then it’s simply all been a waste of time. Bottom-line, having a good strategy is important, but you cannot achieve good results without having a great plan for execution! Simply look at the High Frequency and Algo traders – why do you think they are all fighting over micro seconds? Something else I’ve learned thorough the years, is that “execution” is a process. It is not the result of a single decision or action. It is the result of a series of integrated decisions or actions over time. Most often our ability to “execute” depends on how well we understand our “strategy”. Therefore if we don’t have a crystal clear plan and “strategy” in place that we completely understand, it’s next to impossible to “execute”. It seems to me that while “strategy” can be taught in the classroom, “execution” is learned in the “school of hard knocks”. Best advice, make certain you’re spending as much time improving your “execution” as you are your “strategy”. As the markets look to be picking up speed and volatility in the years ahead I suspect the “execution” side of the equation may start to pay larger dividends…
This is just an excerpt of the full 5/6/2016 Van Trump Report. To find out what you’re missing every morning, sign up for a free 30-day trial!
John Rekenthaler, author of the Rekenthaler Report and Vice President of research for Morningstar, has been researching the fund industry since 1988. He recently penned what I felt was a very simple yet brilliant thought:
“The lessons of the long bull market are, in truth, lessons for the next bear market. Although the common investment dream is to be brilliant enough to dodge the bear, for most investors the real opportunity lies instead in being positioned to catch the next bull. (How many bear markets has Warren Buffett evaded?) Six years ago, too many people listened to what might go wrong, rather than thinking about what could go right.” -John Rekenthaler
Money Managers are definitely becoming more concerned about the overall direction of the global investment landscape. The “Bonds” now seem to be driving the train. From my perspective the dramatic movements in the bond markets are simply a direct reflection of money sloshing around and investors making larger adjustments to fixed income portfolios as the underlying landscape continues to shift. Remember, the world’s #1 economy has gone years without an interest rate hike. Lets also keep in mind we are in the midst of the third longest stretch in U.S. history without a 10% correction in the U.S. stock market. As a result large investors are clearly becoming a bit more uncertain about where to push their assets. One thing for certain is the fact there’s a lot more talk inside the trade that “commodities” are starting to base and may soon be the focus of increasing investment dollars. This sector has clearly been the laggard for the past few years and may soon find renewed interest. There’s also starting to be more talk inside the trade that the Eurozone is gradually improving and the strength in the Euro could equate to higher crude oil prices and a weaker U.S. dollar. Also keep in mind copper has just strung together three consecutive months of higher prices and crude oil has posted a substantial rebound as U.S. rig counts are down by over 50%. I know Goldman Sachs and several others are saying the rally in crude oil might be a bit premature and overextended, and that’s tough to argue against, but the markets are definitely trying to tell us something??? Crude and precious metals have certainly started to show signs of life, and now I’m starting to hear talk and rumors that some of the bigger players are sniffing around the agricultural asset class as it seems to be “oversold” and or perhaps “undervalued” in relationship… Yes, we can argue that China definitely has a credit problem, but from where I sit it’s doubtful it will unfold in a Democratic manner or become a large enough systemic problem that it will cause the markets to collapse. In other words I’m starting to think the Chinese slowdown is priced in and commodities might soon come back into favor. I’m not 100% sold on this theory, but I can tell you more buzz is starting to circulate around the commodity sector, so pay close attention. As I pointed out the past several weeks, this is one of those “Big Picture” items that we need to get correct.
Market reversals happen all the time, but there have been some pretty dramatic shifts in just the last month. The Wall Street Journal compiled the data charted below, which shows the change in money-flow during April compared to the first quarter. Thomas Flury of UBS Wealth Management called it a “spring cleaning…Everything that made money this winter is being pushed away.” A lot of analysts out there attribute the recent shift to an unwinding of crowded trades, meaning the bets were heavy in one direction as everyone jumped on the bandwagon of a popular “story.” We see this happen time and time again. It’s not that the underlying fundamentals change on these investments, it’s more that those ideas get traded to an extreme, the trade gets maxed out and big-money reverses course and runs the other direction.