May 15, 2008

Market Comments for May 15, 2008

1) Wild swings in crude today related to the options expiration. There was a proposal from congress that margin trading in crude be eliminated. This would force about one third of the longs in the market to liquidate their positions. Saudi Arabia is sending 16 million barrels of crude to the US in June. Prices fell from $126 to $120. Please see my note yesterday to sell crude calls. The US stock market liked it, closing as a new 3 month high of 12,992.

2) There is a global upside breakout going on in emerging market stock indexes. Both Brazil and Russia hit new all time highs last night. I have been recommending Brazil since February, a country where everything is going right.

3) A power failure shut down the Intercontinental Futures Exchange in Chicago today. Volatility went right out of the market.

4) More data on the impending retirement crisis. The average head of household IRA is now worth only $60,000. More than 45% of workers are facing a cut in living standards when they retire. This is because people are living longer, interest rates are lower, and people have less equity in their homes because of the housing crisis.

5) In a continuation of the IPhone wars, Blackberry is introducing a touch screen model in the fall.

6) April industrial production came in less than expected.


There is a nice long opportunity setting up here in wheat, which is now down 45% from its $14.50 intraday high in January (remember both limit up and limit down in the same day?). It is now down to $7.50/bushel, having fallen more than any agricultural commodity this year. Record corn and soybean prices are encouraging farmers to switch acreage away from wheat which will create a wheat shortage later in the year. In the meantime people are still getting hungrier and natural disasters in China and Burma will further exacerbate the global food shortage. Expect prices to rise 46% to $11 in the next six months.