Featured Trade: (A PERFECT STORM HITS THE GRAIN TRADE), (POT), (AGU), (DBA), (DE), (CAT), (WHY YOU SHOULD CARE ABOUT THE IRANIAN RIAL COLLAPSE), (USO), (UNG), (XLE)
Potash Corp. of Saskatchewan, Inc. (POT)
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Grain traders have suffered a terrible 2013, a perfect storm of great news for farmers and terrible news for prices. But while farmers can make up for low prices with higher production, no such convenience exists for grain traders.
In January, right out of the gate, the USDA predicted that the US would produce the largest corn crop in history, or some 96 million bushels. That would be the largest since 1936. It now appears that this could be a low-ball figure.
Some private estimated see the total reaching 100 million bushels before the crying is over. Some 63% of the corn crop is now rated good/excellent, well above the five-year average of 58%, and trending northward.
Geopolitics has also conspired to drive prices southward. Egypt, with its burgeoning 83 million population, with a single river (the Nile) and a bleak desert to support it, is far and away the world?s largest wheat importer. A recent coup d??tat on the heels on an economic collapse promises to remove it from the marketplace soon. Buyers without cash are not buyers at all, no matter how dire the need. Only food aid from the US government or the United Nations can step in at this stage to head off mass starvation.
As if the news were not bad enough, the Russian cartel that controls two thirds of the world?s $22 billion a year potash supply, a crucial fertilizer used globally, collapsed last week over a price dispute. Known to chemists like me as Potassium carbonate, potassium sulfate, or potassium chloride, this compound is a key factor in strengthening roots during the growing cycle. One analyst said that the breakup of the cartel is akin to ?Saudi Arabia dropping out of OPEC.?
The move promises to take potash prices down from the 2008 peak of $1,000/tonne to $300 by yearend. Potash stocks crashed worldwide, with lead firm Potash (OT) diving 30%. Agrium (AGU) was down by 15%.
This will enable farmers to buy more fertilizer at cheaper prices next year, driving down the prices on far month futures contracts today. Too bad the Canadian government didn?t allow the sale of Potash (POT) to China go through on national security grounds. The shareholders must be kicking themselves.
The move promises to demolish the entire grade trade for this year. Not only has the Potash industry been hurt, so have agricultural equipment manufacturers, like Deere (DE) and Caterpillar (CAT) and the Powershares Multisector Agricultural Commodity Fund ETF (DBA).
Long gone are the heady days of last year, when scorching temperatures induced by global warming caused grain prices to nearly double. Some nine out of the ten last years have been the hottest in recorded history. Global warming denier-in-chief, Texas governor Rick Perry, saw his state suffer 100 consecutive days of over 100 degree temperature.
For me, these developments put the grain trade off limits for the foreseeable future. The only kind thing to be said here is that this will eventually lead to a final bottom that we can eventually trade off of. That would set up a killer position for the nimble if hot weather returns in 2014.
https://www.madhedgefundtrader.com/wp-content/uploads/2013/08/Potash-Crystals.jpg333442Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2013-08-08 01:04:392013-08-08 01:04:39A Perfect Storm Hits the Grain Trade
The Iranian Rial (IRR) has just suffered one of the most cataclysmic crashes in the history of the foreign exchange markets. It is off a mind numbing 90% since the beginning of 2011. One dollar now buys 24,834 Rials. Watch out Zimbabwe!
When communications between intelligence agencies suddenly spike, as has recently been the case, I sit up and take note. Hey, do you think I talk to all of those generals because I like their snappy uniforms, do you?
The word is that the despotic, authoritarian regime in Syria is on the verge of collapse, and is unlikely to survive more than a few more months, now that the US is openly supplying weapons to the rebels. The body count is mounting, and the only question now is whether Bashar al-Assad will flee to an undisclosed African country or get dragged out of a storm drain to take a bullet in his head a la Gaddafi. It couldn?t happen to a nicer guy.
The geopolitical implications for the US are enormous.? With Syria gone, Iran will be the last rogue state hostile to the US in the Middle East, and it is teetering. The next and final domino of the Arab spring falls squarely at the gates of Tehran.
Remember that the first real revolution in the region was the street uprising there in 2009. That revolt was successfully suppressed with an iron fist by fanatical and pitiless Revolutionary Guards. The true death toll will never be known, but is thought to be in the thousands. The anti-government sentiments that provided the spark never went away and they continue to percolate just under the surface.
At the end of the day, the majority of the Persian population wants to join the tide of globalization. They want to buy iPods and blue jeans, communicate freely through their Facebook pages and Twitter accounts, and have the jobs to pay for it all. Since 1979, when the Shah was deposed, a succession of extremist, ultraconservative governments ruled by a religious minority, have failed to cater to these desires.
When Syria collapses, the Iranian ?street? will figure out that if they spill enough of their own blood that regime change is possible and the revolution there will reignite. The Obama administration is now pulling out all the stops to accelerate the process. The new Secretary of State, John Kerry, will stiffened his rhetoric and work tirelessly behind the scenes to bring about the collapse of the Iranian economy.
The oil embargo is steadily tightening the noose, with heating oil and gasoline becoming hard to obtain in this oil producing country. Yes, Russia and China are doing what they can to slow the process, but conducting international trade through the back door is expensive, and prices are rocketing. The unemployment rate is 25%.
Iranian banks have been kicked out of the SWIFT international settlements system, a death blow to their trade. That is what the Standard Chartered money laundering scandal last year was all about. Sure, you can sell oil one truckload at a time for cash. Try doing that with 3 million barrels a day of which should fetch $270 million. That?s a lot of Benjamins. Forget the fives and tens.
Let?s see how docile these people remain when the air conditioning quits running because of power shortages. With their currency now worthless, it has become impossible to import anything. This is causing severe shortages of everything under the sun, especially foodstuffs, which in some cases have more than doubled in price in months.
What does the government in Tehran say about all of this? Blame it on the speculators. Sound familiar?
Iran is a rotten piece of fruit ready to fall of its own accord and go splat. The Obama administration is doing everything it can to shake the tree. No military action of any kind is required on America?s part. Think of it as victory on the cheap.
The geopolitical payoff of such an event for the US would be almost incalculable. A successful Iranian revolution will almost certainly produce a secular, pro-Western regime whose first priority will be to rejoin the international community and use its oil wealth to rebuild an economy now in tatters.
Oil will lose its risk premium, now believed by the oil industry to be $30 a barrel. A looming oversupply could cause prices to drop to as low as $30 a barrel. This would amount to a gigantic $1.66 trillion tax cut for not just the US, but the entire global economy as well (87 million barrels a day X 365 days a year X $100 dollars a barrel X 50%).
Almost all funding of terrorist organizations will immediately dry up. I might point out here that this has always been the oil industry?s worst nightmare. Commercial office space in Houston may not do so well either, as imports account for 80% of the oil majors? profits.
At that point, the US will be without enemies, save for North Korea, and even the Hermit Kingdom could change with a new leader in place. A long Pax Americana will settle over the planet.
The implications for the financial markets will be enormous. The US will reap a peace dividend as large, or larger, than the one we enjoyed after the fall of the Soviet Union in 1992. As you may recall, that black swan caused the Dow Average to soar from 2,000 to 10,000 in less than eight years, also partly fueled by the technology boom.
A collapse in oil imports will cause the US dollar to rocket.? An immediate halving of our defense spending to $400 billion or less and burgeoning new tax revenues would cause the budget deficit to collapse. With the US government gone as a major new borrower, interest rates across the yield curve will fall further.
A peace dividend will also cause US GDP growth to reaccelerate from a tepid 2% rate to a more robust 4%. Risk assets of every description will soar to multiples of their current levels, including stocks, junk bonds, commodities, precious metals, and food. The Dow will soar to 30,000, the Euro collapses to parity, gold rockets to $3,000 an ounce, silver flies to $100 an ounce, copper leaps to $6 a pound, and corn recovers $8 a bushel. The 60-year bull market in bonds ends in a crash.
Some 1 million of the armed forces will get dumped on the job market as our manpower requirements shrink to peacetime levels. But a strong economy should be able to soak right up these well-trained and motivated. We will enter a new Golden Age, not just at home, but for civilization as a whole.
Wait, you ask, what if Iran develops an atomic bomb and holds the US at bay? Don?t worry. There is no Iranian nuclear device. There is no real Iranian nuclear program. The entire concept is an invention of Israeli and American intelligence agencies as a means to put pressure on the regime and boost their own budget allocations. The head of the miniscule effort they have was assassinated by Israeli intelligence last year (a magnetic bomb, placed on a moving car, by a team on a motorcycle, nice!). What nuclear infrastructure they have is being decimated by computer viruses as I write this.
If Iran had anything substantial in the works, the Israeli planes would have taken off a long time ago. There is no plan to close the Straits of Hormuz, either. The training exercises in small rubber boats we have seen are done for CNN?s benefit, and comprise no credible threat.
I am a firm believer in the wisdom of markets, and that the marketplace becomes aware of major history changing events well before we mere individual mortals do. The Dow began a 25-year bull market the day after American forces defeated the Japanese in the Battle of Midway in May of 1942, even though the true outcome of that confrontation was kept top secret for years.
If the collapse of Iran was going to lead to a global multi decade economic boom and the end of history, how would the stock markets behave now? They would rise virtually every day, offering no substantial pullbacks for latecomers to get in. That is exactly what they have been doing since mid-November.
https://www.madhedgefundtrader.com/wp-content/uploads/2013/02/Rial.jpg231470Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2013-08-08 01:03:152013-08-08 01:03:15Why You Should Care About the Iran Rial Collapse
https://www.madhedgefundtrader.com/wp-content/uploads/2013/08/Umpire.jpg242361Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2013-08-08 01:02:572013-08-08 01:02:57August 8, 2013 - Quote of the Day
While the Diary of a Mad Hedge Fund Trader focuses on investment over a one week to six-month time frame, Mad Day Trader, provided by Jim Parker, will exploit money-making opportunities over a brief ten minute to three day window. It is ideally suited for day traders, but can also be used by long-term investors to improve market timing for entry and exit points.
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While the Diary of a Mad Hedge Fund Trader focuses on investment over a one week to six-month time frame, Mad Day Trader, provided by Jim Parker, will exploit money-making opportunities over a brief ten minute to three day window. It is ideally suited for day traders, but can also be used by long-term investors to improve market timing for entry and exit points.
While the Diary of a Mad Hedge Fund Trader focuses on investment over a one week to six-month time frame, Mad Day Trader, provided by Jim Parker, will exploit money-making opportunities over a brief ten minute to three day window. It is ideally suited for day traders, but can also be used by long-term investors to improve market timing for entry and exit points.
I often get accused by readers of being a dinosaur, of being insensitive to the feelings of others, and of living as a relic from a previous age. Well, you all may be right. So it is with some amusement I run a piece that I have lifted from my friend, Dennis Gartman?s The Gartman Letter, on the difference between going to school in 1957 and 2010:
Scenario 1: Jack goes quail hunting before school and then pulls into the school parking lot with his shotgun in his truck?s gun rack.
1957 ? Vice Principal comes over, looks at Jack?s shotgun, compliments him on the model, goes to his car and gets his shotgun to show Jack. 2010 ? School goes into lock down, FBI called, Jack hauled off to jail and never sees his truck or gun again. Counselors called in for traumatized students and teachers.
Scenario 2: Johnny and Mark get into a fist fight after school.
1957 ? Crowd gathers. Mark wins. Johnny and Mark shake hands and end up buddies. 2010 ? Police called and SWAT team arrives ? they arrest both Johnny and Mark. They are both charged with assault and both expelled even though Johnny started it.
Scenario 3: Jeffrey will not be still in class, he disrupts other students.
1957 ? Jeffrey sent to the Principal?s office and given a good paddling by the Principal. He then returns to class, sits still and does not disrupt class again. 2010 ? Jeffrey is given huge doses of Ritalin. He becomes a zombie. He is then tested for ADD. The family gets extra money (SSI) from the government because Jeffrey has a disability.
Scenario 4: Billy breaks a window in his neighbor?s car and his dad gives him a whipping with his belt.
1957 ? Billy is more careful next time, grows up normal, goes to college and becomes a successful businessman. 2010 ? Billy?s dad is arrested for child abuse, Billy is removed to foster care and joins a gang. The state psychologist is told by Billy?s sister that she remembers being abused herself and their dad goes to prison. Billy?s mom has an affair with the psychologist. It then all becomes a reality TV show.
Scenario 5: Mark gets a headache and takes some aspirin to school.
1957 ? Mark shares his aspirin with the Principal out on the smoking dock. 2010 ? The police are called and Mark is expelled from school for drug violations. His car is then searched for drugs and weapons. The DEA then auctions off the car and keeps the money as criminal proceeds.
Scenario 6: Johnny takes apart leftover firecrackers from the Fourth of July, puts them in a model airplane paint bottle and blows up a red ant bed.
1957 ? Ants die. 2010 ? ATF, Homeland Security and the FBI are all called. Johnny is charged with domestic terrorism. The FBI investigates his parents ? and all siblings are removed from their home and all computers are confiscated. Johnny?s dad is placed on a terror watch list and is never allowed to fly again. Johnny?s name is placed in an NSA data base for life.
Scenario 7: Johnny falls while running during recess and scrapes his knee. He is found crying by his teacher, Mary. Mary hugs him to comfort him.
1957 ? In a short time, Johnny feels better and goes on playing. 2010 ? Mary is accused of being a sexual predator and loses her job. She faces 3 years in State Prison. Johnny undergoes 5 years of therapy. It all becomes another reality TV show.
So True!
Our Leaders Hard at Work Solving Nation?s Problems
https://www.madhedgefundtrader.com/wp-content/uploads/2013/08/Dinosaur.jpg360480Mad Hedge Fund Traderhttps://madhedgefundtrader.com/wp-content/uploads/2019/05/cropped-mad-hedge-logo-transparent-192x192_f9578834168ba24df3eb53916a12c882.pngMad Hedge Fund Trader2013-08-07 01:04:182013-08-07 01:04:18Musings of a Dinosaur
While the Diary of a Mad Hedge Fund Trader focuses on investment over a one week to six-month time frame, Mad Day Trader, provided by Jim Parker, will exploit money-making opportunities over a brief ten minute to three day window. It is ideally suited for day traders, but can also be used by long-term investors to improve market timing for entry and exit points.
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