Tuesday, November 9, 2010

Imbalances will be Re-Balanced

I went to a cattle auction yesterday in Trousdale County, Tennessee. The first offering was a breeding pair of Buffalo.   Taken with my phone camera.

The Grains, Oil, and precious metals are all going ballistic.  Yet beef, pork, and poultry prices are trailing by a wide margin.  The average price for over 50 head of cattle sold yesterday at this auction was only 41 cents ($.41) per pound, less than half the price of the Live Cattle Futures traded in Chicago.  

There were 40 or 50 farmers in the bleachers and I spoke to a number of them.  Every one of them said that with feed prices being so high they were selling off their marginal animals for slaughter.  This is not indicative of higher meat prices in the near term, but might be more constructive next year.  As for grains... the U.S. cattle herd head count is at its lowest in years, and it would appear that it is headed lower.  Yes, this could easily be offset by cattle head count elsewhere in the world... but I have lost my bullishness for grains (though Oil price could force ethanol higher).  Cattle, unlike hogs and poultry, cannot be bred quickly.... more importantly, it appears that producers (cattle farmers) are not able to pass costs onto (beef) consumers.

Precious metals are still going ballistic while housing continues its price decline.  Silver has caught somebody BIG in a short squeeze I' wager... while Gold seems unstoppable.  Short squeezes always end up in the same place - though I have no idea how to trade this one.  Gold may not be finished, but it ain't cheap.  In 2008 when Oil was at 138, Goldman came out and said it was going to $200.  I called the Mad Scientist and told him on the next time Oil started to pull back I was selling every last contract we had.  Gold could go to $2,000 for all I know.  It could go to $1,000, too.  Sometimes when trading you get an unexpected "kiss".  

Every commodity has a historical ratio with every other commodity. Gold/Silver, Wheat/Corn, Gold/Oil, Gold/Dow.... I like Gold/Food.  My favorite?  You are going to laugh... Gold/Cow (Beef).  The Gold/Cow ratio is all out of whack.  Remember, Gold has been used as a store of value for centuries... but it has little industrial or practical value... and Cows do - milk, meat, leather, bonemeal.... stuff that is actually sold to consumers.  As of now, those consumers have been unwilling in the extreme, or unable, to absorb producer's increased costs... not exactly a sign of inflation... just something to think about...

Of course, markets have been known to stretch ratios to the outer limits... remember a 125 p/e NASDAQ in 2000? Those that sold (or worse, shorted) at 75 p/e were ready to kill themselves.

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Energy equities rise or fall on the price of Oil and Nat Gas.  Keep that in mind if you trade this market place.

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Got a cool link from one of my buddies working on Wall Street: "Preparing Kids for the Unknown".  

The best passage from the article (if you are a parent):

“When education started in this country, the goal was to round off people who were already practically skilled,” McKibben says. “Most people grew up knowing how to do things like raise their own food and an astonishing number of tasks that we no longer know how to do. You went to school to read the classics and get some polish.
“We’re now kind of in the opposite situation, where kids spend 100 percent of their time in a mediated environment. We learn about the world through one school or another. So we might need to be thinking more about using school to introduce us to those practical things that we don’t know how to do anymore."
Of course, the article goes on to suggest the laughable - horseback riding and archery are just as silly as it gets - but the larger point, that as a society we have arranged our children's experiences in such a way that they usually come of age having literally no idea how to swing a hammer, weed a garden, repair a roof or deck, or change the oil in a car (but they do know how to download music to their I-Pod)... and I am speaking from personal experience... I grew up learning how to play the violin and how to play football... and in my 40's I bought a small farm only to learn the hard way that I did not know even basic carpentry or animal husbandry. 

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Even the well-to-do are shopping at Good Will and other second hand stores?  Join the club!  I had never been in a dollar store or second hand shop in my life until I bought my farm.  Now, I don't buy anything new.  I outfitted my workshop and got all of my farm implements from Craigslist.com, and ONLY buy my books at the multitude of second hand shops around Nashville.  I'd be only too happy to buy my clothes there, but at my height that just isn't much of an option.

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A healthy second hand market is not indicative of an inflationary environment, either... so what's up with the commodity market?  In a word - the Fed.  As I have said a bizzilion times before, if I knew for sure what the policy response was going to be... my predictions would get a whole lot better.  

Who knows what the change up in Congress and posturing for the 2012 elections means for the Fed?

Not me.







29 comments:

bureaucrat said...

1) The kids know how to download songs because they have a curiousity about all that a computer can do (they likje how IT does all the work. :)) If you have a computer problem you need fixing, you find yourself a 12 year old. Plus kids have their friends to show them how to do things.

The other things you mention are showed to us usually by dad. But without a real middle class anymore, and dad underemployed, there isn't much teaching going on. I notice this with my younger friends who are afraid of hammers. This offshoring of jobs to China is going to come to a head, as we try to get the needed jobs back for dead old dad. Even Obama is starting to beat the anti-China drum a little

2) If the massive amount of capital coming from the Fed and the near-zero interest rates are having the effect of boosting commodities, that can't last. So whatever gains you are expecting in commodities, don't plan on them for the long term. With the exception of oil and natgas, every other commodity can eventually increase its production. The S&P 500 (which I was in for 17 years) is for the lazy investor. Commodities takes a little bit more active management.

bureaucrat said...

The link says it all ...

http://aspo.tv/
2010-peak-oil-
conference/jeff-rubin-
keynote-oil-and-
the-end-of-
globalization/

Anonymous said...

I completely disagree with Bur's #1 comment. They kids like what a computer can DO, now why it does what it does.

I work mostly with Teenagers, and previously College students. They are very knowledgeable about App's and where to click, but most have absolutely no idea how computers work, nor any real knowledge in computer science.

I saw time and time again, students who claimed to be computer wizzes who used them constantly, fail out of computer science, because they couldn't grasp computer script, math, logic, they were just very savvy with lingo and where to click.

More people in my generation actually have an understanding of computers, because everything wasn't laid out so easily for them. Too many old People--like you Bur :) Grossly overestimate the youth's knowledge of technology, sure there are some good young computer geeks out there, but that has held true for a long time now. My father was a computer scientist--back when they were still making their own motherboards and his more savvy then any teen I've met, even though he is older then Mr. Jeffers.

For all this talk about the power of youth, I'm mostly unimpressed spending much of my week with the youth for the past decade. I am quite impressed with their ability to text message at light speed, their utter lack of social skills, and how fat and out of shape they are.

At the gym I used to work out in, the teens were amazingly pathetic, barring a few exceptions, I saw more people in their 40's who were more fit, worked out more intensely and were far stronger--even if the 18yr olds had the power of regeneration on their side.
-Meiyo

Greg T. Jeffers said...

Meiyo:

Older than Moi??!! Egads!

BTW... I hope to get old enough to make dirt look fresh.

bureaucrat said...

Nobody cares about programming languages or what's inside the computer, except the builders. I'm talking about kids. The kids know how to work technology (like Ipods and song downloads) because it first requires curiosity, and then requires a good memory to remember the steps to make the same thing happen twice and three times, etc. I doubt we disagree much. The point was about downloading songs, not about installing a new radar system at a military base using COBOL. :)

And the reason you see 40 year olds (like me) at the gym working so hard is because 40+ year olds are starting the process of falling apart, and they also know their lives are half over. I'm very in tune with being 43. :)

Crybaby said...

You could make a case that the second round of QE is already priced into the stock, bond and forex and commodity markets because the Fed has been discussing it and preparing the market for months. In addition, they did a survey of primary dealers the week before the meeting to see how much QE the markets were expecting. I took a dollar long after the employment report on Friday and it has performed well.
In addition, there is the rumor of back room meetings between the Chinese and the US about lightening up on QE in exchange for an increase in the yuan. The yuan did increase .38% this week,and the PBOC may raise rates again. But it would probably take severl months of much higher than expected employment before the Fed would actually stop the QE altogether

Greg T. Jeffers said...

Crybaby:

That's as reasonable as anybody's opinion...

I can't predict policy any better than the next guy...

PioneerPreppy said...

Silver Dropped today WTF?

Anyway it has been my observation with teenagers that some do have an active interest in programing languages but very few know alot about the insides. Which is only logical since like cars the computers have become much more complicated.

My son is a master at database and some event programming using certain scripts and/or languages I long ago stopped keeping track of.

Sadly I will admit the teens and young 20 somethings really don't measure up physically. I not only see it in my son but in the young guys at work as well. Part of it is that at my sons age I was all over the countryside doing things that would get him arrested today. So I cannot be very disappointed in him and am somewhat relieved that computers keep him out of trouble.

More to the point of your post Greg. I used to work long ago in a livestock auction in South Dakota. A particularly large one.

I actually deleted what I had written because I realized my information on cattle prices was so old and out of date that I really have no clue. I just remember being told back then that individual sale barns, even huge ones, were so over shadowed by the markets that it took years to adjust beef prices for the small individual rancher.

Still waiting for the balance to set in here.

Greg T. Jeffers said...

Pioneer:

Silver has had an incredible run. INCREDIBLE. Trees do not grow to the sky. The COMEX increased the margin for Gold and Silver today. I am going to write about the significance of that shortly.

Could there be more upside for silver? Sure. And there could be a great deal of downside, too. If you had a double in it, it might be time to cut your position.... or not.

It just seems unlikely that SIlver can march forward while housing marches backward. Inflation should be helping housing, no?

Greg T. Jeffers said...

When TPTB want to torpedo Silver and Gold, or any commodity, they can do it ANY TIME THEY WANT TO.

All they gotta do is raise the Margin requirement to 100%. If everybody had to pay cash for all of the Gold on Comex? Gold would be $400, not $1400.

They did it to the Hunt brothers... and will do it again if they feel it is necessary. Today's margin increase was only the first warning.

Bill said...

I teach a computer class at a local college. The amount of real computer knowledge in that whole class could be held in a thimble. It's pretty scary.

This day and age people think if you can use a computer then you are technical and that's just not true. That's the problem with our whole society. We are users, not makers. We use and consume but we don't really know how to do anything.

If you think it doesn't matter you are wrong.

PioneerPreppy said...

Ya Greg you are correct I cannot complain about a measly dollar or so decrease in Silver after the run it has had.

I just got used to seeing it go up alot more than down recently :)

Stephen B. said...

I wholeheartedly agree with Bill and Meiyo. I'm a former electrical engineer/computer engineer that used to write microcode for I/O subprocessors. Most kids can't begin to write real programs in any high-level language, never mind at the assembler or micro machine level. After all, knowing how to drive a car well doesn't mean one knows how to design the castings for a new DOHC, aluminum block, wonder engine.

I'm also going to take exception with something else Bur said about kids not knowing practical skills because there is no middle class and/or dad is "underemployed."

Bah!

There's still millions of middle class and even if they *were* all poor now, poor folk still once knew how to cook from scratch using cheap ingredients or patch the hole on the family shack, etc. Heck, poor as sin Okies coaxed their beaten up 1920s jalopies all the way to California, and over dirt roads when they had a mind to.

Or, if Dad is underemployed, he must have *more* time to show Jr. a few things. No?

No, now we have no practical skills because nearly a century of hyper-specialization in an economy put into hyper-drive by cheap oil enabled and demanded that all jobs be done by hired specialists. In addition, increasing vocational complexity was doubly reinforced by ever increasing government professional licensing requirements. Don't change that light fixture....that can only be done by an electrician, or so people think and say.

Donal Lang said...

I lecture too. i think there are two problems which underlie many others:
Few kids have everyday heroes, practical role models, often no father figures who give a good example. Instead they have anti-heroes, computer games and absent fathers (including many that are still at home!).

The second is that kids don't learn the basics, so have no way to connect the higher levels education to the real world. They no longer build sheds, fix cars, paint the fence for pocket money. They don't even learn how to budget household income (often because their parents couldn't teach them if they tried!).

Computers and cash machines, all the way through to broken homes and failing schools, all reinforce all of the above; i.e. the problem is systemic.

I'd say horseriding, archery, any physical skill involving balance and co-ordination in a real environment is good. Use of tools (yes, even sharp ones!)is better.

A friend (of Polish extraction) lectures too. His 20 yr old son can do everything; hunting and fishing to rebuilding old motorbikes or building a house. Trouble is, he goes on college courses and knows more than the tutors!

lala said...
This comment has been removed by a blog administrator.
westexas said...

Excerpt from "ELP Plan" essay from early 2007:


http://graphoilogy.blogspot.com/2007/04/elp-plan-economize-localize-produce.html

ELP: Produce

Jim Kunstler has suggested that we should not celebrate being largely a nation of consumers. I agree with Jim. We need to once again become a nation of producers. I recommend that you try to become, or work for, a provider of essential goods and services.

Key recommended sectors are obviously energy--conventional, non conventional and alternative energy production and energy conservation--as well as food production, especially local organic farming close to towns and cities.

Other sectors to consider are repair and maintenance, low cost energy efficient housing, low cost transportation, basic health care, etc.

The biggest risk to family finances is trying to maintain the SUV, suburban mortgage way of life in a period of contracting energy supplies. Beyond that, one of the next biggest risks in my opinion, is excessive and unwise spending--especially debt financed spending--on college education costs.

While we will desperately need engineers and many other technically qualified graduates, we are seeing wave upon wave of college graduates entering the work force with degrees that very poorly prepare them for work in a post-Peak Oil environment. We may ultimately see college graduates competing with illegal immigrants for agricultural jobs.

Perhaps the best education investment that many young people could make is a two year associate degree in some kind of repair/maintenance area, perhaps with summer jobs in the agricultural sector.
I would especially recommend that you consider buying, perhaps with a joint venture group, a small farm, either currently organic, or that can be converted to an organic farm. In the short term, if nothing else you could lease it out to an organic farmer. Longer term, you might consider building or moving a prefab, small energy efficient house to the farm. If nothing else, this plan may provide a place of work for your unemployed college graduate.
I think that “Tiny Houses” will become more popular, as larger homes are no longer viable. Where there are jobs nearby, many McMansions could be subdivided, but absent local job centers, I expect large swaths of American suburbia to be essentially abandoned. As Jim Kunstler warned, American suburbs represent the “Worst misallocation of capital in the history of the world.”

Very small (250 square feet or so), highly energy efficient, perhaps prefabricated housing makes a lot of sense, and this may become a growth sector.
I should confess that I in no way have a green thumb, but others certainly do, and there are some very encouraging case histories of Americans doing quite well with their own “Victory Gardens” so to speak, such as this case history: “Berkeley: Urban farmers produce nearly all their food with a sustainable garden in their backyard.”

bureaucrat said...

Organic farming cannot possibly feed the 320 million people in the U.S., much less provide the food we send to other countries. Plus organic farming has the added benefit of being helpless in the face of pestilence. One good chigger plaque and we all starve.

Before we go to extremes, can we try a couple things first .. stop borrowing any money you have no intention of paying back, and stop wasting the oil and natural gas that we waste every day, from the uninsulated houses to running the truck when it isn't moving. I yell at my one tenant all the time when, in the winter, he uses the clothes dryer to warm up his clothes before he goes out! :) Waste, waste, waste.

Anonymous said...

I didn't see anyone say that industrial farming needed to totally go to the wayside Bur. Adding local organic farming to communities just helps build resiliency, and mono-cropping has many serious struggles even with all the chemical goodies, mostly with diminished return upon investment in terms of fertilizer/treatments due to destroying the soil/micro-organisms.

By all means, the more small farms and organic farms the better, the more gardens the better, all these things will help support Modern Industrialized Farming. Its not an either/or scenario. Organic Farmer's aren't buying up 100k acres of land from the Big Farmers, the organic farms around here usually don't have more than 10acres at most.

There will be plenty of food available for some time, its just that people won't be able to afford to buy as much, or much at all in some cases as time goes on. Maybe we can all just go on food stamps, rather than try to make efficient use of small plots of land or Windows/porches etc?

No need for knee-jerk reactions, I didn't see anything in WestTX's comment that suggested we shut down modern farming...
-Meiyo

Stephen B. said...

Plus organic farming has the added benefit of being helpless in the face of pestilence. One good chigger plaque and we all starve.

Such droll hyperbole, please!

Actually, I recall reading something from the Rodale Institute about 15 years ago that stated that farmers from the early 1900s lost about 33% of their crop to disease and insects. Rodale went on to ask about what percentage of modern farm output is lost to disease and insects (modern meaning circa 1995)? Answer, about 30 to 33% once again.

For all the expense of developing and using modern chemicals since World War II, farmers at best drew even on their battle with pests.

More likely what happened is that farmers, when transitioning onto huge, monocropped farm fields, canceled any gains from the new pesticides by consolidating many small, scattered fields into a few, but much larger, concentrated fields - making attacks by pests far easier and more profitable for the invaders.

As a farmer I have to remind you that a lot of conventional wisdom non-farmers have about farming, just ain't so (with apologies to Will Rogers.) The presumed superiority of "non organic" chemical farming over organic is a case in point.

PioneerPreppy said...

A very good point Stephen!!!

Donal Lang said...

Bur; you are quoting ag-industry propaganda. Its true if you assume that efficiency in farming relates to minimising the number of people employed, i.e. productivity per person.

In fact, labor intensive horticultural organic methods are up to 20 times more productive, use far less fuel, need less fertiliser and water and, because they aren't monocropping, use less pesticides too.

Stephen is right; such diversified systems are far more resilient against monocrop disasters, better for wildlife (remember wildlife?) and, by the way, probably tend to make for happier farmers too!

Of course some people suffer; bankers, agri industry, tractor makers, oil companies.... Depends what your priorities are.

bureaucrat said...

Hmmm, have to wonder why all the "Farmers Markets" close up in the winter here in Chicago, while the supermarkets stay open. Guess under an organic regime, we just don't eat till spring.

Given nothing else, we have to grow something. But as a backyard "farmer," (with a very small potato "crop" this fall :( ), there is no way in hell I'll grow enough to survive in my backyard. And the organics at the supermarket are either more expensive than the regular food, or they dont always look that impressive. Hope the natural gas that is used to make fertilizer on the corporate farms stays cheap. :)

Anonymous said...

Seriously Bur, go get a MRI done, you must have suffered a TBI or something--I'm guessing serious damage to your anterior PFC.

You live in Chicago, and you somehow espouse the notion that local farmer markets close in...drum roll, the 'winter'. Whereas you can continue to get organic food from non-local farmer markets, or local farmers markets if you live somewhere warmer like CA, or FL.

Your illogical drama queen statements just continue...if this is the level of your thinking ability, you seriously must have something wrong that is affecting you cognitively.

I need to quit reading the comments on these articles, I read idiocy elsewhere that's far more entertaining/funny.
-Meiyo

Stephen B. said...

Bur,

Taking your comments seriously for a moment, organic vs non-organic has nothing to do with farmer's markets being closed in the winter. You're being sloppy (possibly intentionally so) by confusing and equating local agriculture with organic.

There was probably quite a bit of conventionally grown produce at the farmer's markets in Chicago this past year just as there will be organic produce at the supermarket in January.

I am one that tends to think that local is generally better than stuff sourced from further away just as I generally think organic is better than conventional, high-input growing. But hard and fast rules don't always apply.

bureaucrat said...

Meiyo,

If you need someone's permission to stop reading my or anybody else's comments, you have it.

The idea that I'm just going to pick up and move to somewhere sunnier with $500,000 mortgages for a (now) $450,000 building, with two tenants, in a piece of real estate I can't sell to cover the mortgages, makes you seem a little the dimwit.

If you need a good hospital to get an MRI for yourself, let me know. I've had 5 ... no, make that 6, of them last month for my spine.

Stephen, who is obviously not a "guns and gold nitwit" :) I was more talking about the QUANTITY of food produced by the awful company farms versus what can be produced by organics/local-farms, and while I don't have a reference that I read right now (as Meiyo always seems to always demand), there just isn't enough capacity for organics to feed this nation today, and it never will be enough. No way.

Anonymous said...

Bur i don't disagree with the fact that organic doesn't produce as much as industrial farming. You didn't actually state that, you said "Guess under an organic regime, we just don't eat till spring."

I don't have ESP, so when you write things and then make us try to read your mind to get at what your really mean, that is a problem.

Your rant about leaving tenants etc? I don't even know what to say about that, did I say you needed to become an organic farmer??! No.

Small organic farms can add resiliency to our food system, and I've seen organic farms survive blights that the pesticide big farms get toasted by. But clearly to feed this large a population we need all methods of food production, and I can get non-local organic foods all winter long, and even some local organic foods that are produced in greenhouses. I even grow Kale/Swiss chard in a cold frame greenhouse during the 1st half of winter in the wintery state of PA.

fMRI's provide much more information for brain scans, hopefully your back problem isn't tied to a head injury. I make no demand of proof, but if you state something at least have it make some sense--to us other people, not just yourself.
-Meiyo

Joseph said...

Guess under an organic regime, we just don't eat till spring.
Ever heard of canning? How in the hell do you think frontier families fed themselves in the winter? So local items are not available when you want for your JIT pantry so be it but please spare us the above tripe.

bureaucrat said...

Frontier families didn't farm on a 33' x 125' lot, with a building already on it. :)

Joseph said...

Check out the Dervaes Family and you'll see what is possible. Best wishes to you bur, try to keep from starving this winter ;)