DOLLAR REBOUNDS AS BONDS TAKE BERNANKE'S CAUTIOUS CUE

Cotton - We can't tell you we saw it coming, but Tuesday's pullback in cotton prices was inevitable. A recent USDA crop report showing copious planting by farmers in staple corn and wheat crops in the hope of capitalizing on rising prices exposed basic flaws in supply and demand. A record amount of acreage was planted and while analysts had expected land traditionally devoted to cotton to be given up to higher yielding crops, cotton production increased too.
 
Yet at the time cotton optimists blamed an ongoing rally on two themes. First, global demand was clearly picking up. Second, much of the increased acreage for cotton was to be found on lower-yielding areas, which those optimists said won't really do much to boost production.

Great crop conditions for grains created reason enough for producers and speculators to sell corn and soybeans Tuesday sending prices to a seven-week low. Cotton prices followed suit as investors chose to throw budding growth prospects to the wind.
 
Mild weather and the prospects of more rain have withdrawn the chances of crop damage from too much sunshine. And while good weather creates idyllic crop conditions, it doesn't do much for the price of cotton despite the apparent boost from a tidal wave of global demand for cotton socks!
 
Corn futures drew headline attention for all the wrong reasons Tuesday, closing limit down as grain watchers realized that even if favorable supply conditions hit the sweet spot, they are still a function of grain prices in general and at some point the spreads stop widening, especially in a bear market for beans and grains. Next stop for December cotton from Tuesday's 61.96 close is likely to be 59.40.
 
Fixed Income - As we hinted in Tuesday's Daily Jurojin, there was mounting speculation as to whether Ben Bernanke might announce some stance on how the Fed might take away all and any of the stimulus directed at banks and a meltdown in the financial system. Indeed as we penned Tuesday's edition, the WSJ was uploading a piece from Mr. Bernanke expanding on five ways the Fed might withdraw stimulus accompanied by why he feels the Fed is on track to avoid an inflationary boom.
 
The news from the chairman and his Capitol Hill testimony that it would be premature to look for any sort of tightening in monetary policy, sent bond prices surging higher. The twin messages that the economy is in no danger of imminent interest rate increases nor in any danger of budding inflationary pressures sent fixed income traders scurrying for yield and bond prices sharply higher.
 
Currencies - The dollar received a boost as did the Japanese yen on the back of Tuesday's words from the top man at the Fed. When you get words of fear about the sustainability of the recovery, it's time to worry. That news underpinned the dollar, which rose to $1.41 against the euro.
 
Metals - The rise in the dollar undermined rising gold and silver prices on Mr. Bernanke's perception of no-worries over inflation. August gold prices dipped $1.90 to $946.90 an ounce while September silver recoiled 1.1% to $13.4780 an ounce.
 
Energy -  Mr. Bernanke's comment that "the pace of decline appears to have slowed significantly," during his testimony was enough to maintain a rise in energy prices. The inertia was compounded by stronger earnings from Caterpillar whose outlook hinted that the recession might be ending and served to highlight the fact that current quarterly earnings are too conservative.

The Supreme Council of the Secret Order of Jurojin