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| Daily Jurojin - Wednesday, June 24, 2009 |
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Wednesday, June 24, 2009 A caning for sugarTuesday proved to be a quiet day for equities with prices only gyrating in a narrow range. Curiously, a bullish pre-market move quickly turned to dust not far into the session as investors continued to worry about a World Bank prediction for far greater economic contraction than previously expected.But the main focus was Wednesday's event in the shape of a statement form the FOMC when they tell the world that interest rates will remain unchanged following its June meeting. Dull though that might seem - and yes, in reality, it is - the market is also expecting a possible extension of the Fed's pledge to buy mortgages and government notes in an effort to expedite the glacial thaw in lending habits. Also the market awaits with baited breath a stiff warning from the Fed that recent turmoil in bond and interest rate markets and predictions over imminent monetary belt-tightening was way, way premature. Monday's downdraft for equities saw traders chow down on commodity prices too for fear that slower global growth would be bad for China, perhaps bullish for the dollar and would overall reduce commodity demand. By Tuesday, the traders' dilemma for commodity prices was eased a little as investors sold dollars on account of the perception that the FOMC might decay yield expectations. Of course that helped commodity prices regain their footing. While we're bigger picture commodity bulls here at Jurojin Weekly, we're a little more pessimistic than most at present. If the dollar would stay down a little longer that would probably suit our book. Right on cue last week we had the presence of mind to tell our subscribers that a crude oil price over $70 was likely to prove unsustainable and that it was only a matter of time before it ceded ground. For now we'll sit with those put options and play a patient game with the Nymex crowd. This week we chose the right day to short sugar prices as the contract moved to a three-year high. Our team pointed out to readers all of the known bullish price drivers and painted quite a bullish perspective in fact. However, we pressed the point that the world knew of these drivers and before too long the buyers would all be sitting in line congratulating each other for being the same way. That means there would be no buyers left. Some of the factors blamed on Tuesday's leap of faith in the sugar pits included a fear that the production shortfall would extend into its second year. Australian output is likely to less than previously forecast while the Indian monsoon season is likely to cause crop damage through moisture stress. Part of the earlier in the year rally stemmed from the fact that India, the world's largest sugar consumer, turned net importer of sugar after production faded in the nation. The dollar's fall just ignited this powder keg forcing a wave of buying. We've been watching this market long enough to realize that events like this don't necessarily follow through the next day. The smart money often arrives late and ends up getting sliced and diced as markets reverse. The Supreme Council of the Secret Order of Jurojin |
