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Automation and hybrid systems have increased volatility in commodity trades for banks, hedge funds, pension plans, and institutional accounts. Prior to the market collapse in 2008, commodities were traded in the commodities pits, much like options. It was an auction trading system run by humans who bought and sold from other traders. When the equities markets crashed in 2008, the commodities did not, as they are an auction market. Since they not only did not crash, but increased, additional attention was paid to them by the non-farm conglomerates. Today, those who do not consume food, process it, or in any way use it, account for more than 40% of all commodity trades, which is more than enough to move the markets.
The “middle man” is in it for the profit potential which they can generate with algorithmic trading that executes trades in nanoseconds and can change the direction of the entire sector or sectors being traded. This results in starvation for some third world countries that cannot afford the higher prices for foodstuffs and also creates an extra burden on the middle class and lower income classes in America. All that these institutional accounts are doing is making money on the backs on everyone who has to eat. There should be some regulations to stop this, but it is legal in stock trading, so it is legal in commodities as well. Gone are most of the auction markets in the pits, replaced by this leviathan that sucks money out for its own good and no one else’s.
The stock market may have made new highs the last several weeks, but lately it has been doing the two-step: one step forward with triple digit gains one day and one step back with triple digit losses the next. Much of this activity has been based on “What is the Fed going to do with QE?” or “What is Bernanke going to say when he speaks?” making it mostly a “buy rumor – sell news” market that benefits no one but the broker making commissions.
Many of the technical traders are seeing many sectors and individual stocks and indices trading into a wedge from which they could break either way. Some of them have suffered deep one-to-two-day price falls, so technically they should go “back and fill” the empty spaces created from the fall in price. The same is true of stocks that rose rapidly without pausing and now need to “go back and fill” on the downside.
The government agencies keep releasing numbers on housing starts, new home loans, inventory, and manufacturing orders that seem rosy, until one reads the underlying statistics. They are not rosy. They are just the opposite, just as the unemployment numbers are “revised” each week for the week before as they release the new week’s numbers. The “revised” numbers are always worse than originally reported.
It is difficult to put stock into any numbers that the federal government and its agencies are releasing, as reality contradicts them. Some prices have not increased at the grocery store, but the packaging has become smaller, thereby resulting in a hidden price hike, which is NOT reported by the government as it does NOT use the cost of food or energy (gasoline, electricity, propane, diesel, or any other kind) to calculate the Consumer Price Index, which is then utilized to calculate the Cost of Living Adjustments for those on fixed income government checks (Social Security, Disability, SSI, Disabled American Vets, Special Needs Children, although this is not a complete list). The Government Inflation Index is at 1.8% (need I say more?).
I would behoove all of us to stock up on pasta, rice, beans and other easy-to-cook foods before the price of those go through the roof, as they are already up. Saffron rice is delicious with a can of white chunk chicken ($1 at the Dollar Stores) and is a meal in itself. It can be subsidized with a green vegetable for a little of nothing. Hit the grocery stores “buy one get one for a penny” and stock up on the pasta, rice, and frozen green veggies. The same goes for the meats. A lot of us buy meats that can be cured with salt or sugar in case of the grid going down, as it will not ruin. The off-brand macaroni and cheese is still two for a dollar and it works well with a can of tuna, ham, or chicken in it, also.
The market this week is going to be a roller coaster as the Fed decides whether to continue to pump $85 billion into the bond market or to ease up on quantitative easing. President Obama is at the G-20 Summit pitching austerity to an audience that is NOT listening to the spendthrift POTUS, who took his wife and two children to the tune of $60 million dollars, and after Europe, the First Family is headed to Africa for a “reach out and touch” campaign which is estimated to cost another $100 million. There are 30 planes taking equipment (13 limos and secret service transport), and tons of bullet-proof glass for wherever they are staying in the three cities they plan to visit. Hundreds of advance Secret Service agents are already there, checking things out and making sure that the First Family will be safe (Libya and Syria are in Africa). The First Family DID cancel their safari as they deemed it too unseemly while America is in sequester and feeling the pain of an economy coughing and gasping for breath.
They’re so generous.
As far as investing goes at this time, many of the analysts and experts are buying dips in precious metals to add to their existing positions, as the only thing holding the dollar is hot air. Soon it all must come tumbling down.