Butter

From Zero Hedge:

According to Bloomberg, global butter prices have almost tripled to 7,000 euros ($8,144) a ton from 2,500 euros in 2016, according to Agritel, an Paris-based farming consultancy. In Europe, prices peaked at about 6,500 euros a ton in September, the highest since the European Commission began collecting such data in 2000…The problem can be traced to the end of (EU) milk-production quotas in April 2015 that led to a glut early last year in Europe, and a drastic drop in prices. This prompted production cuts by spring this year.

“The butter shortage in French supermarkets is the direct consequence of the 2016 milk crisis which prompted a 3 percent drop in production,” Xavier Hollandtsni , a Kedge Business School strategy teacher and an expert on agricultural matters, said in a note Thursday……..

“Global demand started to pick up, with China starting to buy again after having stopped for a few months to tap into its stocks, leading to a substantial rise in milk and butter prices,” Begoc said. French retailers have not adapted to the new market reality and have kept a cap on prices, Roquefeuil said. For French dairy companies, it’s easier to export to countries such as Germany,

 

This is known as the calculation problem. The EU and China were “deciding” the appropriate butter supply and price, and now the world markets are screwed up. France is short of butter. With these prices, expect a butter glut in another 6 months.

This is why communism, socialism, fascism, and distributism CAN’T work.

10 yr Action

Interesting action in the 10 yr treasury.  Fed selling may be showing an impact, though they have only sold $10 Billion.  The yield has increased to 2.4%.

Revisiting my theme, the long bond interest rate should head higher as the Fed sells.  This should show up also as a reduction in the excess reserves held on the Fed.  As liquidity is drained, I’d expect the Fed to have to purchase short term instruments to maintain the Fed Funds Rate at their target of 1.25%.

Some expected impacts will be a higher dollar, bearish gold, higher mortgage rates, and a slow down of the economy.

I find it hard to believe this small sale by the Fed is directly responsible, though the market could be front running, i.e. they take the Fed seriously and are selling bonds (raising interest rates) ahead of the Fed.

Chart action shows rates are heading higher.  Yields violated a declining trend line, came back and retested the old trend line, then moved higher.

Dollar Plunge

Looks like Lacey Hunt was on to something.  10Y Treasuries are rallying and the dollar is dropping like a rock.  World wide markets dropped.  There are many catalysts, though I believe the underlying economics are the root cause:

  • Major Hurricane will strike Florida.  Banks and insurance companies will get hit.
  • North Korea is a source of major uncertainty.
  • Fed has stopped raising.  Next move will be to bring back QE.
  • Debt ceiling was raised.  There will be no serious action on the budget until 2019.

The chart pattern for stocks still looks grim.  As always, I recommend selling half and moving to safety for now.  If I’m wrong, the other half will participate in any rallies, and your safe money will earn 1%.

3 Types of Investing

If you are interested in investing, there are 3 styles of analysis that you will want to learn about:

  1. Quant.  This is the analysis of money flows and is sometimes called momentum investing.  There are different aspects to it from basic charting, watching moving averages, watching trends, watching volatility, and looking at Volume Weighted Average Price (VWAP).  VWAP especially has been a very successful way to invest in the last few years.  Quant is relatively short term.
  2. Macro.  Macro looks at economic trends and is more long term.  It is important for reading where the market is at in an economic cycle.  More and more it has been used to predict Central Bank action, since you no longer invest for economic growth and innovation, but instead speculate by placing bets on what the Fed is doing.  For example, TESLA and Amazon are arguably worth about 10% of what they are currently priced, with TESLA probably worth zero due to its debts.  But you can’t short them.
  3. Value.  Value has been basically dead for a long time.  Value looks at debt levels, profits, cash flows, and dividends.  Ideally all you would look at would be value.  You’d buy companies paying a nice dividend with potential for some growth.  It still works in spotting egregiously crappy companies, and so can be helpful on the short side.  However the main driver for stock price increases has been companies racking up debt and buying back their stocks.