Best of the Week
Most Popular
1. Gold vs Cash in a Financial Crisis - Richard_Mills
2.Current Stock Market Rally Similarities To 1999 - Chris_Vermeulen
3.America See You On The Dark Side Of The Moon - Part2 - James_Quinn
4.Stock Market Trend Forecast Outlook for 2020 - Nadeem_Walayat
5.Who Said Stock Market Traders and Investor are Emotional Right Now? - Chris_Vermeulen
6.Gold Upswing and Lessons from Gold Tops - P_Radomski_CFA
7.Economic Tribulation is Coming, and Here is Why - Michael_Pento
8.What to Expect in Our Next Recession/Depression? - Raymond_Matison
9.The Fed Celebrates While Americans Drown in Financial Despair - John_Mauldin
10.Hi-yo Silver Away! - Richard_Mills
Last 7 days
Stock Market Critical Price Level Could Soon Prompt A Big Move - 25th May 20
Will Powell Decouple Gold from the Stock Market? - 25th May 20
How Muslims Celebrated EID in Lockdown Britain 2020 - UK - 25th May 20
Stock Market Topping Behavior - 24th May 20
Fed Action Accelerates Boom-Bust Cycle; Not A Virus Crisis - 23rd May 20
Gold Silver Miners and Stocks (after a quick drop) Ready to Explode - 23rd May 20
3 Ways to Prepare Financially for Retirement - 23rd May 20
4 Essential Car Trade-In Tips To Get The Best Value - 23rd May 20
Budgie Heaven at Bird Land - 23rd May 20
China’s ‘Two Sessions’ herald Rebound of Economy - 22nd May 20
Signs Of Long Term Devaluation US Real Estate - 22nd May 20
Reading the Tea Leaves of Gold’s Upcoming Move - 22nd May 20
Gold, Silver, Mining Stocks Teeter On The Brink Of A Breakout - 21st May 20
Another Bank Bailout Under Cover of a Virus - 21st May 20
Do No Credit Check Loans Online Instant Approval Options Actually Exist? - 21st May 20
An Eye-Opening Perspective: Emerging Markets and Epidemics - 21st May 20
US Housing Market Covid-19 Crisis - 21st May 20
The Coronavirus Just Hit the “Fast-Forward” Button on These Three Industries - 21st May 20
AMD Zen 3 Ryzen 9 4950x Intel Destroying 24 core 48 thread Processor? - 21st May 20
Dow Stock Market Trend Analysis and Forecast - 20th May 20
The Credit Markets Gave Their Nod to the S&P 500 Upswing - 20th May 20
Where to get proper HGH treatment in USA - 20th May 20
Silver Is Ensured A Prosperous 2020 Thanks To The Fed - 20th May 20
It’s Not Only Palladium That You Better Listen To - 20th May 20
DJIA Stock Market Technical Trend Analysis - 19th May 20
US Real Estate Showing Signs Of Covid19 Collateral Damage - 19th May 20
Gold Stocks Fundamental Indicators - 19th May 20
Why This Wave is Usually a Market Downturn's Most Wicked - 19th May 20
Gold Mining Stocks Flip from Losses to 5x Leveraged Gains! - 19th May 20
Silver Price Begins To Accelerate Higher Faster Than Gold - 19th May 20
Gold Will Soar Soon; World Now Faces 'Monetary Armageddon' - 19th May 20
Gold Mining Stocks Fundamentals - 18th May 20
Why the Largest Cyberattack in History Will Happen Within Six Months - 18th May 20
New AMD Ryzen 4900x and 4950x Zen3 4th Gen Processors Clock Speed and Cores Specs - 18th May 20
Learn How to Play the Violin, Kids Activities and Learning During Lockdown - 18th May 20
The Great Economy Reopening Gamble - 17th May 20
Powell Sends a Message With Love for Gold - 17th May 20
An Economic Renaissance Emerges – Stock Market Look Out Below - 17th May 20
Learn more about the UK Casino Self-exclusion - 17th May 20
Will Stocks Lead the Way Lower for Gold Miners? - 15th May 20
Are Small-Cap Stocks (Russell 2k) Headed For A Double Dip? - 15th May 20
Coronavirus Will Wipe Out These Three Industries for Good - 15th May 20
Gold and Silver: As We Go from Deflation to Hyperinflation - 15th May 20

Market Oracle FREE Newsletter

Coronavirus-stocks-bear-market-2020-analysis

Agri-Foods and China Stocks Bottom

Commodities / Agricultural Commodities Nov 24, 2008 - 10:15 AM GMT

By: Ned_W_Schmidt

Commodities Diamond Rated - Best Financial Markets Analysis ArticleNone of us are enjoying the bear market in equities brought on by the collapse of the speculative investing done by hedge funds. On the other hand, it could be worse. You could have your money invested in a hedge fund. Or the worst case, you could be invested in a hedge fund that has frozen withdrawals, meaning you can not get your money out until they decide to give it to you.


Other good news is that about half the hedge fund liquidation is complete. From a high of about $2.3 trillion in assets they have fallen to about $1.65 trillion of assets. A reasonable guess is that this is about half the necessary liquidation for these funds. Since markets work off of second derivatives, strong negative price pressure may abate by end of December.

Other good news is in the top chart. Most important, the fundamentals are still solid for Agri- Food. Last we heard, people in China and India and Europe and Russia and wherever were still eating. Incomes are still growing in China, by about $200+ billion in the coming year. A goodly portion of that income growth will go to purchasing food.

As top chart shows, the fundamentals for Agri-Food continue better than those for the stock market, in this case the S&P 500. No loan losses. No need to raise capital in order to stay in business. The basic business of Agri-Food, people eating and trying to eat better, remains strong.

When world's equity markets exit this bear market, investors will be looking for investment sectors like Agri-Food. Few major investment themes exist on which investors can focus in the next bull market. Investors will be looking for investment themes that have not been worked over.

Encouraging news can also be found in the chart bottom of the preview page, which comes from Reuters daily commodity service. It portrays open interest in commodity contracts on futures markets. While not indicated, we assume it includes everything from oil to Gold to pork bellies.

For those not familiar with futures, open interest is the number of contracts existing, or representing, an underlying commodity. Unlike stocks and bonds, no commodity future contract exits till someone sell ones. Contracts do not exist till a buyer and seller create, or write, one.

The mad rush into commodities by hedge funds pushed up open interest from about 6 million contracts at the beginning of 2006 to about 8 million contracts in early 2008. With open interest rising by more than a third, prices were pushed above equilibrium.

Since the hedge fund driven liquidation started, more than 25% of those holdings have been sold. Open interest, in total, is now below 6 million contracts. At present total open interest is below that at the beginning of 2006.

Much, or most, of the hedge fund selling, both necessary and due to changed tactical thinking, could be assumed to be complete. As selling should moderate, pressure on prices should moderate. That should allow growing demand and weakening supply to push prices up. However, no mad rush as previously experienced should be expected for prices.

In the top chart we see that price for many Agri-Foods have bottomed. A bottom is a necessary precondition for a price to rise. That chart plots current prices relative to the 52-week low for Agri-Food commodity prices. If at zero, the commodity is selling at 52-week low. Wheat, for example, is up almost 20% from the 52-week low. The situation portrayed suggests that for many selling pressure has abated, and that possibility could indeed benefit Agri-Food investments.

Carnage in stock markets has been without mercy. Only way a stock does not go down is if it does not trade. But, here too we find some encouragement. In bottom graph is last six months of Shanghai Stock Exchange Index, along with a 50-day moving average.

This index has meaning for the Tier Two stocks as they are all Chinese companies. As can be observed in the graph, the SSEI has hit the 50-day moving average. That is something that has not been the case for a long time. And remember, prices have to move through the 50-day moving average before they move through the 200-day moving average, a popular measure.

The bottom in Chinese stocks may be in place, and that may spill over to help the Tier Two list. Now would be a good time to look at some of these stocks. Most have fully participated in the stock market carnage, and appear extremely cheap. A year from now the hedge fund liquidation will be history, and one might find that buying them requires paying a higher price.

Eat well and prosper,

By Ned W Schmidt CFA, CEBS

Copyright © 2008 Ned W. Schmidt - All Rights Reserved

AGRI-FOOD THOUGHTS are from Ned W. Schmidt,CFA,CEBS, publisher of Agri-Food Value View , a monthly exploration of the Agri-Food grand cycle being created by China, India, and Eco-energy. To review the most recent issue go to http://home.att.net/~nwschmidt/Order_AgriValue.html

This written effort is simply an attempt to report on matters relating to agricultural-based wealth.
Wise people should not believe everything we write. We do not recommend the investment in securities or concepts discussed
in this publication. Investing should only be done after research and study.
Questions or comments? Email us at: agrifoodvalueview@earthlink.net

Ned W Schmidt Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules