Ned W Schmidt CFA's Contributions

Have been visiting my favorite unknown, small, near-hidden grocer more often recently. Reason for that is their steaks are both good, a rarity in this modern world, and reasonably priced relative to others. Another reason for doing so is in part to eat beef now, while it remains affordable.

Greece was the poster child for Keynesianism. The idea was simple. No one would really have to work. Everyone could retire after a few years of work on a full government pension. Pay taxes? Not required.

While prices for most meats, and everything else from hay to peanuts, are up, chicken prices continue to languish. Over production has been a persistent problem. However, the recent spike down in prices may suggest that the much needed liquidation of flocks has advanced significantly.

World seems poised to move to a new level when it comes to understanding and using many metals, from Rhodium to rare earths. A reason for that is researchers now have far sophisticated tools than ever to study them.

Unburdened by the failure of Keynesian socialism, China continues to grow. India, despite repeated self inflicted political wounds, is also likely to experience an expanding economy. With the EU suffering from another financial crisis, it is unlikely to have a positive economic experience in the next few years.

Time is an important component of both healing and financial corrections. Some times, it just takes time. To date, the correction in Agri-Food prices, as shown by the index in the chart below, has been modest. The Agri-Food Price Index has declined less than 7% from the high to the recent low. That would be considered modest by most.

Primary difference between a correction and a consolidation is the depth of the downward price movement. Consolidations are milder, though that might require a longer time period.

Coins always have to sides. We all are familiar with well-worn story of heads I win and tails you lose. Maybe this time the coin may be far more desirable. Perhaps it is now heads we win, tails the politicians lose. Maybe the markets are telling us that indeed the era of Keynesian socialism is now becoming part of history. Another chapter in the book of dead and failed economic and political ideologies may be in the process of being written.

Last summer two shocks had their epicenter in the global wheat market. Russia was one of those shocks when a dismal wheat harvest forced that nation to ban exports of wheat. That was followed by the Jasmine Revolution, a wildfire that spread across the Middle East consuming in flames despots wherever possible.

While thinking about corn and wheat and pork prices, we cannot help but note the importance of Wednesday, 22 June. On that day the Federal Open Market Committee of the U.S. Federal Reserve should read the eulogy for QE-2.

Since we last visited on Rhodium, the news has been favorable for the future value of the metal. Deutsche Bank announced the creation of an ETC, Europe’s version of an ETF, for Rhodium. While that news is favorable, seems the market got a little ahead of the reality. The sharp upward move on the announcement has been reversed due to the general bearishness creeping into all markets.

According to the calendar, Summer doldrums should now be taking hold of the financial markets. Perhaps this year, though, those hot day blues might be replaced with greater than normal excitement. We know some interesting events might take place.

What is the most dangerous word in the investment world? Using this word is almost assuredly first step toward owning an investment with issues that ultimately lead to unhappiness. That word? Quite simply is, “But. . .” That word can actually take two forms, explicit and implicit.

Recent weeks have not been kind to any commodity investments. The Silver bubble had encouraged an unstable narrow focus for investing funds. With the coming of the Great Silver Crash of 2011, contagion caused commodity prices to move lower.

The clay tablets now seem incomplete. Some additional comments, or rules, should have been included One that comes to mind is that all of the above apply to politicians. That Keynesian economists are not excluded from the one about stealing would have been nice. For what else is Keynesian ideology other than a rationale for stealing the wealth and income of working citizens?

Slowly the list of commodity prices that have topped out seems to be growing. Sugar was first. Now cotton follows as farmers are going to increase plantings fairly dramatically, and China has cancelled orders for the fiber (Financial Times, 28 April 2011). Have soybeans also done so? North American production of that miraculous yellow grain just might be somewhat better than the extremely bearish forecasts. On Chinese soybean demand, we note reports of over booking and second half 2011 imports likely being below year ago levels (Commodity News for Tomorrow, 11 April 2011). Could investors be ignoring this situation? Lastly, is the collapse of Silver perhaps a warning from the gods? (Note: Trading persistently below $44.69 confirms a Silver bear market.)

Appears Scotty got it wrong again. We said to beam us up, and he beamed us back. All of a sudden we seem to have returned to 2008. Perhaps, though, we should not be so tough on Scotty. The Federal Reserve had a hand on the controls too, continuing the longest running stretch of asset price distortions in all of history. Think of 97-year-old sports team with one winning season, 1953.

A big question should be on the mind of investors. Is it 2008 all over again? Are we witnessing another commodity price bubble driven by speculation in paper commodities? With Silver clearly in a speculative bubble, allowing value investors to liquidate positions at overly inflated prices, one might think so. With paper oil ignoring the weakness in physical oil demand, one might be almost sure of it. When mob panics and dumps ~ $800 million into GLD, one might need to start reconsidering one’s ownership of some inflated commodities.

RHODIUM TRADING THOUGHTS is about timely and profitable trading of precious metals. We do not believe every turn in the market can be called. Our goal is that our recommendations should be profitable. Profits are the goals, not trades. Do not expect all recommendations to be profitable.

What a wonderful and glorious time to talk with you. With a reduction in U.S. government spending to avoid a shutdown of the government, greatest political change in 60 years of U.S. history has taken another step. What are the implications of this historic event? Will the trajectory of U.S. financial mismanagement be changed? Some possibility of that happening does exist, and must be acknowledged.