Market Talk

Here’s a link to the latest quarterly musings of Jeremy Grantham, always informative, thought-provoking and entertaining. Titled “Time to Wake Up: Days of Abundant Resources and Falling Prices Are Over Forever,” here’s a nice little taste:

Now no one, in round numbers, wants to buy into the implication that we must rescale our collective growth ambitions. I was once invited to a monthly discussion held by a very diverse, very smart group, at which it slowly dawned on my jet-lagged brain that I was expected to contribute. So finally, in desperation, I gave my first-ever “running out of everything” harangue (off topic as usual). Not one solitary soul agreed. What they did agree on was that the human mind is – unlike resources – infinite and, consequently, the intellectual cavalry would always ride to the rescue. I was too tired to argue that the infinite brains present in Mayan civilization after Mayan civilization could not stop them from imploding as weather (mainly) moved against them. Many other civilizations, despite being armed with the same brains as we have, bit the dust or just faded away after the misuse of their resources. This faith in the human brain is just human exceptionalism and is not justified either by our past disasters, the accumulated damage we have done to the planet, or the frozen-in-the-headlights response we are showing right now in the face of the distant locomotive quite rapidly approaching and, thoughtfully enough, whistling loudly.

Corn’s at an all-time high, supposedly on surging demand.

But just remember that whatever such increases there are, it’s primarily not going into people’s bellies, but their gas tanks just as crude oil is reliving its 2008 superspike.

Haven’t we seen this movie before?

We’ve been bellowing (and we’re not totally alone on this, as the Bank of Japan’s recent report shows) about how QE has been cascading untold liquidity into the financial markets, allowing for stocks to nearly double the past two years and commodities to surge toward, or past, their 2008 peaks. Much of the thanks for that can go to the nation’s central planners bankers, and the free-money bonanza of the last decade.

We’ve long plowed the road here of how the Federal Reserve helped goose the credit markets that allowed for dodgy borrowers to get dodgy mortgages. Then even-dodgier securities were created for “sophisticated” investors looking for the next best thing.

But the half-wits in Congress — dithering over how to cut a few billion here, a few billion there as shut down of the US government looms — have commodity-spike blame as well. Beyond refusing to enact trade deals that would boost US exports and potentially help develop new supplies of commodities in those markets, we get things like farm subsidies that incentivize not raising crops or animals and laws requiring ethanol — largely developed from corn — to be added to gasoline while its benefits are in question.

So until we get enough grown-ups on Capitol Hill and in the halls of the Federal Reserve able to bring about responsible policy, the likes of Dallas Fed President Richard Fisher will seemingly just be playing the role of graveyard whistlers or token dissidents while crony capitalism lives on and fans the flames of inflation.

Hopefully it’s not like the 1970s. Not like I would remember, being a tyke back in those days. But there’s no need for me to get first-hand experience, thank you.

US stocks fall amid the continuing Japanese crisis, but the indexes come far off the morning’s steep plunge after the stream of dire headlines eases off, and the FOMC holds its hand steady on the tiller. That seemed to calm some folks.

The unfolding horrors in Japan send investors across the globe scrambling, although as always there are others investors looking to profit from the race for the exits. Without a stream of dire headlines in the afternoon, those investors came back to the market.

DJIA loses 138 (1.2%) to 11855, after falling nearly 300 points in the first five minutes of trading; Dow’s now down about 4% from February highs. S&P 500 drops 15 (1.1%) to 1282, Nasdaq Comp loses 34 (1.3%) to 2667. Commodities sell-off sharply across the board, while Treasurys rise.

The last time the Dow dropped that sharply at the open was Oct. 24, 2008, when it lost 504 points in the first five minutes. The index finished that day down 3.6%, losing 312 points.

Look, the Japanese are still just trying to figure out just how bad things really are, forget about planning for a rebuilding effort, and the fallacy of expecting that to be a good thing was exposed by George Melloan on the op-ed page of today’s Journal:

As the great 19th-century economist Frederic Bastiat taught in the “fallacy of the broken window,” the GDP growth that comes from reconstruction brings no net gain in society’s wealth. It just replaces, over time, what was lost. “Destruction is not profitable,” he wrote.

It’s going to take a long time, a very long time, for the Japanese just to get back to where they were last Thursday.

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Big sell-off today, and it’s pretty much across markets (of course, the traditional safe havens, Treasurys and the dollar, are having a good day) and we dig into it in today’s Markets Hub.

Keep an eye on both 12000 on the DJIA and 1300 on the S&P 500 today. Those two numbers sit roughly on the uptrend line from August, and if they’re broken, a bigger sell-off could be in the cards. Both levels have been pierced, but are currently holding.

Is there anything these guys don’t profit off of?

From Newswires’ Brett Philbin:

Financial exchanges and investment banks are well positioned to benefit from energy/commodities volatility related to turmoil in the Middle East, Credit Suisse says. While commodities typically account for 8%-13% of revenue at Goldman Sachs (GS) and Morgan Stanley (MS), firm says year-to-date trends support its expectations for a strong sequential quarter rebound in fixed income sales and trading, helping to offset more muted investment banking activity. Says commodities could be a focus of 1Q EPS reports for GS and MS; adds IntercontinentalExchange (ICE) has 70%-75% of its revenue tied to commodities, while for CME Group (CME) it’s 30%-35%.

Amazing, isn’t it? Commodity prices spike, causing an upheaval around the globe, and it’s just one more source of profits for Wall Street. You know what else? When prices drop on the other side, these guys’ll make money off that, too. It takes some outrageous cataclysm to knock these guys off their stride, and when that happens they just call in some favors down in Washington, and down comes the bailouts.

Actually, there is one thing that is like kryptonite to financial markets: a central bank that’s tightening monetary policy. While Ben Bernanke certainly didn’t say he’s going to tighten policy in today’s Congressional testimony, he didn’t say the Fed would be looking to expand its QE program, and that was enough to spook the markets.

The Dow’s been off as much as 97 points (although, of course, somebody’s got to process those trades, right?) Don’t forget that even beyond any direct QE support, the Fed still has interest rates at a recklessly accomodative zero. The Greenspan Fed was able to tip the global economy into a near-death spiral with only a 1% rate. The Bernanke Fed may finish the job yet.

Missed this item earlier, which crossed the tape while I was sleeping at 3:43 a.m. EST today, from Andrea Hotter, DJ Newswires assistant managing editor in London:

The current overall commodity markets find themselves near the most historically overvalued levels, on a short-term basis, in over 200 years, says Shawn Hackett of commodity brokerage Hackett Financial Advisors.

Adds that if history does repeat itself, “then a major correction in commodities can begin at any moment without warning.” Sees “extreme caution” as being necessary with only natural gas, coffee, milk and rice being attractive, although “all would suffer to some degree if a major intermediate term correction were to unfold in overall commodities.” LME copper, tin are at record highs above $10,000 a metric ton and $31,300/ton respectively, Liffe May sugar recently hit 30-year highs around $750/ton.

But don’t sweat it folks, it’s all supply and demand. Has nothing to do with oceans of hot money looking for a home.

Last month we got on James Bullard’s case for saying he saw no evidence that QE2 was a factor in driving up commodity prices, with the St Louis Fed president suggesting it was more likely related to normal supply and demand. We think a simple glance at the charts of a host of commodities would be enough to get Mr. Bullard to recant, as he observes the steeply slanting lines running from lower left to upper right, beginning roughly in late August.

In case he needs some more “evidence,” here’s a real-world observation from Mark Millett, on Steel Dynamics’ (STLD) fourth quarter conference call today (Millett is operating chief of STLD’s OmniSource unit — emphasis added is ours):

Nonferrous shipments quarter-over-quarter were down 10% to 230 million pounds largely due to depressed foreign demand, particularly in copper — depressed copper market, while that demand was certainly not reflected in market pricing as the Comex rose 22% through the quarter, clearly demonstrating the dislocation of supply and demand metrics from the market indices and also the growing impact of hedge trading and also exchange-traded funds that require physical backing.

Comex copper was up for a second-straight day today, but is off about 2.5% from its Comex record close on January 3. It’s up more than 28% vs a year ago.

Image courtesy of Wiki Commons.

US stocks finish a shaky week in shaky fashion, with the blue chips again holding up better than the market at large, after GE posted a big jump in 4Q profits.

If you looked only at the Dow, as indeed many do given its reputation, you might conclude the week was, all things considered, a pretty decent one. But if you look at the wider indexes, as well as the happenings in other assets classes, you get a different picture.

DJIA rises 49 (0.4%) today to 11872, S&P 500 adds 3 to 1283, but Nasdaq Comp drops 15 (0.6%) to 2690. GE is Dow’s best performer, easily outweighing the losses posted by Bank of America. For the week, Dow adds about 0.7%. But for the week, the S&P lost 0.8%, the Nasdaq lost 2.4%, and the Russell 2000 got hammered, down 4.3% on the week.

Can you smell what the Rock is cooking?

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Kathleen Madigan, Donna Kardos Yesalavich and I discuss the final 3Q GDP revision as well as how surging commodity prices look good but may hurt company balance sheets come 2011. Check it all and more on today’s markets hub:

So, there’s not much going on in the stock market, but over in the gold patch, the yellow metal is once again in record territory, and crude futures are pushing up against $90/barrel again, as investors wary of the ongoing macro-mishigas as jumping into commodities.