Commodity Traders Will Be Dispatched With Shortly

So far, despite the selloff in equities and conversely the rampaging in the bond market, crude oil has been rather tranquil, fighting the good fight rather than plummeting immediately to $80. But, with the U.S. Dollar breaking out here, how long can that resiliency last?

Similarly, for what they are, commodities are behaving almost lethargically today. Being down 3-4% and being led by the throes-of-death action in copper and gasoline, that statement may not make much sense to you, but bear with me.

The action in commodities has been led by the weakness in the dollar. We all know that. Earlier in the year, I warned that a storm was brewing in our affairs which could lead to the first major rebound in the dollar since before the recession. Well that storm has arrived, lightning and hail galore.

We have two major conditions which are sure to aid our currency in its move higher. The first is permeating weakness in foreign countries. The second is a deadlocked Congress and wary Federal Reserve that will make it highly unlikely that the outstanding currency be further increased.

So our dollar is complacent while the world burns. It is a fairly simple recipe for a stronger currency.

Thus, we may well be entering a period of prolonged dollar strength. Yet commodities are only selling off a few percent today? What does this do to the trading methods of people long in the teeth with speculative contracts for delivery of materials months from now?

What happens to you if, holding futures for copper and steel and oil and corn, you suddenly find yourself in an environment where the euro and dollar go to par?

You get slaughtered, that’s what happens to you.

The second major problem is an issue of delivery. In the real world, if you’re a major player and have contracts for 1,000 barrels of oil, you don’t necessarily just sell those off and take profits. If you can’t sell them off, well then you’d better have a storage facility that can hold 1,000 more barrels of oil.

But those facilities cost money, and most major financial players right now are feeling the heat. Sure there are guys like in the oil industry who have the resources to just sit oil out at sea and wait patiently.

But now imagine you’re someone like Goldman Sachs, who has expanded your storage facilities aggressively in recent years to really game the commodity market by holding surplus goods and waiting to get top dollar pricing, and suddenly you’re hit by the double whammy: a period of stronger dollar activity and major lawsuits from the federal government for your involvement in the last downturn.

And oh yeah, thanks to historically low yields on government debt, your secured cash flow is virtually nil and you’re already hurting for money.

Well look who’s in danger of losing that fancy new facility, or having to totally idle it and pray to God that a turnaround happens in a timely manner and they’re not just throwing money in storage costs and depreciation of goods into a hole for the next five years.

You see, up until now, the commodity folks have been working to figure out what the world will look like with no growth. But now they have to figure out what the world could look like with no growth and depreciation.

As this move in the dollar endures, expect the biggest players to start dropping left and right. I fully anticipate that the commodity space turns over in a big way if the dollar makes a big enough push; we’re talking somewhere in the neighborhood of a 5-10% run.

In such an event, commodities everywhere will bleed out leading the market lower.

Really, in the thirty seconds or so that I skimmed over the excerpt of Obama’s speech (life is too precious to waste reading speeches made by Presidents), I did not spot anything of substance I haven’t heard before now.

Statistically speaking, by randomly glancing at paragraphs and taking them in, I should be able to tell how original the speech is relatively quickly, based on how many things I read that I haven’t heard before. It’s like a negative binomial distribution, where I’m looking at how many times I spot things coming out the man’s mouth which I haven’t heard yet before he fails out by reverting to his old habits.

So how’d those Bernoulli trials go?

Fail.

Fail.

Fail.

“Pass this measure immediately…,” sure, what the hell, that sounds new-ish.

Pass

“…millionaires and billionaires…” FAIL!!!

Fail.

Fuck this, at that point I just closed the page down and went back about my day. If this clown thinks that repackaging all the same shit we’ve been rejecting up until now amounts to a good faith effort, he can go fuck himself.

I can’t believe he was going to try and sidestep a GOP debate for this trash. I mean, I wasn’t interested before and I’m not interested now.

Even if there was one crystalline concept in all of that garbage… that he would wrap a good idea in a pile of shit tells me he can’t distinguish between “useful” and “useless.”

That includes his red meat for the Republicans, in the form of tax incentives. Fuck tax incentives, they haven’t exactly brought bounties of employment upon us before now. Either cut taxes outright, or leave them lay. It’s more onerous to business if we keep changing the tax code every four months, because they are expected to read it, interpret it, and adapt to it. Huge pain in the ass, if you’ve ever tried to read lawyer hocus pocus.

That’s what happens when you write law in a form of English that hasn’t been used in over 100 years.

If Obama had really wanted to shock the market, he should have said:

“…no change to tax code…”

“…no change to regulations…”

“…freezing implementation of new regulation…”

“…I’m firing all my friends and ideologues I put in charge of this Administration, because I realize now they’re extreme and incapable of governing this country…”

That amounts to a total restructuring; a government baptism by fire, starting with the laying off of the following:

Eric Holder
Mary Schapiro
Lisa Jackson
Janet Napolitano
Margaret Hamburg
His entire economic team
All his legal advisors

That would be a good place to start. He could also extend it to include anyone involved in Operation Fast and Furious; that is the most shameful thing I have ever heard of.

He will also immediately stop being seen with men like Jeff Immelt. That’s not a business connection, it’s a corruption charge in bloom.

And he can lay off his entire White House Press Corp and his re-election campaign managers too. The man is an obvious narcissist; he is far too infatuated with himself and the way he appears, so he needs to get rid of the mirrors he surrounds himself with.

He can rehire a smaller, lighter, less asinine press for the sole purpose of conveying information from the White House, and retain a management base to control his funds and operations. However, his current election managers have way too much sway over his actions; almost every move he makes reeks of political motives.

I want to see him without the crutches following him around, trying to make every little movement or gesture PC.

Because that’s ultimately his biggest problem. He’s surrounded himself with people who tell him he’s right. He’s surrounded himself with extremists whom he trusts. And so we get this constant stream of craziness because no one stops to say, “Hey, that won’t work,” or, “Maybe you should quick targeting citizens, because you sound bitter and are turning the country off.”

He needs to pop his own bubble, and he needs to do it on national television. Short of that, this administration is a lame duck for the rest of Obama’s presidency; totally ineffective at doing much of anything, including things the government should be getting done, like national security.

And that’s particularly frustrating, because we’re probably going to have him through 2016.

As I sit erect and triumphant in my office chair, palms down and grasping the wood in resolution, I cannot help but smile.

You were forewarned that my elite were marching out beneath the banner of the 9th floor. Not to be distracted by pretty flowers or singing children, they ignored this bounce as if it were the devil himself, and instead continued diligently along the path of the dollar.

As they quick stepped in full gear, they came across your camp, hugging trees and embracing this rally. They took no pity on you.

They cut you up.

The act of them slaughtering you in this midday reversal will not retard their pace in the slightest. They will regroup and redouble their efforts, continuing their plunge through disgruntled bull camps and setting the homes of widows on fire.

The next step shall see crude oil back in the $70’s, as those of you betting on Clam baths and Chicago politics get trampled beneath the mighty boots of my forces. What you fail to acknowledge is that, for the moment, Bernanke is standing firm behind me, egging my men on; urging them to kill you.

Your death is phase one of the New Stimulus, after all.

Fetch me my war tent.

Here in the America, your sins against the mighty Greenback have been recorded.

Each and every one.

Your debt has been checked. Your commodity hording ways have been looked on with animosity. Your coked out margin shall be used to break your fingers and repossess everything you think you own.

We loath everything you stand for.

In just short order the U.S. dollar will do what it hasn’t successfully done in years. It will rally.

At that precise moment, how many of you can say you expected it? How many of you will have your bodies dashed against the side of the cliff; your limbs broken and lifeless?

The stronger dollar will invigorate America. It will make us richer and fill our bellies easier. It will give us unparalleled access to the world. The day will come when we tread to Europe and buy up their ancestral homes, then burn the change in front of their faces, just as we did long ago.

A stronger dollar will give Bernanke an ample demand base to print to. It will give him room to breathe since a stronger dollar will take the wind out of the oil market’s sail. It will calm food prices and help some of the third world to get its populace back under control.

For our willingness to hold onto the currency of our country in her time of need, we shall be rewarded with lower prices. Those of you who dare to besmirch Lady Liberty will be flung into indentured servitude, irony permitting.

Do yourself a favor and don’t get distracted by the political discourse taking place right now. Most of what talking heads are screaming about is more reactionary to the stock market rally than anything else.

We were oversold and are spiking up; so the camera monkey need to find a cause for it. What they settle on is what they see first…in this case, the Obama jobs speech coming up. Must be a massive run because of all that infrastructure spending we’re going to be doing, no?

So they prattle on and get some other idiots psyched up and suddenly the buying turns into enthusiastic buying.

But the real issues here should be watched closely before committing your life savings.

For instance, have the issues with the EU changed significantly this week? Is the U.S. dollar not going to be appreciating significantly now? …Maybe there’s been some visible major shift in the otherwise consistent credit contraction, perhaps?

No, no, …and no. I’m not seeing much of anything developing here, other than political nonsense with no good chance of being pushed forward. Most of today has been quiet on the “substance” front.

It was entertaining watching Pelosi have a conniption when she realized the GOP wasn’t going to even be responding to Obama’s speech. Quick question too; since when has not offering a rebuttal been a sign of disrespect?

But really, unless there’s some serious adjustment going on, I’m not changing up. I covered ERX last week, so I locked in some tangible gains. I will likely play off the overbought market that is all but assured to develop from this bounce.

First, Europe is still in trouble. This month will be very busy for them; they have meetings to discuss the potential integration or disintegration of their union and they need to get some bailouts rolling regardless, just to buy time. Lots of animosity and anxiety will be coming from that, let me tell you.

Second, the dollar is on a roll. That thing could break out to the upside, offering the first movement above what has been characteristic sideways action since late spring. There’s plenty of kindling to make it happen too; safe haven currencies getting blown up by their issuing countries left and right, the aforementioned European troubles, and equities and commodities in turmoil will all make the dollar attractive. If hot money starts to flood into the USD, expect the selloff to be exacerbated.

Finally, so sorry but attacking the banking structure of this country is a sure fire way of nuking the population. Credit will only be harder to come by from the administration’s actions. This sort of nonsense is not what we need right now; global finance has enough on its plate without dealing with mass litigation from government. If they want redemption for…whatever it is they’re bitching about now…well fine. Get it later.

This rally is to be sold, with skepticism, until we see a solution to the foreign credit crisis, a weaker dollar, stronger consumer or business development, or some combination of the three. You probably can’t wait around for the last one, as it will only confirm the bottom. But at least see the light at the end in the tunnel to some of the bigger open ended questions, before you plunge into the shark infested waters.

I confess myself impressed by the rebound from this morning. I figured we’d grind lower and correct later this week what with the day the Euro markets had yesterday. So goes the world, I guess.

However, here in the 9th floor, my men have been given marching orders to never falter or steer off the path of Dollar St. They quick step vigilantly onward, ignoring the attractive flora and exotic women on their way to swift victory.

So my forces march from my tower. The last shall carry me in a war tent, so that I can arrive on the field and watch first hand as those who go long oil without reservation succumb to trepidation and get run through.

I use their corpses to make lamp oil…I find it burns cleanest.

After much wavering, I’ve decided to hold off on covering UCO, the brunt of my hedging. The uncomfortable truth, for those of you like Goldman Sachs who have stored up vast reserves of petroleum and derived contracts, is that there is no shortage of oil in the world right now. We’re doing just fine.

And we find we need less of the coveted “black gold” with every survey of developing affairs. I cannot believe oil markets are truly pricing in zero growth right now, at more than $80 per barrel. There are a lot of oil producing nations who have hungry mouths to feed each and every day, after all.

And the danger of a massive shock coming out of Europe or even, yes, Asia, is a very real possibility. Don’t think I’ve forgotten the far East during our fixation on the old West. We just need one poorly planned misstep and much of the global economy could grind to a halt.

However, between the two, I am more worried about our relationship with old mother Europe. I find Europeans to be contemptible, in most of their comings and goings, and as a body they are fractious, argumentative, arrogant, and worst of all, ineffective.

The business dealings between us and China are very rigorously controlled. The Chinese know better than to dick with the status quo, so even though at first glance it isn’t a sustainable relationship, with proper upkeep and if uncomfortable questions are avoided, there really is a slim possibility it can continue almost indefinitely.

But with Europe… well, Europe has produced way too many people in our lifetimes who love to take pointless stands on bad principles. You have all sorts of labor organizations who could scuttle a solution “because”. You have hatreds stretching for millennium between people who’ve invaded each other’s home lands almost for sport, as much as for pillage.

It definitely worries me that the next move rests on the side of the board that loves not making decisions.

Bernanke cannot intervene in our markets. Europe needs intervention. But Bernanke cannot do it without permission or cooperation. He may get neither.