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Market Plus: Feb 19, 2010: Darin Newsom, market analyst

posted on February 19, 2010

Market Plus: Feb 19, 2010: Darin Newsom, market analyst Pearson: This is the Friday, February 19, 2010 version of Market Plus. We're glad you've joined us here at our Market to Market Web site, want to say howdy to all the people tuning in from around the country and joining us here on the World Wide Web. Darin Newsom, one of our regular market analysts is with us this week. Darin, this is such a big general economic week, really our fundamental grain information really didn't change much all week, we didn't have anything happen there but boy we had some fireworks from the fed with a very minor increase in that emergency loan rate which has basically been zilch, they raised it a quarter basis points. It's not like it's something that's really going to stir things but, again, people always trying to anticipate that maybe rates are going higher. So, that causes everything to kind of explode, which you eluded to Thursday night. Friday was like in the market.

Newsom: Right.

Pearson: What is this telling us? Are people anticipating a better general economy, a better world economy and stronger interest rates this year so it wasn't that big of a deal?

Newsom: You know, I think they're really wanting to try to build this idea of a better economy into this market. We've seen some bearish signals forming in the Dow, we've been hearing this talk that the dollar is just going to keep going up, interest rate increases are almost imminent that we're going to see these sorts of things. Well, these sorts of things are starting to quiet down a bit now and all this talk of a better economy certainly coming along, this is also helping to support the crude oil market. You know, it was a very odd week in that we were seeing the dollar rally at certain points, the euro was rallying against the dollar yet the dollar was stronger and crude oil was up $5.50 for the week as well as, you mentioned in the show, cotton skyrocketing and some of these other commodities. So, it was a very odd week when it did seem like so many of the traders were trying to build on this idea that the economy is getting better, commodities should start to go higher, particularly if the Dow is able to continue its rally.

Pearson: We're impacted by oil in such a big way in agriculture, so much diesel fuel and natural gas and everything else. And last week we had the big storm in Washington, D.C. which a lot of people felt was a pretty good thing because they couldn't do a lot. But that also meant the Energy Information Agency couldn't release a lot of their regular reports. Those reports came out really kind of confirmed fundamentally there's plenty of crude oil out there.

Newsom: There is, you know, and we see this market rallying, we see it rallying back above $80 and if we look at these stocks numbers that come out every week, yes, we've seen crude oil continuing to build, we're seeing gasoline stocks build. So, as we head into this time of year, basically from mid-February through mid-July when the market tends to rally, we're seeing that we've got plenty of supplies so it's going to be very difficult to build a tight supply situation, particularly if demand does not get back to where we were in 2007. In '08 and '09 we saw decreases. There is talk this year, there's been some projections that we were going to see an increase back to '07 levels, others are a little bit more conservative saying, yes, we could see an increase but certainly not back to those levels before everything fell apart. So, I think as we go along it's going to be more difficult for these markets to rally, I think we're going to see them calm down a bit, take a broader view of what all is going on and then go from there.

Pearson: We talk about gold and I always just look at gold as what people's confidence level is. I mean, people are really nervous, they think they've got to have a maple leaf in their pocket or a Krugerrand because they'll be safe that way and historically over the years the gold is not a great store value, it's a commodity but obviously we've had this huge move in gold, we've had major purchases by countries for their reserves at very high prices and we see gold commercials on TV and that's usually my first indication we're in a bubble. So, gold and what it's doing, is some of the air coming out of the gold market?

Newsom: I think it very well could, particularly if this dollar is really starting to firm and the idea of interest rates going up is really going to occur at some point. You know, recently we've seen gold skyrocket past the $1,030 mark which was its previous high I think back from 2008 or something like that and then here in late December or January we saw the market dip back down to about $1,070 per ounce, certainly testing that market and balancing off of that level, not really bringing in a great deal of buying but just enough to balance off that level. We're not back near where we were on the highs before so I think this might be a little bit of a bubble and if we see some of these other economic things come into play, maybe the economy is getting firmer, maybe we are going to see an interest rate increase, I think we'll see some pressure start to come back into the gold market possibly moving it back below that $1,000 mark.

Pearson: All right, well, it's been a very interesting week, maybe a little bit of a sea change going as far as what's going to happen with rates going forward and we'll have to see. The other thing that you mentioned on the show, which I thought was interesting and I wanted to follow up with you on, is the general economy is getting better, people are feeling a little bit better, maybe this is going to mean that rates are going to go higher but you also mentioned the inflation boogeyman really isn't visible out there. I mean, look at this long bond, it's not showing any hyperinflation concerns.

Newsom: Right, and we even had some numbers come out this week that showed inflation was being held relatively in check. You take food and energy out and really the numbers were going down. So, I do think that the inflation thing is dying down and that is one of the things that is helping to support the dollar once again.

Pearson: How can this all die down with these huge deficits, the president's budget, 1.75 trillion dollars?

Newsom: That's been this question, ever since the stimulus package started we bought, you know, printing all these dollars, creating all these dollars and pushing them into the system was going to create this hyperinflation situation, it just hasn't occurred. Not all of those dollars have found its way into the system. The idea is that they have been hoarded, they have been put back ...

Pearson: A lot of them are being saved.

Newsom: Exactly. And so they're not working into the system and they're not pushing commodity prices higher.

Pearson: All right, Darin, as usual very interesting, we appreciate it. Thanks for being with us this week on the show and, of course, right here on Market Plus. For all of us here on Market to Market, I'm Mark Pearson. Thanks for watching. Have a great week.

Tags: agriculture commodity prices markets news