Market Analyst Darin Newsom discusses the commodity markets with host Mark Pearson.
Pearson: This is the Friday, September 23, 2011 version of Market Plus. Thanks for joining us here at our Market to Market Web site. With us this week is Darin Newsom, a regular market analyst, long time with us and Darin, it's been a wild week, a lot of people trying to catch their breath really with what happened in the commodities, what happened in equities, the capital markets, the foreign exchange markets, crude oil, gold, you name it. After a huge week like this what can we expect next week? Pull out your crystal ball and also, where has the big money gone? Where did all these big commodity funds go and these other, these big hedge funds? What are they doing?
Newsom: All right, first question is I think a lot of what is going to happen next week will depend on the headlines that we see over the weekend, what European country is next, how bad is the situation going to be. If we don't see another round of headlines saying this country is having debt problems or facing bankruptcy or whatever it might be then we may see some recovery coming back into the market next week. The biggest problem is we did a lot of technical damage to most commodities as you just pointed out, the equity markets, a lot of individual stocks. So, where's the money going right now? I think it is going to the sideline. I think a lot of the money that is coming out of commodities is going back into paying margins on equity positions being held, that the money that isn't going back into margins just going to the sidelines and I think it's going to stay there until we start to see the other side of the market coming back in, until we see actual commercial demand picking back up in some of these commodities giving investors a reason to jump back in.
Pearson: Normally they're going to go to gold, normally they're going to go to something because the returns on cash are zero so they can't stay out for long. But there's going to be a lot of panic in the gold world this week.
Newsom: There was and the gold just collapsed and a lot of people say, that bubbles over and this, that and everything else. The market just got, as we can tell by the way it has reacted, it just got overpriced and now it's just a complete lack of dollars, it's a lack of anyone wanting to be in any market at this point and gold was just the most vulnerable. It has collapsed. Because the global economic situation is still uncertain, because there's still many questions that remain I think the money is going to come back to gold. I don't think it's gone forever. I think once we see a solid retracement, once we see a reason for it to start to stabilize that is going to be an attractive market for people to get back into, just at a much lower level.
Pearson: It's going to be interesting to see. Let's just come back -- we've talked about commodities. You're not in a big hurry to sell this crop off the combine. Now, we've got a decent basis value right now and especially basis relative to December. We do have some carry in the corn, not as much in wheat or soybeans though.
Newsom: Right. If I have to sell to generate some cash, which a lot of people do, that is why we grow these things, then go ahead and do it because basis is quite good. If I'm going to roll corn, if I'm going to look at holding it maybe I hold it out to the March contract, the March delivery timeframe. We get to that March-May, May-July future spreads there's really very little carry saying that the market is anticipating being short corn later on in the marketing year. So, it's going to be willing to start paying up and I think basis is going to reflect that staying strong. So, I am not a huge proponent right now of selling right off the combine unless it's just absolutely necessary.
Pearson: Real quick, your thoughts on fed Chairman Bernanke's move, the twist as they called it. I'm not a smart guy so economics was my best class in college and I got a D in it. A friend of mine is a banker and he made the point that the banks borrow money short-term at low rates, lend it out at higher rates longer term, it seems like what Chairman Bernanke was doing kind of defeats that purpose at a time when banks are dealing with Dodd Frank, they're dealing with slow loan demand anyway and obviously some impact on profitability.
Newsom: Yeah, I think the big picture, at least the way I took it, and again I'm very similar, I have very little economic background, I'm not an economist, I had two classes in college and that was a long time ago -- but to me the market seemed to react the opposite of what had been anticipated they would to this operation twist or whatever it was called and I don't know that that was fully anticipated and it just still seems to me like we're working on desperation here, we're trying anything to get growth going, to get this economy moving again. The continued stance that we're not going to be doing anything with the fed fund rate until 2013 really shouldn't, it should keep pressure on the dollar so I really don't see it as having a long-term effect. I think we're going to continue to see changes, month to month, quarter to quarter, whatever it might be. But, yeah, it did really, it did not clear up the situation and I think really the only thing that happened caused more concern particularly with the markets behaving the opposite of what had been anticipated.
Pearson: Darin, we're going to have to leave it there. Thank you, sir, appreciate it. Darin Newsom joins us regularly here on Market Plus and on the Market to Market show. Thank all of you for being with us as well. Don't forget to call your local public television programmer if they're not running Market to Market and ask them to. And, of course, you can always enjoy most of our product right here on the Web. From all of us at Market to Market, I'm Mark Pearson. Have a great week.