Current Marketing Thoughts
Kevin Van Trump has over 20 years of experience in the grain and livestock industry.
Some of the Big Boys Think the Commodity Run May Be Over
Jul 06, 2011
Hedge fund managers have been taking it on the chin as of late to say the least. Several are now reporting that they are going to be pulling more money out of commodities at least for the short-term, choosing to let things play out before diving back in. A few of the other big boys like Walter "Bucky" Hellwig, who helps manage $17 billion of assets at BB&T Wealth Management in Birmingham, Alabama are singing a different tune. They in fact believe commodities will rebound from the massive sell off because shortages of supplies in everything from copper, to crude oil to corn will still be in huge demand even if the economies begin to really cool. One thing backing up their belief is that the benchmark Standard & Poor’s GSCI index is heading for a second monthly drop, led by declines in silver, coffee and nickel. The last time that happened, the gauge jumped by more than 35% within the next six months. The play is simply fundamental in nature, and traders are banking that supplies are simply not sufficient enough to keep pace with demand. I have highlighted below a few of the key predictions that some of the big boys are still banking on as we move forward into the second half of the year.
- Silver could once again take back off with some thinking it could be the biggest winner, rallying possibly back to the new all-time highs of almost $50 an ounce set back in April. While gold and copper gains could be much less significant, they are still projecting higher prices than the current levels.
- They are thinking Corn and wheat will be the best agricultural performers, sighting both could rise quickly by more than 30% each in the coming months. Coffee and Cotton could also be a good bet.
- A few of their main concerns will be Japan and if they will be able to pull themselves out of their third recession in the last ten years. If the Australian economy will be able to overcome one of their deepest setbacks in some 20 years. If the US fed will be forced to continue cutting intervention and debt. If China's inflation will eventually weigh on demand and to what extent.
- Some of the most accurate forecasters remain bullish on raw materials. Goldman Sachs Group Inc., which correctly predicted the slump in May, expects higher prices in six months for 17 of the 21 commodities it covers, a report June 14 showed.
From my perspective the bull run in commodities has come to a critical fork in the road. I told you this would be the case a couple of months ago when Bernanke and company announced that inflation was simply "transitory" and commodity prices would soon start to set-back. This perception has echoed in the minds of many of the world's top money mangers. Now, as you can see we have a truly divided camp. On one side, we have those that believe the global economic slowdown is for real and demand for raw materials and goods across the board will be retreating. In the other corner are those that believe a global economic slow down is simply a short term speed bump on the road to massively higher demand and supply side shortages. For me, I believe in the later. Certainly short-term money-flow will directly influence prices and may lead to a substantial break, but longer-term there is no denying that the world is rapidly changing and supplies may remain in question for many more years. With this in mind any supply side production issues or logistical concerns could cause massive price explosions.
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