Panic, Panic, Panic… Europe is About To Fall Apart Again!!!

So the Ambassador on Fast Money was commenting on how bad the situation is in Europe. Good for you Ambassador you are rolling in the group think AGAIN. For those in the Stockguy22 room you know that I have been saying the Euro will drop because there will be garbage talking coming out of Europe.

So, now comes the question why garbage talk? Or is there something more interesting happening?

For example, when Russia was burning to Hades they imposed a wheat export. Wheat shot up.

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Notice how all of these dates end on the 5th or 6th of August. Nothing more has been said. But what has happened? Because that is as important. Well it appears that Russia is indeed having problems, but these problems are being solved by a grain swap.

Die Ukraine hat Russland angeboten, ukrainischen Mais gegen russischen Weizen einzutauschen. So könnte Russland seine geringen Bestände an Futtergetreide wieder aufstocken. Der ukrainische Agrarminister Mykola Prysyazhnyuk sagte Agra Europe London zufolge, die Idee sei vor einiger Zeit von russischer Seite geäussert worden.

So the Ukraine and Russia are going to swap Russian wheat against Ukrainian corn. If your mind is going, “heh?” you are not alone. It appears that what Russia does not have is corn, but it has wheat. In other words Russia manipulated the market to their benefit.

But that manipulation does not end there. Shall we look at sugar? Sugar had a great run up, and then out of the blue Europe says, “oh wait folks hey we have enough sugar to export!” My question is why not say this earlier? Why now?

Or how about cotton?

China’s commodities futures tumbled today with cotton, sugar and rubber falling by the daily limits on speculation China may take additional measures to curb inflation by lifting interest rates again and selling from reserves. Copper, zinc and soybeans also slid.

Excuse me, but this is hedge fund behaviour. Buy on the cheap from the producers, stockpile it, and then sell it when commodities get expensive.

Here is my take, and this is where I think the governments have gotten wise to the market and are playing them like a fiddle. Here is what I think, I repeat I think is the game.

  1. Commodity is driven up by market
  2. Governments sells the futures contracts to the market
  3. Market goes higher
  4. Government sells more
  5. Once peak is reached government says, “oh btw did you know we had oodles”
  6. Futures contracts collapse where the bag holder becomes those that drove up the prices
  7. The bag holders now have a choice take possession of the commodity or buy back their futures contracts at a significant loss.
  8. Most will take option 2
  9. Government gets free money and gets to keep the commodity

When I look at this arrangement I just chuckle and think that indeed the market can be deaf, dumb and stupid. I am not saying I know that the governments might be doing this. But it is too convenient how governments and the commodities seem to trade, whether it be wheat, sugar, cocoa, or cotton.  So next time you hear about the world running out of commodity [fill in the blank] take a good look at the past and make sure this is not yet another government hedge fund move.

So is Europe falling apart? Of course it is, until it isn’t. I would say around 1.25 EURUSD Europe will amazingly figure out everything, or at least come together on something that sounds plausible!

Posted in General Trading