1/28/11…food fight!

…yet we Americans are blind to it, but according to a Bloomberg article yesterday but Mark Gilbert, who TB met a few years ago in London, perhaps we had better start thinking about food prices which rose 25% in December from a year ago. So what! It is the top 1,2, or 5% that drive our economy…let them eat cake – if they can afford the flour!

So far there have been riots over food costs in Africa from Tunisia to Yemen and the Tunisian government was toppled…but you don’t care about that…after all stock prices are up – we are America, we are different!

But are we…really? The GOP is hell-bent on cutting the budget and that is in small measure to the will of their ‘teabaggers.’ Cut it…who cares what we cut, just cut it! That’s the ticket! To TB, that is the road to overturning what we know as government, peaceably or otherwise. Of course, in a democracy (democratic republic) like ours there is no need for bloodshed but riots are part of our way of life…Viet Nam, Rodney King, etc. and the latter tells you it doesn’t have to be a cause célèbre. No sir, when Americans are angry they will protest anything.

So far the right has been able to blame our problems on illegal immigrants, only the ones from the south…no mention of those who might cross the ‘easier’ northern access thanks to thousands of miles of water separating us from our formerly ‘loonie’ friends the Canadians, who now have a balanced budget including public healthcare, but what do they know…after all WE are Americans!

But the problem may be moving closer to home. How so? As Mark points out, credit default swaps on Campbell Soup, General Mills, Darden Restaurants, ConAgra, Heinz, Kellogg, Kraft and the highflying Yum! Brands (which peaked on November 4 and has fallen 10% since, are soaring…those eight companies who we love are in danger of default?

The problem is, that as food prices have risen, demand is slipping making it impossible to raise prices and make them stick. We are seeing this in their earnings and now it is being camouflaged by those big cash positions. Pressure is on since they can’t boost earnings to do more stock buybacks and what if the market slips again as these and more problems emerge? Not to our worthy stock analysts who say ‘borrow and buy.’ It is later than you think!

Mark also points to rising debt costs for disparate companies like BofA, J. Crew, Cantor Fitzgerald, even Goldamn.

But the really sick part is that commodities, ranging from Gold, to Crude, to Wheat, Corn, and Cotton are run by a bunch of speculators with no concern over REAL costs…after all THEY are creating the costs.

But it’s always been that way hasn’t it? No! How many of you remember 2006, when oil surged to a record $147.27 o 7/11/08 after rising from $49.90 on January 18, 2007 in an almost uninterrupted climb. But then it plunged to a five year low of $32.40 by December 19…rational? Not even! On December 31, 2010 it hit $92.06, then $92.58 on January 3rd and Goldamn and others were saying it was going to $150! Well guess what? In just 18 trading days is back to $85.71! THAT is speculation.

*Gold peaked at $1424.70 on December 7, 2010 and with just one attempt to take that out has plunged 8.4% – despite a weak dollar…it’s most highly correlated benchmark? Not inflation!

*Crude peaked at $92.58 on 1/3/11 and is now off 6.9%…would you have made that bet…not when Goldamn said it was going to $150…were they shorting it? (their wonderful private placement of Facebook valued it at $50 billion…it is NOT Google…not even Yahoo! Wake up, people!)

*Meanwhile Wheat, Corn, and Cotton are at or near record highs! THAT is speculation, pure and simple! Beware of a sharp correction at some point but don’t try to predict when.

But why suddenly? Beginning in 2007, and accelerating in 2008, pension consultants recommended that their clients (wait, if all were doing it, isn’t that like …ah…collusion?…or are they merely highly paid sheep? TB goes for the latter. As they have since 1990 NONE advocated overweighting bonds). THAT is what caused the sharp runup as they pumped billions, a huge percentage of the commodities market, into commodities index funds (by the way TB was told when he asked why in the late 1990’s they didn’t recommend funds rebalance back into bonds that there ‘simply’ aren’t enough bonds…but commodities???). These funds in turn bought commodities index swaps from brokers…Goldamn again comes to mind along with Citi, Morgan Stanley and JPMorganChase.

There are strict trading limits for speculators and producers but NO limits for banks since they might need to hedge a large loan. But the banks piled on driving prices even higher…did anyone get punished for creating an inflation fear in the U.S., no? But they made a lot of money. Then as now there were inflation fears and in case you feel that TB is overstating the case…for months a grain processor friend of TB’s (and former commodities trader) has said that there is no correlation between supply, demand, or spot vs. forward. THAT is seriously impacting not only the U.S. but the global economy, financially and politically, yet we, a country that could change it through regulation are hamstrung…much as the only way we see to cut the budget is through draconian cuts while letting the top 2% of taxpayers…which is largely made up of those paying 15% taxes on hedge fund profits, escape – for now that is but they lack the foresight to know that when change comes it will bite them in the butt!

Never a quitter, Mark Gilbert has another article out today. He is at the Davos World Economic Forum – one of only two conferences TB would bother to attend, the other being the Fed’s in Jackson Hole…still waiting for an invite to that one.

Yesterday, TB read on Bloomberg that 52% of the attendees see a crash in China in five years. Today, Mark reports that the consensus was that Greece and Ireland (remember that March 11 election which could wind up with debt repudiation) will default and at least one country will abandon the euro by 2016! He goes on to say that many of the meetings are private and thus exclude journalists, but he was told that a German official looked at a Greek official and said ‘you need to introduce more parts of your economy to the concept of taxation, and you need to do more to cut your debts even if there are riots on the streets of Athens.’ Harsh words and illustrates just how fed up the Germans are with bailing everyone else out.

Meanwhile across the pond the GOP pretends to be cutting the budget, the teaparty component continues to mock even the Bush administration, and we are going nowhere…it’s a great time to by stocks, don’t you think?…or do you even think about it? It is painful, right?

For a fourth day the Dow has struggled at the 12000 level hitting 12020 Wednesday and missing with 12019 (important) yesterday. Meanwhile the Russell 2000 has spent three days bouncing and is at ‘dead cat’ status for now as if asking where do we go now? The Dow closed up just 0.4%, while the most was the Nasdaq 100 +0.7% rated best. Note once again however for the second time this week, volume was just 991 million shares…pitiful! Advance/declines and breadth were positive but coming a day after those huge numbers also pretty pathetic. That didn’t stop 316 stocks from hitting new 52 week highs while new lows shrunk to 25. You decide what it means but to TB it means we are due for a sharp correction on any bad news and there is plenty to be had…ah but we have those earnings reports…so we do, folks, so we do…we also have the S&P 500 p/e at 15.7x…hardly cheap?

. . . - - - . . .    . . . - - - . . . (S.O.S.)

Panic selling abounds in municipals and TB will reiterate they are cheap but no reason they can’t get cheaper…same goes for treasuries. Finally the TIPS market seems to not be concerned with inflation (remember it is ex-food and energy). To hell with those who can’t find a job…it’s their own fault…this is, after all, America, where we each control our own destiny…think about that statement…please!

If you are in the top 2% and fighting against any tax increase…or a corporation screaming that it pays too much in taxes…yet in reality pays little or none…you had better rethink your position or you will be the new whiners…not just those who have lost their jobs. TB doesn’t say this gleefully, he just can’t believe we can be so short-sighted when people are homeless and starving and yet those who created the problem continue to rake in the money. Get real!

Have a remarkable day!


Trader Bill thinks it is clear to anyone reading these missives that they are merely commentaries...as he sees it...and do not necessarily reflect the views of anyone other than his own. Information is gathered from sources he has found reliable, but no guarantees of accuracy are implied. These are merely observations of events in the marketplace offering in an attempt to offer a non-mainstream viewpoint. Copyright TBD Capital LLC, January 28, 2011.



  1. Bill,
    I can’t let your comment about Canada’s “public healthcare” go without a comment. As you might know, I have dual citizenship (US and Canada) and most of my numerous siblings are still living in Canada. Their public so called heathcare system is a disaster. The waiting period for many life threathening situations is measured in many many months. I have had relatives die from curable illnesses because of being unable to get care. Those with money come, of course, to the US to get that care. Many of Canadas good doctor have migrated to, yes, the US to practice. My own doctor is from Alberta. The last thing we need in the US is a healthcare system like Canada. Ask Canadians living in Canada and they will tell you the same thing. I prefer to want to live. Have a great day. Ron Gregoire

    • traderbill said

      Thanks for the first-hand comments, Ron. I wasn’t praising their healthcare but turning their budget deficit around by investing rather than spending the pension payments like we do here…all the best,

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