Bear Mountain Bull

It’s time again for a little BMB R&R, especially with the market behaving as bizarrely as it’s been. Maybe if we stop watching it start to behave a little better…

Posting will be very light and variable over the course of this week, but we’ll put up an open thread each market day for our readers to comment on the day’s market activity or to post any interesting links they might run across.

Check the space below for whatever the latest might be during this ‘off’ time, and please visit the various sites in the ‘Links’ and ‘Regular Stops’ for up-to-date market news and analysis.

BMB will be back in full swing by next weekend.

Microsoft gives up on the Yahoo deal. Can’t say as I blame them.

I read somewhere yesterday (or day before) that only about 10% of the US corn crop has been planted so far this year, and that normally by this time about 35% is already in the ground.

Here’s some info from John Mauldin’s report this weekend that follows up on the troubles in the food markets:

A Black Swan in Food

Donald Coxe, chief strategist of Harris Investment Management and one of my favorite analysts, spoke at my recent Strategic Investment Conference. He shared a statistic that has given me pause for concern as I watch food prices shoot up all over the world.

North America has experienced great weather for the last 18 consecutive years, which, combined with other improvements in agriculture, has resulted in abundant crops. According to Don, you have to go back 800 years to find a period of such favorable weather for so long a time.

Yet food stocks in corn, wheat, rice, etc. are dangerously low. We are just one bad weather season from a potential worldwide food disaster. And Dennis Gartman has been pointing out almost daily how far behind US farmers are in getting their corn crops planted, due to bad weather:

“… the corn crop really is behind schedule. Corn is not like wheat. Wheat can survive drought; it can survive cold; wheat, as we were taught by our mentor, Mr. Melvin Ford, many years ago, is a weed. It is an amazing, resilient plant. But corn is temperamental; it needs rain when it needs rain; it needs dry conditions when it needs dry conditions. It needs to not be hit by early season frost, or it will suffer, and it needs a rather archly set number of days to grow. Each day lost at the front end of the planting/growing season puts pressure upon the corn plant to finish its job before the autumn frosts, and puts increased soybean acreage and decreased corn acreage before us.

“The maps of the Midwest this morning have it raining once again, with more rain likely over the weekend. There will be some field work done in some areas, of course, but the several straight days of corn planting that everyone had hoped for simply are not going to take place. The ethanol mandates may be in jeopardy in the long run, but in the short run, this year’s corn crop is swiftly becoming problematic … and short.”

I had a note from a reader relating the experience of a member of his family. The gentleman runs a rather large feed lot in West Texas. He is running half the cattle he normally does, as he is losing money on every head he sells. Ranchers are reducing their herds, as they cannot afford to feed them due to high grain prices.

The same thing is happening with chickens. Producers are losing money on every chicken they sell, and they have to reduce inventories; thus meat of all types has not risen as much as the cost of producing it.

This means sometime this fall supplies of meat of all types are going to be reduced, but demand will not. And that means that meat prices have the potential to rise substantially during an election season. Maybe someone will point out that using corn to produce ethanol has the unwanted and unintended consequence of driving up food prices all over the world. It is not the sole source, but it is significant.

And when we finally experience a year of bad weather (whether too much rain or too little, too cold or too hot, it will be blamed on global warming), food supplies and prices are going to skyrocket. And a developing world will not look kindly on the US and Europe’s use of food for fuel when so many are starving. Don says that this is not a matter of if, but when.

Wishful thinking on the Fed’s part.

From The Mess That Greenspan Made:

Below are excerpts from two years worth of FOMC policy statements from the Ben Bernanke-led Federal Reserve on the subject of the future course of inflation in the U.S.

With gasoline at $4 and food prices soaring, does anyone really believe that anything having to do with prices is going to moderate anytime in the foreseeable future?

Well, that is, aside from iPods and iPhones. It’s too bad you can’t run your car on Apple products or feed a family with them.

March 28, 2006
… inflation expectations remain contained.

May 10, 2006
… inflation expectations remain contained.

June 29, 2006
… inflation expectations remain contained.

August 8, 2006
… inflation pressures seem likely to moderate over time, reflecting contained inflation expectations…

Sep 20, 2006
… inflation pressures seem likely to moderate over time, reflecting reduced impetus from energy prices, contained inflation expectations…

Oct 25, 2006
… inflation pressures seem likely to moderate over time, reflecting reduced impetus from energy prices, contained inflation expectations…

Dec 12, 2006
… inflation pressures seem likely to moderate over time, reflecting reduced impetus from energy prices, contained inflation expectations…

Jan 31, 2007
… inflation pressures seem likely to moderate over time.

Mar 21, 2007
Although inflation pressures seem likely to moderate over time, the high level of resource utilization has the potential to sustain those pressures.

May 9, 2007
Although inflation pressures seem likely to moderate over time, the high level of resource utilization has the potential to sustain those pressures.

Jun 28, 2007
… a sustained moderation in inflation pressures has yet to be convincingly demonstrated.

Aug 7, 2007
… a sustained moderation in inflation pressures has yet to be convincingly demonstrated.

Sep 18, 2007
Readings on core inflation have improved modestly this year … some inflation risks remain…

Oct 31, 2007
Readings on core inflation have improved modestly this year … some inflation risks remain…

Dec 11, 2007
Readings on core inflation have improved modestly this year … some inflation risks remain…

Jan 22, 2008
The Committee expects inflation to moderate in coming quarters…

Jan 30, 2008
The Committee expects inflation to moderate in coming quarters…

Mar 18, 2008
… some indicators of inflation expectations have risen. The Committee expects inflation to moderate in coming quarters…

Apr 30, 2008
… some indicators of inflation expectations have risen in recent months. The Committee expects inflation to moderate in coming quarters…

There appears to be no theoretical limit on how long you can continue to expect something to happen, however, practically speaking, at some point in time, people stop believing what you say.

And they’re still waiting…

The market rotation that has taken place over the past couple of weeks is showing up in the charts.

The sectors that had been strongest, the Energies and Materials, have clearly pulled back:

While many of the other sectors are trying to make a turn back up:

Only Health Care and the Staples are having trouble making progress:

The numbers as the bulls snort “the bottom is in” and the bears growl “suckers’ rally”:

Charts courtesy of StockCharts.com