Since April, the commodity has embarked on an extreme upside move, shooting to highs not seen since sugar hit $0.45 per pound in 1981. The chart below illustrates it perfectly…

Sugar Chart: http://www.investmentu.com/images/sugar_082509.gif

The main reason for such a large jump was news from India, which indicated a potentially low sugar crop.

Over the past couple of weeks, the sugar market has surprised many analysts by trading even higher. I say that because while fundamental news like this often results in impressive-looking moves, its impact has a limited lifespan.

So be warned. Moves like this usually indicate that the news is factored into the price and we’re entering the last phase of the bullish run.

Based on my experience in the commodities markets, where I’ve seen this type of pattern many times, I believe we’re headed for an inevitable turnaround for the sugar market. Here’s what you can do to profit form this, and two other commodities to keep an eye on.

How to Play the Sugar Market to the Downside

If you want to play the sugar market to the downside, I suggest you buy put option contracts, or by selling limited-risk call option spreads. At the moment, the October 2009 and March 2010 option contracts are the most active.

As you can see on the chart of the October 2009 futures contract above, the price surpassed the $0.2300 per pound level twice, moved back to $0.2150 per pound, then trotted past the $0.2300 mark again.

This is what technical analysts call a “triple top” and if sugar doesn’t move above $0.2300 again, we can seriously count on the market having a big retracement lower – most likely between $0.1900 and $0.2000 per pound.

So if you play the downside and it does make that retracement, I’d suggest taking profits at that $0.1900 to $0.2000 level.

Oil Heading For $80… And Beyond: Three Ways to Play the Move

Given the historic rise and fall of the oil market and the current state of the global economy, you’d never think that it could even consider the idea of moving higher again.

But the market continues to amaze everyone with its resilience and strength, with the current price hovering around the $74.50 per barrel area.

And with conflicting reports on the global demand for oil over both the near term and long term – plus weekly inventory reports that show a strong buildup of supplies one week, followed by draw-downs the next week – it’s easy to see how this can be a very treacherous market.

Here’s the deal: Regardless of what statistics are released and how Congressional attempts curtail oil trading limits, it’s clear that the oil market continues to bring in speculators from all levels – and will most likely keep trekking higher.

Check out the oil chart below. The price is currently trading above all three main moving averages (20-day, 50-day, 200-day) and is now looking to pop above the recent high of $75.27 from June 11. If that happens, we could easily see oil shoot to $80 from there – with $90 probably right behind.

Oil Chart: http://www.investmentu.com/images/oil_082509.gif

There are a couple ways to play the oil market – be it on the long or short side…

• The futures and futures options that trade on the floor of the NYMEX. This is usually best for experienced commodities investors.
• Through an ETF like United States Oil (NYSE: USO), which tracks the price performance. This gives you broad exposure to the market through one investment, rather than playing individual companies. It’s also a less expensive way to play the market and doesn’t require a commodity trading account.

You can either play the USO shares directly, or the options on the ETF. No matter whether you’re bullish or bearish, pick an option expiration period at least three to six months in the future, as that will give your directional call ample time to mature.

The Grain Markets: Summertime Means We’re on “Grain Watch”

Finally, let’s hit the grain markets (corn, wheat, soybeans)…

During summer, these markets can really turn to the upside, as the growing season can be extremely volatile, particularly if the weather is less than ideal.

The June-October period typically sees more speculation in the grain markets than any other time of year, purely because of the prospect of more volatility. Regardless of what any fundamental data may show, nothing can compare to the sheer panic-buying when we receive weather reports that show how a drought could wipe out a year’s worth of crop.

And some of it doesn’t even need to necessarily happen… it’s merely the potential for it happening, based on previous history. Fortunes can be made or lost in just those few summer months.

Buy Corn Commodities Low… And Ride the Bullish Move Higher

This year, for example, we’ve seen corn and wheat prices shuffle around their annual lows, due to government reports that show ample planting, high carry-over levels from last year and crop production that is ahead of schedule.

Corn Chart: http://www.investmentu.com/images/corn_082509.gif

With corn currently at its lows, if any potential weather disruption does occur over the next few months, taking a bullish position here could be a low-risk way to get involved.

Like with the sugar market, the best way to play corn is through limited-risk option strategies. Stick with expiration months of December 2009 or March 2010, so that you give the market plenty of time to mount a bullish move.

Good trading,

Lee Lowell

Source: These Three Commodities Are Set to Move… Are You Ready to Profit?

Take corn, for example. Prices rallied strongly early last week on drier than expected weather conditions, only to lose all of those gains by Friday.

But rather than lament situations like these that cause such erratic price movements, they actually offer a chance to profit. As I’ve said in the last few columns, the grain markets make for good speculative bullish trades, as they’re not only at the mercy of the weather, but are also trading at their most recent lows.

If there is a sustained weather disruption, we could see very quick, wild movements. Continue to look at December 2009 or March 2010 call options for the grains that trade on the floor of the Chicago Board of Trade.

Moving on, let’s take a look at the latest in the oil market, which continues to amaze most veteran traders…

Another Erratic Summer For Oil

Cast your mind back to early June…

September crude oil futures hit a high just under $75 per barrel. Then comes word of possible Congressional legislation that would curb speculation in the oil market. In addition, the weekly supply data shows ample reserves of crude oil.

Result? Oil prices tank by $14 to $60.

So instead of looking higher, oil looked like it was ready for a possible trip back down to $30. But this is the oil market – and it’s rarely so clear-cut.

With more “skewed” government reports, which hinted that the economy was improving, that was all oil needed to come roaring back with a vengeance. It quickly added another $11 per barrel to its current price of $71.

Two Ways To Play The Oil Market’s Moves

It would be great if markets always based their moves on fundamental data. Much easier to figure out future direction.

But markets are irrational. And right now, oil is heading higher in the short-term, due to the money flow back into the market, regardless of the deep oil supplies at our disposal. But if you’re looking to make money in the markets, you need to go with what the market gives you, not what you want it to do.

If you’re interested in getting involved in the oil market (long or short), there are two ways you can play it.

1. Futures and futures options, which trade on the floor of the NYMEX. Stick with limited-risk option positions.
2. The main ETF that represents the oil market and tracks the price movements – United States Oil (NYSE: USO). This is a less expensive way to get in on the action and doesn’t require a commodity trading account to play it.

Currently, USO is trading at $38 per share and has options available, too. If you’re bullish or bearish, pick an option expiration period at least three to six months in the future, as that will give you more time to be correct with your directional call.

Sugar High

Lastly, we want to alert you to the sugar market, which is making extreme upside moves at the moment.

Having kicked off its rapid upward run in April, sugar has ramped up its pace even more in recent weeks, hitting highs not seen since 1981!

I like to call these “blast-off” moves because if you look at the daily chart, you’ll see a straight-up vertical move. Moves like this occur only a few times a year and can happen in any market. They also usually indicate that we’re entering the last phase of the bull run.

What Goes Up Must Go Down… How To Prepare For Sugar Downside

The main reason for sugar’s massive move is news from India that indicates a potentially low crop size.

However, all markets reach a level at some point where the news is factored in. And when we see blast-off moves like this, we can sometimes see a quick and dramatic price turnaround. And in sugar’s case, this would be a reversal to the downside.

If you want to try and capitalize on this, you can buy put option contracts or sell limited-risk call option spreads on sugar – both of which trade on the floor of the ICE/NYBOT exchange. At the moment, October 2009 and March 2010 option contracts are the most active.

That’s it for this edition.

Lee Lowell

Source: How to Profit from These Three Erratic Markets

This chart shows the price movements since the beginning of the year of the Powershares DB Agriculture Fund (NYSE:DBA). It represents a basket of futures contracts for commodities such as wheat, corn, soybeans and sugar. As Justice says, “Commodity after commodity has roared back to life, thanks to a combination of renewed inflation expectations, a crashing U.S. dollar, and newly bullish fundamentals.”

Last Thursday, we discussed at length the effects that inflationary expectations are having on the market. We said that Treasuries were a bad place to be and that energy-related commodities such as uranium and lithium were likely winners in an inflationary scenario. Justice points out that corn, soybeans and sugar are worth considering.

Corn prices surged to a six-month high,” Bloomberg reported earlier this week, “after the U.S. government said domestic demand will exceed production for the third time in four years, slashing reserves by 28%.”

Corn inventories are expected to fall even as the various demand sources for corn – food, livestock and fuel – rise an estimated 3.5% next year.

Soybean prices, meanwhile, recently hit seven-month highs on the CBOT (Chicago Board of Trade) after U.S. stockpile forecasts dropped. Beans were also boosted by word that the Brazilian National Agriculture Confederation, a major farm lobbying group in Brazil, would press for limited soybean acreage in the coming planting season to help keep prices firm.

And finally Sugar, not to be outdone, recently hit 34-month highs – their highest level in nearly three years – on “poor crops and robust demand,” according to the Financial Times. A failure of India’s local sugar crop was seen as a big price booster. “Swings in Indian sugar output, which move the country back and forth from exporter to importer, are a critical factor in global prices,” the FT reports.

“The price of lumber is a fair indicator of where the market is headed,” says Tom Dyson in last Friday’s DailyWealth. Lumber is an “on-demand” market. That means prices are set by real commercial demand (not the pie-in-the-sky nonsense we’re seeing in US equities right now). This from Tom:

Take the 2008 credit crisis as an example. The lumber price was the first to signal a bear market was coming. It peaked in May 2004. The Bloomberg Homebuilders Index peaked in July 2005. The Case-Shiller U.S. home price index peaked in July 2006. The credit crunch started in February 2007, when New Century Financial collapsed. And finally, the S&P 500 peaked in October 2007.

“Mr. Market” is starting to show clear signs of split personality disorder.

On the one hand, certain areas of the market – the ones much favored in the big run-up – have started to wilt and fade as the much-lauded “green shoots” turn brown. On the other hand, other areas of the market – which didn’t participate so much in the rally at first – have started showing signs of life.

Take the grain markets for example. Foodstuffs like corn, wheat, soybeans and sugar have been red-hot in recent days.

We can see this in the Powershares DB Agriculture Fund (DBA:NYSE), which Macro Trader has been long for a number of weeks. (We took partial profits earlier this week, and continue to ride the move with the remainder of our position.)

DBA, which is NOT built around “total return swaps” like other inverse/leveraged funds, is essentially a basket of futures contracts – primarily wheat, corn and soybeans, with sugar thrown in for good measure.

Commodity after commodity has roared back to life, thanks to a combination of renewed inflation expectations, a cratering U.S. dollar, and newly bullish fundamentals. Let’s take a closer look at some of DBA’s components to see what I mean.

Prices as High as an Elephant’s Eye

“Corn prices surged to a six-month high,” Bloombergreported earlier this week, “after the U.S. government said domestic demand will exceed production for the third time in four years, slashing reserves by 28 percent.”

Corn inventories are expected to fall even as the various demand sources for corn – food, livestock and fuel – rise an estimated 3.5% next year.

Soybean prices, meanwhile, recently hit seven-month highs on the CBOT (Chicago Board of Trade) after U.S. stockpile forecasts dropped. Beans were also boosted by word that the Brazilian National Agriculture Confederation, a major farm lobbying group in Brazil, would press for limited soybean acreage in the coming planting season to help keep prices firm.

And finally Sugar, not to be outdone, recently hit 34-month highs – their highest level in nearly three years – on “poor crops and robust demand,” according to the Financial Times. A failure of India’s local sugar crop was seen as a big price booster. “Swings in Indian sugar output, which move the country back and forth from exporter to importer, are a critical factor in global prices,” the FT reports.

Wheat is the one area with potential for disappointment, relating to large India stockpiles that could be released onto the market later this summer – hence Macro Trader’s willingness to take some gains off the table and watch closely as further developments unfold.

Reflation and Stagnation

Agriculture is thus one area where the market is doing well. Other foodstuffs not mentioned, like cotton and coffee, have also seen big gains in recent weeks. On top of that, various agriculture-related equities have been performing well and look to have strong potential upside in the coming months.

Along with base metals, ag has been showing signs that the “reflation trade” is on. There is a new and aggressively bullish stance emerging on hard assets and inflation-themed plays, including everything from base metals, to gold and silver, to crude oil and natural gas… and well-run companies related to all the above.

China, too, has had a hand in pumping up the reflation trade with its aggressive stockpiling of base metals. (A few weeks back we wondered aloud in these pages if good Dr. Copper, the “metal with a PhD in economics,” was being goosed by China buying. That hunch was more or less correct, as Beijing doubles down on industrial inflation hedges with a vengeance.)

But all is not rosy and cheery for the recovery-minded bulls, as other, weaker areas of the market can attest. At the same time that inflation-linked themes are hopping, other econ-related data points are dropping.

“U.S. railroad freight traffic is running about a fifth lower than a year ago,” The Wall Street Journal reports, adding that the news “is one of several less-obvious indicators that all isn’t well, despite the financial-market rally since early March.”

The underlying reality, as the dismal freight numbers point out, is that a change from “bad” to “less bad” on the economic data front doesn’t mean things are necessarily getting better. It only means we aren’t free-falling quite as fast as we were.

Think of the skydiver hurtling towards the Earth at an astonishing rate. A few thousand feet above the ground he pulls the ripcord and – hooray! – his rate of descent has been arrested, to the point where he is pleasantly drifting rather than free-falling now. But in which direction is he still headed? And where exactly is he going to land? (Let’s hope it’s not an alligator swamp…)

The budding hope that U.S. consumers would come bouncing back with wallet intact also took a hard knock this week. April retail sales were down for the second month in a row, coming in below expectations and breaking the bulls’ happy winning string of positive upside surprises.

Brian Bethune, chief U.S. economist at IHS Global Insight in Lexington, Mass., believes the “green shoots” talk was premature. “There are some preliminary signs (of improvement) in certain areas of the financial markets,” Bethune tells Reuters, “but in terms of the real economy, we are still a long ways off.”

To which we try (and fail) to resist the temptation to say: “Well, duh.”

A Classic Combo

The environment we are headed into – and the view Mr. Market seems to (perhaps) be acknowledging now – is a classic combo of wearisome economic stagnation and creeping paper-fueled inflation. One acts as a fearsome headwind, blowing in the face of consumer-oriented names reliant on economic recovery to justify their newly bid-up valuations. The other acts as a powerful tailwind, further bidding up the price of inflation hedges and hard assets.

The main worry that has wracked markets these past few months, a relentless deflationary downward spiral leading to Great Depression 2.0, has now more or less been put to bed (at least in the mind of investors at large). Upon coming to the realization that we’re not all going to die, a massive post-apocalypse bear market rally ensued as investors audibly exhaled and the “green shoots” meme excited suggestible minds far and wide.

But now the follow-on reality is slowly sinking in that, while we may not be dead ducks, we’re still far (quite far) from being out of the woods. And that means an unpleasant combo of debt-hobbled economic growth, budget-busting government deficits, and persistent fiat currency erosion as far as the eye can see.

Macro Trader’s special recipe for an environment such as this is two-pronged. We are scanning the landscape for bearish trading opportunities in overhyped and overinflated consumer discretionary-type names, still pumped up from the short-covering aspects of rally and vulnerable to fresh disappointment, while simultaneously ferreting out bullish opportunities to play the “reflation trade” (in everything from ag to energy to metals) on the long side.

Source: Reflation and Stagnation – Welcome to What’s Next

• Manufacturing in the U.S. shrank again last month and consumer spending recorded an unprecedented sixth monthly decline in January. The Institute for Supply Management’s factory index was 35.6 in January; readings of less than 50 signal a contraction. Meanwhile, the Commerce Department said personal spending fell 1% in December, offering no sign the economy has hit bottom.

• Macy’s Inc. (M), the second-largest U.S. department-store company, said it is cutting 7,000 jobs, or 3.9% of its workforce after slashing prices failed to lure shoppers during the worst holiday season in 40 years, Bloomberg reported.  The retailer also cut its quarterly dividend to 5 cents a share from 13.25 cents.  Sales at stores open at least a year have dropped in 10 of the past 11 months.

• A majority of U.S. and foreign banks tightened lending standards to businesses and households over the past three months, despite government efforts to spur banks to increase lending, Reuters reported.  In its January senior loan officers report, a closely watched quarterly survey of lending conditions, the U.S. Federal Reserve said the number of banks that tightened lending remains “elevated.” The central bank also said demand for loans from both businesses and households continued to weaken.

• Renew Energy LLC, a closely held ethanol producer based in Jefferson, Wisconsin, filed for bankruptcy amid falling prices for the grain-based fuel and rising costs for corn, Bloomberg reported. Ethanol producers have idled about 1.8 billion gallons, or 16%, of total U.S. production capacity, according to the Renewable Fuels Association in Washington.  Ethanol plants were forced to reduce capacity in January as volatile corn prices hit profits.

• Morgan Stanley (MS) will cut about three to four percent of its work force, up to 1,880 people, Reuters reported, citing an anonymous source.  Most of the cuts will be in back-office jobs where trades are processed.  The broker has been struggling with spiraling costs and slowing business as stock market volatility has whipsawed investors since the Dow Jones Industrial Average peaked at over 14,000 in October 2007.

• Oil prices fell nearly 4% Monday as gloomy U.S. economic data darkened projections for energy demand. U.S. light crude for March delivery fell $1.60 to settle at $40.08 a barrel on the New York Mercantile Exchange. London Brent crude shed $2.06 to $43.82 a barrel, Reuters reported. News that union and oil industry negotiators in the United States averted a strike that would have cut fuel production put added pressure on oil prices.

• Steelcase Inc. (SCS), the world’s largest office furniture maker, said it will cut base salaries of its North American salaried workforce by about 5% and suspend matching contributions to its retirement plan for 2010, Reuters reported.  The company also will cut the annual salaries of its chief executive and chief financial officer, and its board members will take a voluntary salary reduction of 15% for one year.

Source: Global Investment News Briefs Tuesday, February 3rd, 2009

Other factors are at play in the volatile agricultural industry. According to Chris Mayer, “Fertile soil – good dirt – may become more important to land values than oil or minerals in the ground.”

Chris says fertile farmland has been in decline since the 1980s due to urban sprawl and soil erosion. This makes it a lucrative asset. And it makes companies like Cresud (NASDAQ:CRESY), which owns large swathes of farmland in Argentina, a great stock play.

More from Chris on MoneyWeek:

The mainstream press focuses on issues such as population, dietary shifts, and the impact of biofuels. One thing that doesn’t get talked about much may be the most important thing of all: a growing shortage of quality topsoil. Call it the topsoil crisis…

Quality soil is loose, clumpy, filled with air pockets, and teeming with life. It’s a complex microecosystem all its own. On average, the planet has little more than three feet of topsoil spread over its surface. The Seattle Post-Intelligencer calls it “the shallow skin of nutrient-rich matter that sustains most of our food.”

The problem is that we’re losing it faster than we can replace it. And replacing it isn’t easy. It grows back an inch or two over hundreds of years.

This is not lost on certain far-seeing investors. Jeremy Grantham, the curmudgeonly head of the money manager GMO, wrote about soil depletion in his last quarterly letter. “Our farmers are in the mining business! Yes, the soil is incredibly deep, but it is still finite.” For every bushel of wheat produced, we lose two bushels of topsoil.

[...] In any case, it seems safe to say that good dirt is in short supply. The obvious investment conclusion: Buy farmland. That’s hard to do as an individual investor, although there are at least a few options. One is Cresud (NASDAQ:CRESY), which owns a million acres of farmland in Argentina. It trades on the Nasdaq. Another way into the idea is to own farming assets in grain-exporting countries, like Canada.

This from the Seattle Post-Intelligencer on the topsoil crisis facing the planet:

The planet is getting skinned.

While many worry about the potential consequences of atmospheric warming, a few experts are trying to call attention to another global crisis quietly taking place under our feet.

Call it the thin brown line. Dirt. On average, the planet is covered with little more than 3 feet of topsoil — the shallow skin of nutrient-rich matter that sustains most of our food and appears to play a critical role in supporting life on Earth.

“We’re losing more and more of it every day,” said David Montgomery, a geologist at the University of Washington. “The estimate is that we are now losing about 1 percent of our topsoil every year to erosion, most of this caused by agriculture.”

“It’s just crazy,” fumed John Aeschliman, a fifth-generation farmer who grows wheat and other grains on the Palouse near the tiny town of Almota, just west of Pullman.

“We’re tearing up the soil and watching tons of it wash away every year,” Aeschliman said. He’s one of a growing number of farmers trying to persuade others to adopt “no-till” methods, which involve not tilling the land between plantings, leaving crop stubble to reduce erosion and planting new seeds between the stubble rows.

Source: Cash in on the Rush to Secure Quality Farmland

The economic calendar gets off to a slow start this week with only four reports being released from Monday through Wednesday.

The one that will be interesting to watch is the July Consumer Credit figures. The market is expecting a huge drop of approximately $6 billion. With the some of the stimulus checks being used to pay down debt and spending slowing, these are the most likely reasons for the big decline.

The back end of the week is overloaded with reports and will keep us busy starting Thursday morning at 8:30 a.m. The first reports to look at are the PPI and Core PPI figures for August. In what will likely be welcoming news for everyone, the August PPI numbers are actually expected to show a slight decline versus July.

This could be due to the recent drop in oil prices, since the Core PPI figure (which excludes food and energy in the calculation) is still expected to show an ever so slight increase of 0.2 percent for July.

The August Retail Sales figures come out Friday morning at 8:30 a.m. Expectations are for an increase of 0.10 percent versus July.

More than likely this is a short-term boost due to car manufacturers offering zero-percent financing offers and people scrambling to buy more small cars. If you exclude auto sales, the retail report is expected to come in at a negative 0.20 percent even with back-to-school shopping and the final cashing of stimulus checks.

This doesn’t bode well for next month, which won’t be able to count on school shopping or stimulus checks to help the total.

The final report of note this week is the Michigan Sentiment Preliminary report for September. Indications are for a slight increase, which is most likely due to the previously mentioned drop in gas prices over the last 4-6 weeks. Prices have eased a little, and we are through the busy summer driving season, so the pain at the pump may be subsiding.

This of course is one small aspect of consumer sentiment, and all it would take is a direct hit by a hurricane to our Gulf Coast oil-platforms to drive prices back up. But at least for now, consumers seem to be feeling better about things.

Source: A Slow Start Gives Way To A Very Busy End Of The Week

Energy expert Byron King says investors shouldn’t panic over the drop in prices. For a start, August is a notoriously poor month for commodities. It tends to be a month of net selling.

Despite some demand issues caused by the global slowdown, Byron says commodities are in a short-term correction. And that means plenty of great bargains on offer…

This from Bryon:

First, you need to know that August is almost always a tough month (depending on how you look at it) for resource prices and resource stocks. A lot of people take vacations in August, including some folks who are key players in the resource markets. So the market makers are on holiday, as are the markets.

Indeed, no less an authority than Rick Rule was discussing this at the recent Vancouver Investment Symposium. “August is when a lot of things go on sale,” according to Rick. Rick views August as a good time to buy great resource stocks at relative bargains.

Also – at least in U.S. markets – August tends to be a time for net selling. Traditionally, a lot of parents and grandparents sell stocks and redeem mutual funds to come up with tuition payments for private schools and colleges. This insight comes from an old acquaintance of mine who helps to manage the endowment funds of Harvard. He told me that Harvard makes money both ways. Harvard gets paid the tuition. And the endowment fund buys stocks that are relatively cheaper in August.

So even in the face of some dramatic declines of late, my goal is to keep it all in perspective. Don’t panic yourself out of the market just because some things happen in August. This is only one month in the year.

Dollar Strengthening

Let’s look at some other issues that have affected the marketplace. The U.S. dollar has been strengthening in the past month. The dollar has gone from about $1.60 per euro to about $1.50, a gain of about six percent or so. That kind of currency swing in just one month – between two of the world’s major currencies – is evidence of a powerful wave out in the world marketplace.

What kind of wave? Call it sentiment. Call it perception. Or as Groucho Marx once said, “Call it a banana.”

But the bottom line is that people are buying dollars and selling euros. This is based on their beliefs about the future and not much else. Really, it’s not as if just one month is enough time for anything major to occur within the structure of either the U.S. or the European economic spaces.

For example, new industries and labor markets don’t rise and fall in just one month. Tax codes don’t revise within a matter of weeks. Demographic shifts don’t occur in a month. But a month is plenty of time for peoples’ attitudes to change from “sell” to “buy,” and vice versa.

For our purposes in this newsletter, we worry about energy and resources. And in the space of one month, it’s not as if the underlying values of energy and resources are falling. People still need and want oil, corn, copper, etc. (At $113 per barrel of oil, they want less of it, to be sure.)

But in this summer’s monetary phase – driven by sentiment – the dollar is strengthening. So pricing is weakening for energy and resources and their stocks.

But really, how strong is the dollar over the medium to long term? Will the U.S. somehow magically balance its budget? Is there any hint that Congress will change the U.S. tax code to make American industry more competitive?

~~~~~~~~~~~~~~Special~~~~~~~~~~~~~~

When the Gold-to-Silver Ratio Slides into Balance, You Get Rich

The world has about five times more gold than silver. What if silver cost one-fifth the price of gold?

It would skyrocket over 950%!

I’m not saying it will soar that high. I’m not ruling it out, either. At the very least, I’m convinced you’ll see the white metal price rocket above the 300% level very soon. Even the pressure from rising gold prices alone demands it.

Just check out this report, to see how you can make those kinds of profits…

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

The dollar is looking good because the alternatives are looking less good. That’s hardly a ringing endorsement for the future. So again, the evidence points to us experiencing a short-term correction.

World Economy Weakening

Then there’s an article in today’s Wall Street Journal titled “World Economy Shows New Strain.” The first paragraph in the lead article on Page 1 states: “The global economy – which had long remained resilient despite U.S. weakness – is now slowing significantly, with Europe offering the latest evidence of trouble.”

Later on, the WSJ article states, “The global weakness marks a sharp reversal of expectations for many corporations and investors, who at the year’s outset had predicted that major economies would remain largely insulated from America’s woes.”

OK, so here we have some evidence that there’s a medium-term “demand” issue at work in the world economy. The U.S. is on the cusp of a recession, what with the broken banking system and chronic monetary mismanagement of the currency. The perception of lower demand going forward is hurting pricing for energy and resource plays.

And euroland, particularly the German economy, is in a recession. This reinforces the worldwide nature of the slowdown. Lower demand hurts current pricing power.

So what’s left? Asia? Will the “China growth story” continue into the future? Actually, I expect China (and the rest of Asia) to grow, but not at rates we’ve become used to seeing in recent years. In particular, I expect to see fewer subsidies for energy use, especially as the world economy adjusts to oil priced over $100 per barrel.

And I expect to see credit tighten in China as the central bank attempts to keep a lid on inflation in the Middle Kingdom. Just a little bit of inflation in China means a whole lot of wealth destruction for Chinese savers and Chinese capital creation.

The Chinese might take some risks that they deem acceptable, like using underage girls on their Olympics gymnastics team. But the Chinese are way too smart to risk igniting long-term inflation in their economy. That would be bad for social harmony, and the Chinese are big on social harmony.

Where Are We Now?

So what’s the bottom line? Where are we now? We’re in the midst of a short-term correction. There are many great buys out there, but I can understand if you want to be cautious and sit on the sidelines and accumulate cash.

If you do buy resources or stocks, just be careful and nibble away. Don’t try to buy everything all at once.

Source: Resources Hit the Dog Days

In our last update on corn, on July 10, we were betting that $6.50 would be the main target but that a breakdown of the 100-day moving average would give some further bearish momentum. This is what happened, as the price action posted a low at $5.04 last week. It has however already slightly rebounded. Technical indicators show that the current rebound should drive the prices higher.

Corn prices yesterday fell recently to the lowest level this year after the US Department of Agriculture revealed that farmers were able to boost the country’s corn crop in spite of the damage generated earlier in the season by the worst flooding in 15 years.

The USDA forecast the 2008-09 season would see the second largest corn crop on record, triggering further selling of agriculture commodities futures. That’s why the prices declined from a high of $7.99 a bushel last June to the recent low at $5.04, which is a 37%-fall. This cooled down the concerns about global food inflation.

Nevertheless, food prices are still 44% higher than last year and almost double the level of 2006.

Yields and harvests were expected, thanks to new plantations in the US, to increase significantly the offer, driven by food demand and bio-fuel consumption. However price will remain sensitive to weather conditions that may affect the expected production.

Prices countertrends are then likely. Technical indicators help us to identify them.

The prices have already retraced 23.6% of the bearish trend initiated in late June (between points A and B on the chart). They should go higher. MACD has triggered a bullish signal when it crossed its above signal line, as well as the RSI that indicates that an obvious oversold configuration was reached. The price oscillator also shows that volume is building up on the short-term. Consequently a momentum is building up too on the upside.

The main target is therefore likely to be the 50% Fibonacci retracement. It also corresponds to the 100-day moving average, around the level of $6.50. It would become a solid resistance to this rebound.

Source: Corn Prices on the Rebound

A federal energy bill, the Renewable Fuel Standard (RFS), currently requires that 7.76% of gasoline products be blended with ethanol. That amounts to about 9 billion gallons that U.S. ethanol producers have to produce this year. Next year, they will have to produce 11.1 billion gallons of corn-based ethanol.

However, corn prices have more than doubled over the past two years, and there is a growing concern that the diversion of corn to ethanol production is a big reason why.

In late April, Texas Gov. Rick Perry petitioned the EPA to grant a 50% waiver on the nation’s which calls for 9 billion gallons of corn-based ethanol to be added to gasoline supplies this year.

Several U.S. policymakers – including Republican presidential nominee John McCain – signed on, arguing that the diversion of corn for ethanol production is driving up the price of corn as well as livestock feed and therefore is a principle catalyst for soaring food prices. But yesterday (Thursday) the EPA denied the request.

“The EPA’s professional staff conducted a detailed analysis … and found that the Renewable Fuel Standard mandate is not causing severe economic harm, but rather strengthening the nation’s energy security and farm communities,” Johnson EPA Administrator Stephen Johnson said on a conference call with reporters.

Governor Perry responded, saying he was “disappointed with the EPA’s inability to look past the good intentions of this policy to see the significant harm it is doing to farmers, ranchers and American households.”

“For the EPA to assert that this federal mandate is not affecting food prices not only goes against common sense, but every American’s grocery bill,” Perry said.

Perry may disagree, but a report from the Council of Economic Advisors in May said only 3% of the 40% increase in food costs worldwide could be attributed to the diversion of corn to ethanol production.

Furthermore the ruling will give a welcomed boost to U.S. ethanol producers, who are currently losing ground to biofuel companies in Brazil. Brazil uses sugarcane, rather than corn, to produce its ethanol.

Source: EPA Rejects Ethanol Waiver