Play Turner’s Take Podcast Episode 164

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FOMC Hikes Rate 0.25%

The FOMC announced rate hikes of 0.25% yesterday, bringing the overnight Fed rate to 2.25% to 2.50%.  The market took this as bearish as they hoped the Fed we ease off interest rate hikes in the face of the stock market correction.  Lost in the bearish mood is the fact the Fed only sees 2 rate increases in 2019, which is less than the 3 to 4 that had been expected.

CNBC | Fed Hikes Rates

If the stock market declines more than 20% from the highs it is consider a bear market.  The S&P futures are about 2480.  We only need to go to 2360 to hit that level.  A recession is when GDP growth declines significantly. I don’t think going from 3% GDP growth to 2% is a recession.  Some economists define a recession as negative GDP growth for 2 consecutive quarters.  Other economist define it based on declines in GDP, inflation, unemployment, manufactures, and retails sales.

It is possible to be in a bear market for stocks while not in a recession.  That can happen when the economy transitions from high growth the low growth.

Emini S&P 500

CRUDE OIL DECLINE CONTINUES

The decline in crude oil continues.  Crude is down $30 in three months!  That is a 40% sell off.  At this point the market is severely oversold and anyone long is trying to get out as best they can. Funds with long positions heading into their year end performance review are not happy one bit.

I think crude stabilizes at some point down here but you have to let the sell off run its course.  This feels like heavy liquidation of long positions.  It does not help that Christmas is Tuesday and the markets are already trading at relative low volumes.

OPEC+ will start production cuts in January.  That should be the natural period when crude stabilizes. For now until New Years I think the volatility continues

Crude Oil

Corn & Soybeans Fill The Gap

Corn and Soybeans are filling the gap they left after the market rallied on confirmation of China buying ag production again from the US. I think we are seeing the “selling the fact” after a very long “buy the rumor” rally.  Corn and soybeans seem to be fairly priced in these area.  We like playing the ranges (buy support/sell resistance) and I like short straddles.

Corn carryout will most likely range between 1.7 and 1.8 billion bushels.  Old crop should range in the $3.60s to $3.90s.  New crop should be $3.90 to $4.10 given those numbers.

At best China buys 10mm mt of soybeans from the US which means old crop stocks can’t get much better than 600mm and a 15% stock-to-usage.  That puts front month soybeans in the high $8s and low $9s with new crop in the mid to high $9s.

CORN

SOYBEANS

 

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