Sentimental Indications

I imagine the mood in Saskatoon today is anything but bullish, after that awful ending to the world junior championship game last night. I don’t normally watch hockey, but I was sickened by that OT goal by the yanks and blurted out some inappropriate expletives in front of my daughters in my outrage. A result to drag down the lingering optimism left after New Year’s.

The mood couldn’t be different on Wall Street, where bullish sentiment at Christmas – and still – is at the highest point it’s been (by some measures) for more than two years. Everything’s up, up and upper amongst most of the managers at investment funds. It’s gotten so extreme that some of the presenters on Bloomberg TV over the holidays discussed whether this sets up a downside correction, because when everyone’s all-in, and even the most bearish have been dragged back into the markets, it’s hard for the market to go any higher. There’s little money left on the sidelines, is the thinking. (That doesn’t count the mountains of money left in money market accounts among retail investors.)

This extreme bullishness among investors makes me feel as if I am insane, because generally all I see are signs that the world markets and economy are high on fumes from the extreme flatulence of all that stimulus money being digested and that there are far more downside dangers out there than reasons to continue the optimism that has taken the markets up about 60 percent since the March lows.

During the night, during periods of wakefulness caused by 1) my dogs demanding (twice!) to be let out into the backyard; 2) my nine-month-old crying because of teething; and 3) my two-year-old having a nightmare about knocking down her little sister, I heard reports about Greece’s debt being downgraded and tottering towards the edge, U.S. banks’ credit problems getting worse for at least another year and British consumer confidence slumping again. Didn’t seem so cheery to me. But all those factors have been factored in by most of the investment managers, so they think prices have already been discounted for them.

That’s not a universal opinion. Some of the more academic analysts are warning once more about the risk of a double-dip recession later this year, but they’re the kind of wonks the investment managers like to ignore when they rain on the bullish party. (Notice no one’s talking about Nouriel Roubini much these days?)

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Sentiment matters in crop markets, which is why I’m talking about this. I wrote a story in December based on ag commodity outlook sessions I participated in in which analysts from different companies agreed that crop prices – especially wheat – have been propped up by all the liquidity sloshed into the world’s markets by the unprecedented spending by governments around the globe in the last year. That’s helped the markets – equities and commodities – rise and created a sense of optimism amongst the population.

I can see that in the blase attitude people have taken to H1N1, in which this pandemic, which still has time to mutate, is seen as No Big Deal and A Bunch of BS. (CBC’s Michael Enright has been pushing this notion.) And I think the rising markets have helped make people not care much at all about the huge bonuses Wall Street bankers took home for Christmas. Remember the outrage about banker bonuses in late 2008? Just an echo in 2009, even though there was just as much reason to be peeved.  When the markets are going up, everyone’s willing to be a little more relaxed. In the 2008 collapse, the mood was darker.

What happens if the markets turn down, as those handful of bears remaining still expect, and that optimism evaporates? What happens to crop prices? That was a question pondered by two of the analysts I spoke to, and they split on it. One thought everything would get sucked down, while the other thought crops’ eatability would keep them the strongest part of a down market.

A good indication of how the world markets feel about crop commodities will be seen next week, when the USDA releases its final crop production report. It doesn’t matter so much what the USDA finds, but how the market reacts to it. (Unless there’s a truly astounding finding.) Crop prices have been buoyed by the belief that the economy is recovering and demand will remain only slightly suppressed from its surging growth to mid-2008. To stay up, crop prices need the markets to stay happy-sentimental, not go bad-sentimental.

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