Correction? Early tremors? What the heck just happened?

One day it seemed like the beginning of the next 2008-like market crash, and everyone was talking financial market meltdown.

Then the next day it would seem like it had been just a blip and the markets would rebound and we’d be back to talking about economic growth and recovery.

Then everything would go down hard the next day.

Then shoot back up the next equally hard.

Last week was a dramatic few days in the world markets. Fortunately crops ands meats showed themselves tougher than more growth-dependent commodities like crude oil and now it’s like nothing happened. So we can be a bit more relaxed about what happened last week than producers of most commodities.

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But what did happen there? What did we just go through? Was that a correction? That’s the way that the markets seem to be acting now, and that would be the better reality for farmers whose best chance for another leg-up in the long running bull market in crops and meat is continued economic growth leading to demand continually outpacing production.

Or was it an early tremor of a coming recession? Markets tend to mark recessions before economic data make them official. If confidence slips, consumers and businesses stop spending money and you get a recession. I’m not one who thinks that equity market weakness causes recessions, even though there often looks like a causal situation. I think the equity markets are more like a canary in the coal mine, and when traders get scared they are reflecting negative spirits in the zeitgeist, and it is very easy and fast for traders to bail out of their positions and it takes longer for businesses – even if they’re feeling the same way – to cancel expansion plans, scale back production or lay off employees. Just think of how you act as a farmer when you get pessimistic about the market outlook. You probably don’t cut inputs or management for the crop you are already growing. You probably don’t try to cancel purchase agreements you’ve already made. But you might not go out and order a bunch of new bins for next year. And you might not order that bigger combine or tractor this fall, but wait a few months. And if you get really spooked before next spring, you might even choose to seed lower-input crops. That’s the farmer version of the slip in business confidence that can lead to recessions.

The reason we don’t know whether this was just a correction we went through, or the early tremor of a coming recession, is that everyone’s divided on the issue. No one seems to have a firm opinion one way or the other except perma-bulls and perma-bears. So people don’t know whether they should be piling into the market (“Buy the dips!”) or bailing out of the market (“Sell into rallies!”).

And because it’s August and most traders and senior strategists at the big firms are on holiday, that question won’t likely be answered until September, when they get back to the grind. August is a period of doldrums, broken by the occasional squall.

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