I’m lying around at home, feeling phlegmy, pukey, coughy and sorry for myself.
I feel very human, in that sense of being flawed, weak and mortal. And given to emotional indulgence, positive and negative. Today’s one of the negative patches of that human emotionalism as I curse this present sickness, the first of the winter season colds/flus that I’ve caught. I’m feeling a bit like Buffy the Vampire Slayer in one of her occasional morose periods. (Remember that show?)
But this takes me back to what I was noticing late last week and yesterday as I called around some grain market analysts to get their views on the upcoming Statistics Canada final production report, which comes out in the first week of December. The analysts I reached weren’t possessed of their usually godlike command of production, yield, carryout, stocks-to-use and other stats that are usually dripping from their lips. Instead, none could remember the exact amount of canola that StatsCan had estimated in October, nor had they any firm numbers on where exactly they expected the stats to be adjusted for the Dec report.
While I spoke with a few of them, they thought it through and came up with some observations, but I was struck by the number of times I was told by various analysts that they hadn’t really thought it out yet. They’d been doing other stuff, and would probably apply themselves to production numbers in a week.
The reason my analysts were less prepared than usual is because of when I was calling. I usually call much closer to the time of reports, or after reports. But this far in advance, like any people, they just hadn’t gotten around to it yet. (The reason I was calling so early was that if we didn’t get an outlook story into this week’s paper, we wouldn’t be able to get it in until next week’s, by which time the report would actually be out and an outlook story by then an absurdity.)
To me this is a simple little example of the way the human factor manifests itself in the value-computing machine we call “the market.” Sillypeople think the market is a rational calculating machine that immediately takes hard-and-fast economic and business numbers and spits out a rationalistic number that becomes the price. This is the “rational markets hypothesis” and has always been wrong, but has been much loved by computerlike analysts and technocrats. That’s how it “should” work, they think. (Most traders and some analysts don’t think like this.)
In reality, traders and analysts don’t get around to considering all sorts of stuff until they need to, as with upcoming reports, so lots of information out there doesn’t get factored-in to the market until well after it’s out there. And analysts, traders and commercial users are subject to the same roiling sea of emotions that affect all of us, and flow along in the zeitgeist. Humanity moves with moods, and those moods affect the markets. Some believe the moods determine the markets, and then create the economic results, reversing the rationalistic interpretation of economic and price formation.
Another thing I was struck by as I talked to analysts last week and this was the generally relaxed, blah attitude had towards the crop markets. Generally, that’s not an unusual feeling towards the crop markets, especially up until 2006. But since then the crop markets have gotten wild and exciting, and anything but blah. This year we experienced one of the most incredible bull markets in crop market history, and the feeling in the markets during the June-October surge and decline was intense, fraught, euphoric and despairing, depending on one’s position in the market. There’s none of that feeling left, even just weeks after it was omnipresent.
I was talking to the analysts about canola’s supply situation, which is very tight, and the possibility that it could end up lots tighter in the December report. They all noted that if the canola production number was further cut by a few hundred thousand tonnes it could send the market for a spin. But all said that few market players were yet thinking about that, and that the generally glum feeling in the markets after three months of falling prices for most crops has sucked the wind out of any bullishness, at least now down in the trough of the late harvest market.
So we may well see the markets begin moving in the days before this report comes out, as it does in the week before important USDA reports come out. It won’t be because any new information has come out, but because analysts and traders and crop users begin to think about the situation again, and open themselves up to the feelings of fear, greed and everything else that in the end will determine where prices will go.
Once more, with feeling.