The title of my last blog post suggested I was going to refer to market seasonals or cycles.
But, as so often happens, by the time I was mostly done writing the thing, it had gone another direction and I had run out of coffee break. So a bit of cheeriness ended up on the cutting room floor.
But here it is:
There’s a good chance the slump we’ve experienced in the ag markets is the traditional harvest slump, and there’s a good chance that the slump we saw until late last week has been just the sporadic market panickiness that often hits in September, October and into November.
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About the safest bet you can make in the equity markets any given year is to assume if a big slump is coming, it’s going to occur in Sept-Oct-Nov. That’s when traders get back from summer holidays and see bad stuff they ignored up to that point, when the days get shorter, colder, greyer, and when a new school year begins and life gets serious again. I don’t know if that’s what’s happened this time. I’m bearish Europe and expect to see that joint ejecting its debt-drunk members out the windows and doors, but maybe I’m just being affected by the market seasonals and will cheer up in time for a big fourth quarter rally and a Santa Claus rally.
The 1987 crash ended in a rally and the damage was quickly undone and the world didn’t end. The 2008 crash, and the 1929 one, didn’t just stop and reverse, at least not for a lot more time and damage. But most of the time the Sept-Oct slumps stop and reverse and everyone cheers up.
The bigger issue for us is whether this has been just a seasonal reversal in crop prices, and if it has already turned. For decades we could count on crop prices slumping through September, October and into November, as farmers haul-in crops right off the combine and dump them in the elevator with little concern for price, but in recent years that phenomenon has come into question and some have suggested it’s dead. With southern hemisphere crops becoming important, the northern hemisphere crop isn’t the only game in town, and it’s season no longer equals the world’s crop year. Plus the long term commodity bull market has caused money to flow in to crops and often that money flow has nothing to do with crop supply and demand fundamentals but more to do with the relative valuation of crops compared to other commodity classes – and we all know commodities in general have gone through the roof in the past decade.
So crops, commodities and stocks have seemed to end their freefall in the last little bit, and we can be hopeful that everything we have seen has been a product of the two seasonal patterns I just wrote about.
I’m glad I’ve run out of time again here today, because if I had more time I’d mention that the charts for most things look a lot to me like downwards-pointing flag patterns, with the recent levelling out and reverse seeming a temporary consolidation, and that’d be a lot less cheery than the hope of this bad recent patch just being a seasonal thing . . .
