By: Varner Brothers
For the first time ever, the Fed has put a target on unemployment, and will keep rates at zero until the desired level of unemployment is reached. It will also buy bonds of various sorts to the tune of $85B a month, all with printed money. The Fed sees nothing to worry about for inflation, and also is not concerned with the moral danger of bailing out the Congress for their spending binge.
All of the above should keep the stock market well bid, as well as real estate and commodities in general. The dollar lost ground today on this news, and is at a 2 month low. The only problem the Fed has with achieving its objective, is dealing with a monetary velocity that is at an extreme low level, meaning investors are not borrowing money to invest in employees, inventory or equipment. No confidence.
Cotton could catch fire next year with all of this Fed largesse, if the grain markets lead. Old crop corn and soy are at razor thin carryouts, and we could see skyrockets at any time between now and the transition to new crop. Given that chances are very strong for sharp spikes in old crop grains, cotton traders should pay close heed to those leaders. China is buying too much soy, and livestock herds are eating too much corn for any sort of comfort level in the old crops. Stay tuned.
Mar at 7500 is a tempting short, but we have hopes it can rise another couple cents to the 7700 area before selling. Regards new crop, with the winter solstice approaching, farmers are easing into that time of year when they will begin making plans for next year’s planting. Safe to say that cotton acreage will collapse to a modern era low, maybe comparable to the infamous PIK year when total US acres were sub 8 M. With help from a reckless Fed, and plantings lower than anyone expects, we would venture a long in Dec 13 if there is a hard setback.
A trend line beginning with the low of Dec 2011, then crossing the top of the gap of May 2012, then crossing several minor tops in Aug and Sep of 2012, crosses right at today’s high. This resistance may cap a rally that is now over 500 points and 5 weeks old. Scalp from the short side for the moment.