Stopped Out

After a wild ride in the cattle market for two days, I exited my position at no loss.  The fundamentals haven't changed, but timing is important.  I may try again, if I see an opportunity I like.

Less Cattle This Year

Last year's drought and high feed prices resulted in some leaving the cattle business.  This year there is less beef production and prices are up.  The shortage should continue through the first quarter of next year, and the markets continue to adjust.  Meanwhile, global demand for beef is still strong.  I have taken a long position in February Live Cattle Futures.  Maybe the price of beef will go up a nickel a pound.

Economic Forces at Work--Markets Adjusting

I have moved 100% to the sidelines as the markets adjust to lower global expectations of growth.  10-year US Treasuries were steady today. Equities and energy prices not so much.  

Comparing the S&P500 to the 10-year US Treasury yield

As the S&P Index has risen this year, the yield on the 10-year Treasury Note has fallen.  On a closer look, it seems that there is a "risk on, risk off"  interconnection between the two on a daily basis going on at the moment.  Let us say that when the S&P500 falls, money moves out of stocks and into bonds, thus "risk off."  Bond prices go up and the yield goes down.  When the stock market rallies, money moves out of bonds and into equities, "risk on."  Bond prices go down (less demand) and yield goes up.

Theoretically, as the Fed buys less bonds, there should be less demand, and yields would go up.  But the market may have already priced the Fed's action into the market.  So today's release of the Fed's minutes, absent some surprise, should not move the market much.  Risk on.  Those are my thoughts before the Fed releases its September meeting minutes.

World Economic Outlook according to IMF-- Growth revised lower