Is Goldman correct? Does it even matter- that’s the question

  • Posted on: March 22, 2012

In the past few days, Goldman and the rest of the big managers came out with the latest” Big Idea.” In short, an end to the commodity supercyle and a beginning of money flow back into equities and away from commodities. They were arguing that now was the time to buy stocks. Now? after the Dow has rallied back from 6500 to 13,500, just 1,300 points from the record 2008 high. Now? afer the S&P has rebounded from 666 on its lows to above the 1400 level. Gee, now you tell me its time to buy? Seriously, You are telling me now to buy? Where where you guys back in the depths of 2008 and 2009.. Either suspiciously quiet because you were building your own massive long position or 2) in reality, you were sitting there whistling in the graveyard hoping for a bounce. My guess is, while you will tell your friends you were loading up on the long side, in actuality, you were looking for a bid to unload 2 or 3 of your vacation homes, checking the safe for your stash of gold coins, and planning for an escape from NYC, should food riots have broken out…
My initial impulse is to fade their suggestion.

Surprise,
Generally, a contrarian, I actually am leaning towards agreeing with these guys.
In the past year we’ve seen Ny Fund manager’s trying to buy US Farmland, and also trying to buy elevators and rail lines trying to get a foot hold into the distribution/ supply chain of grain in the US. I guess they looked at US agriculture as low hanging fruit they could scarf up, repackage and then sell to their clients.
They did it with Super stores, they did it with mortgages and that worked out so well, didn’t it?
They have the best interest of the USA citizen, don’t they?

I’m just saying that for the past 8 or 9 months with farm land selling in little mini bubbles at 10K+ an acre (GRANTED, NOT WIDE SPREAD) so don’t email me saying I am a chicken little… It just seemed that it was getting late in the day.

I have a client who is a farmer and has been since the late 70’s, All the land he bought in the 80’s finally came back for him. He has a brother who started farming in the early 90’s. His brother never bought a piece of land he didn’t see a double in profits or much more. Two brothers. Two different perspectives on farm land as an investment.
Stories like that made me stop and wonder that it might be late in the day for price appreciation. I’m NOT saying its gonna fall off the cliff. Most farmers are conservative. Most farmers have not leveraged their land up 125% of its value so they can 1) go on vacations or buy 10K dollar shower curtains. So I don’t see an insane blow off lower in prices.
The only thing that might spark a 30 or 40% pull back is the following.

commodities have benefited from the in flow of money from 1) money managers 2) speculators) 3) hedge fund managers and 4) Index funds who buy and hold as a hedge against inflation.
If that was to slow down, if money flows back into equities, then that could lower prices.
If a farmer has NOT hedged his inputs. If a farmer has not contracted grains at these levels. If a farmer thinks that prices can only go higher. They may be in for a surprise. Will the price correction come quickly? OR will it take 2 years to go back to where we were in 2010? 3.80 corn and 9.30 beans. Currently we are at 6.40 corn and 13.50 beans.
Cattle are are record highs.
I’m not calling a top.
I am just saying, it might be a good time to do some planning for a downside which might be looming on the horizon.

Manage your risk.
For a spec, buy some cheap out of the money puts, put them in the cup board. don’t look at them.
In a year or two that 2 or 4 cent option might be worth 1.50 or 2.00..

I’m doing it for my own account and for my clients.

CER