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Stick A Fork In Deflation


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Below is a chapter from my book, Haunted By Markets entitled, Stick A Fork In Inflation. I penned the article on January 10, 2000. Because I believe a new era for the commodity markets has arrived with periodic bouts of inflation for the next decade I thought it timely to reprint what I rambled on about nearly 20 years ago. Anyway, I hope you enjoy what is below. And as always, if you dont enjoy it I will eat a bug. Maybe.

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January 10, 2000:


Stick A Fork In Deflation

The Era of Deflation for commodity values that unfolded three long years ago due to the Asian Crisis has ended. It is a thing of the past. It is history. The coming year and those that follow will give birth to the most bull markets for commodity futures seen in quite a while. Possibly since the 1970s!

That is the primary message I have been imparting in this column for the past month. In particular over the past few weeks. As a matter of fact, I am so bullish that to my brokerage clients I snort, buy the breaks, but dont be short!

Certainly, it does not mean I am right. I could be wrong. The coming year and those that follow may be just as bearish and just as ugly as the past three years. Still, my long-term work strongly suggests that few commodity markets will move lower in value from current levels. Then again, only with hindsight will we know for certain whether I am wrong or right about what lies ahead. But Im betting that bull markets lie ahead.

From a fundamental standpoint, the upside potential for most markets is great. A strong case that the livestock complex, the petroleum complex and the metal complex are headed much higher in the coming few years. I can also build a powerfully bullish case for cotton, coffee, sugar and lumber. Only the grain complex has fundamentals that are not out and out bullish.

However, in the case of the grain complex, Mother Nature could alter that situation in very short order. Already, She has grain producers in South America nervous due to the simple fact that over the past three months, rainfall levels are well below the norm. If that situation continues into pollination time for their crops, the grain complex too may have a bullish year ahead as well.

In the first full week of the New Year, cattle prices rose an impressive $1.27 from the previous week while April live futures established new contract highs. Few commodity markets on the board are at contract highs...but the cattle are!

The pork complex did equally well with nearby hog futures gaining $1.12 while pork belly prices rose as high as 84.45, a two-year high. The pork complex is obviously doing quite well, but the belly market is simply on fire! From the low set on July 13, for instance, February pork belly futures are up 80 percent. That is more than $14,000 per futures contract on a $1,200 margin trade. All in six months no less!

But of course, the livestock complex, as I have mentioned over the past few months in this column, should or could be the brightest of lights in all of agriculture in the coming year. Thus, this weeks performance, though impressive, is not really unexpected.

What will be unexpected is when the metal complex, the petroleum complex, cotton, coffee, lumber and a host of other commodity futures markets do well this year too. They will do well because the Era of Deflation has ended. It is history...it is over. Stick a fork in it...it is done!

In the days, weeks and months and years ahead, concentrate on those commodities with bullish longterm fundamentals. Those are the markets that are destined for higher levels.

And remember, simply because a market has already had an impressive bull-move such as cattle, hogs and bellies, that does not mean that further gains are unlikely. On the contrary, the fact that prices are on the upswing suggests that the trend is upward and even higher prices are probable.


After being doggedly bearish for three long years I am now an unrepentant bull. To my brokerage clients I snort, buy the breaks, and dont be short!

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This morning, the red ink across the board is bright. The Dow is down 340 points, gold is up a tad but all other metals are lower. Crude oil, a leading indicator for commodities per se is down $1 a barrel and flirting with 1 month low. There is red ink with the oinkers and most grains. But in the grains, soy meal is lower but soy oil higher And though soybeans are up a bit that is only because China was a buyer once again.

The weakness being seen is not a surprise since this is October, the 2nd most bearish month of the year. And if you are interested in my twice a day newsletter drop me a line at commodityinsite1@gmail.com. Or, call me at 406 682 5010.


The time is 9:25 a.m. Chicago











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About the author


Jerry Welch has been in the futures industry since the late 1970's and is a true veteran of the markets. He has been quoted often in Wall Street Journal and is author of Commodity Insite, one of the longest commodity futures newspaper columns in history. His weekly column has been published each week since the mid 1980's and is one of the most recognized names in the world of commodities.

Mr. Welch is also known widely as a, "so so" flyfisherman.  

His column is published by the Illinois Agri News in La Salle, Illinois, Cattle Today, in Fayette, Alabama as well as Consensus, in Kansas City, Kansas.

He can be contacted at 406.682.5010 for a view of his, "twice a day" market column that includes price forecasts and trading suggestions.

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