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Low Coffee-Bean Prices Brew Trouble for Farmers

Published: 09:55 20 Dec 2018 GMT

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20 December 2018

 

 

Video commentary for December 19th 2018

 

 

Eoin Treacy's view

A link to today's video commentary is posted in the Subscriber's Area. 

Some of the topics discussed include: Fed Balance sheet tightening on autopilot, hawkish tone sees risk assets braaking down, Dollar firm, gold downside key reversal,. Treasuries breaking out. 

 

 

Here is the text of a bulletin from Bloomberg on today's Fed Meeting.

Here are the Key Takeaways from today's FOMC events:

The FOMC hiked rates a fourth time this year to a decade high, ignoring President Trump’s criticism, and lowered its outlook to two hikes from three next year.

Powell specifically endorsed the dots, citing them in his press conference as a guideline for the committee and a useful tool.

The committee tweaked its guidance to ``some further gradual increases’’ -- a more hawkish development compared with the alternative of dropping the guidance.

Powell said all meetings are live for possible moves next year, but gave no strong hints as to when the Fed would raise next.

There was unanimous support for the hike.

Powell said that Trump's comments had no impact on policy and that the Fed is committed to doing what it thinks is best.

Powell said financial conditions caused a slight downgrade in 2019 forecasts but no real change in the outlook.

Markets took FOMC and Powell as hawkish, with the yield curve flattening and stocks falling.

 

Eoin Treacy's view

The dot plots suggest two interest rate hikes next year but Jay Powell basically said they are going to be data dependent next year. The one thing that stood out to me from the press conference was that no one asked questions about the pace of balance sheet run off. That says a lot.

 

 

The Revenge of the Chart Watchers

This article by Richard Teitelbaum for Institutional Investor may be of interest to subscribers. Here is a section:

What prompts investors to chuck Graham and Dodd for a bucket of sheep entrails? More than a couple of factors, including the proliferation of easy-to-use charting functions on Thomson Reuters and Bloomberg terminals, Yahoo Finance, and Google charts.

Most obvious is the burgeoning success of passive investing. In 2007 index funds accounted for 15 percent of ETF and mutual fund assets, according to the Investment Company Institute. In 2017 that number was 35 percent.  

As recently as last year, fewer than one in ten active large-capitalization U.S. stock managers had beaten the S&P 500 during the previous 15 years. 

Accordingly, active money managers today are on a somewhat desperate quest for new ideas, trading strategies, or tactics — anything to narrow the gap between their own performance and that of the big indexers. It is, after all, a struggle for their own survival. 

“Wall Street is neither fundamental nor technical,” say MIT’s Lo. “They are opportunistic.”

Indeed, the problems bedeviling fundamental research feed into the rising popularity of technical analysis. “One reason people gravitate toward technical is they get frustrated with fundamentals,” says Stovall. “Price is never readjusted. Earnings are often readjusted. GDPs are often readjusted.”

 

Eoin Treacy's view

Part of being a chartist is being contrarian. The reason price action appeals to many of us is precisely because it is not well understood by the masses. Therefore, when I read articles like this, extolling the benefits of technical analysis and trend following, I can’t help but feel cautious rather than vindicated.

 

 

Low Coffee-Bean Prices Brew Trouble for Farmers

This article by Julie Wernau and Robbie Whelan for the Wall Street journal may be of interest to subscribers. Here is a section:

“When the price is good, we have work, but when it isn’t, we have no money to pay the rent, no money for food, no money for the doctor,” said Ms. Poló, 56, standing on the side of the road in Baja California state, where the bus she was riding had broken down about three hours from the border.

Coffee prices have been stuck below the cost of production for the longest stretch since the global financial crisis, leading some producers to abandon crops and some to migrate for new jobs. The shift is being driven by currency fluctuations that are encouraging sales and production in Brazil, the world’s largest coffee producer, spurring a record crop that is driving down prices for other coffee-growing nations.

“We’re now back in real terms to where we were 20 years ago, when farmers abandoned land because they couldn’t make ends meet,” said Paul Rice, president and chief executive of Fair Trade USA, which works with 1 million coffee producers in 42 countries.

A 2017 study by Cornell University for Fair Trade USA placed the average cost of coffee production at $1.40 a pound. Coffee prices have been below that price for 20 straight months, the longest stretch since 2008, according to FactSet data.

 

Eoin Treacy's view

When commodity prices fall below the cost of production supply destruction takes place and the lowest cost producer gains market share. For Robusta coffee the question is whether central America can remain competitive with larger producers like Vietnam and Brazil for Arabica.

 

 

 

 

 

 

 

 

 

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