Batten Down The Hatches

The Commodity Bear Is About To Pay A Painful Visit

Shawn Hackett, President 9259 Equus Circle Boynton Beach, FL 33472 (888) 535-5525 Email: Shawn@HackettAdvisors.com www.HackettAdvisors.com

Ag Stocks Are Down For The year

Market Vectors Agribusiness ETF (MOO)

Underperforming agricultural stocks lead the crash in commodities back in 2008. The recent underperformance of the same agricultural stocks in 2011 should provide similar bearish signals.

Chinese Stocks Are Down Since November 2010

Chinese stocks underperformed ahead of the 2008 commodity top. The recent underperformance should provide similar bearish clues iShares FTSE China 25 Index Fund (FXI)

The Decline In Copper Prices Is Signaling A Major Economic Slowdown

Spot copper prices Copper prices declined in advance of the major commodity top in 2008 and the recent weakness in copper prices should offer similar topping signs

The U.S. Dollar Has Likely Placed An Exhaustion Bottom

After a year of relentless selling by large speculators that drove the U.S. Dollar down to the recent lows, a major reversal of trend has recently occurred with huge buying suggesting the big money is beginning to bet on a big dollar rally.
A money Flow buy signal is imminent in the U.S. Dollar. This should be a very bearish headwind to overall asset markets and especially commodities

The CCI Has Achieved A Similar Record Overvaluation 10 year average return As That Seen At the 1980 Top

(The chart store)

The Current 10 Year Average return Is At The Major Resistance Line That has Placed every Major Commodity Bull Market top Since 1805

Commodities Are Currently In their 11th Year Of Outperforming stocks. Time Is Running Out For This Bull Market Based Upon History

Starting in 2012, The Ageing Demographics Of China Turn Decidedly Bearish. This should lead to a huge disappointment in future economic activity in China. As the work force growth slows and eventually contracts deflation will take hold in China

Speculators are starting sell commodities aggressively as they take off the over crowded inflation trade. Once they start selling, the bearish cascade effect escalates. With Index funds near record long due to over exuberant ETF Money Flows, any reversal to negative Money Flows into ETFs could be devastating for lower commodity prices
Blue line speculators Black Line Index Funds
Goldman Sachs Commodity Index

Bullish Review

The U.S. economy follows a series of longer term and shorter term cycles that drive overall economic activity and asset market performance. Starting in the back half of 2011 the final cycle turns down(6-year)
This does not bode well for the economy over the next couple of years. All cycles bottom in 2014 and that would be the beginning of the next great boom for America.

This is the first time since the depression of the late1800s that all economic Kress cycles turn down together.

(Cliff Droke)

Bottom Line
King U.S. Dollar is back and deflation will take hold again as the global imbalances have only gotten worse and as the global economy comes to a screeching halt again exposing the long term deleveraging forces once again.

As the inflation induced risk trade gets taken to the woodshed, huge buying opportunities will present themselves later this year. In the meantime, stick with lower risk spread trades, go long the U.S. Dollar as a hedge and look for select shorting opportunities.

Be Prepared For A Crash In Commodities In The Near Future

In the least, this top could be one that will endure many years and it is conceivably possible that this could place THE ULTIMATE bull market top for this cycle. Either way, this is a time to be very defensive. Look for shorting opportunities, bear/bull spread opportunities, and getting long the U.S. Dollar as a hedge.

Top Long Ideas

1) Go Long the U.S. Dollar 2)Go long Natural Gas

3)Go long Rice

4) Go long Lumber

Top Short Ideas

1)Bear futures spread corn-September 2011/December 2011 2)Go short copper 3)Go short cotton 4)Go short Oats