Thursday, June 19, 2008

Chicken Little Solution!--IFCN Wk 28 -Friday- Equity: $782.50.

This has really been a “nothing” week, which had a lot of action. We saw crude oil hit $139.89/barrel on Monday morning and then promptly fall off $5.28/barrel the rest of the day. It has been going lower since.

Corn prices also hit an all time high of $7.60/bushel Monday and haven't gone any higher since. Not for a lack of trying. With all the news in the world saying that there will be no corn crop because Iowa is underwater. Proof is the pictures on TV from helicopters. Who amazingly only point their cameras at fields which are under water. Maybe they only get paid to shoot pictures of flooding?

Most of the “supposed guys in the know” are predicting $10.00/bushel in a month. I suppose it is possible, but unlikely. Same with crude.  Everyone is now sure that crude is going to $200/barrel. These are the same people who had the chance to buy crude oil for $50/barrel and corn for $3.20/bushel last year and didn't.


My explanation: Chicken Little.

It is the name of a story many might remember from when they were a child. It has great application in the markets because they are very susceptible to emotion and panic.

One version starts off like this:

Once upon a time there was a dear little chicken named Chicken Little.
One morning as she was scratching in her garden, a pebble fell off the roof and hit her on the head.
"Oh, dear me!" she cried, "the sky is falling. I must go and tell the King," and away she ran down the road.
By and by she met Henny Penny going to the store. "Where are you going?" asked Henny Penny.
"I'm going to tell the King the sky is falling," answered Chicken Little.
"How do you know the sky is falling?" asked Henny Penny.
"Because a piece of it fell on my head," she replied. "May I go with you?" begged Henny Penny. "Certainly," answered Chicken Little, and she hastened on, followed by Henny Penny. Turning up a shady lane they met Cocky Locky.
"Where are you two going?" asked Cocky Locky.
"Oh, we are going to tell the King the sky is falling," answered Henny Penny.
"How do you know?"
"Chicken Little told me," said Henny Penny....

I won't go any further as you probably get the idea of how all the critters introduced into the story got worked up.  (and I truly detest the story, never did like it..., even when I was a kid.)

After getting a gaggle of other animals involved and a resulting stampede to see the King, finally the wise King found the pebble on the head of Chicken Little-- soothed her fears and the world was all right again. If only that would work today!

The solution for high prices, is high prices. It makes no difference if it is wheat, corn, oil, or Euros.

When wheat hit $24.00/bushel this spring, the highly paid “Chicken Littles” out there were saying that it could never go down again, that we would never see the underside of $10.00/bushel in that type of wheat again. The same exact wheat was trading at $9.28/bushel just two months later on the same exchange. More than a $14 drop.

I bet some huge multinational grain companies, most of whom are located in my city were able to price some wheat at some great prices, being the intermediary of both the supply and demand as they are. They might even encourage a “Chicken Little” or two to get that kind of return so quickly.

Supply and demand works. It is the true solution to the inflation “problems” everyone is facing. You make it possible for an idiot to start growing corn and make enough in one year to buy a lear jet, there will be droves coming to do it. At current prices, you could make money growing corn seeding it by hand.

Prices will moderate.

The currency markets have been choppy this week, with most financial behemoths deciding that not much has really changed in the long term picture for any of the currencies.

That is this week.  They will probably change their mind next week.

We are still in two FirstStrike trades, long the Eur/Usd and short the Usd/Chf.

Current equity is $782.50.

Recap tomorrow.

Joel Rensink

PS: To receive the FREE! trading rules for the Infiniteyield Forex Challenge ($499 value) and the semi-monthly newsletter about this challenge, send an email to: and tell me to which address you would like it sent. Please do not use AOL, Yahoo or Hotmail addresses. Nothing personal, but they've been known to filter out more good mail than actual spam. Try a Gmail address. It's free, simple and perfect for traders!

No comments: