Concerned Cotton Comments

Posted on September 30, 2008 at 08:04 AM EDT

For a while now I was unable to see the forest for the trees. However, stuck as I was I took off a few days and gained fresh perspective, I hope not too late. You all should know that traditionally, cotton and copper have been strong leading economic indicators of the health of industry. I failed to recognize what weak cotton prices were telling us. Instead I was too focused upon the supply side of things and caught up in the competition for acreage thing (along with so many others). With grain prices so high, I felt it only a matter of time before we'd see demand surface and in turn serve to strengthen cotton prices. I was wrong. Right now I need to think like everyman. And right now everyman isn't buying anything. Across the board demand is imploding! Congress voted down the "Bailout" sending all of the markets into a nosedive. The December S&P 500 was down nearly 9%. Commodities followed. For now, that is all that can be said. All commodity markets are linked to the stock market at this time. The credit markets have stopped functioning properly and there are just way too many people afraid of counter party risk. The dilemma now is that the financial problems from Wall Street are spilling over to an already weakening U.S. economy and throughout the world. The American economy is the engine that runs the world. With the engine broken¡ Demand is being destroyed. The stall in credit is seizing up the ability order goods and services. Business is coming to a stand still. Blame will be placed, the media and politicians will see to that. But blame is not what we need right now, leadership is. Commodities will mostly follow stocks for now but they could go down on their own as the trade will have a tough time finding financing for positions. Also, watch out for long only funds to liquidate. Coffee and Cotton are especially vulnerable to that. I have no idea what fair value is for the stock market, but I can tell you that commodities will trade off of stacks and if there is a bounce possible then commodities could bounce as well. However, with demand stripped and fund liquidation likely, any bounce is a selling opportunity. Commodities across the board should weaken. Even more important than buying troubled mortgages, is the issue of transparency. The US economy is the world's most transparent. Therefore look for other economies to experience similar results. Banks are afraid to make loans to firms that may be hiding debt surprises in the balance sheet. Restoring confidence to banks, they say, is the real key to restoring liquidity throughout the system. And without a "Bailout" package in place I fear things will only get worse. Jurgens H. Bauer jurgensb@gmail.com trading floor: (212)-748-3898 cell phone: (973) 652-4694

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