Vancouver Investment Advisor Ritch Wigham

What to think of this correction?

Well needless to say, the long awaited correction appears to be with us. We are certainly now seeing a number of stocks over re-acting in the negative. The move higher was arguably more than it maybe should have been, having said that the move back down should probably be tempered somewhat by the amount of money that was sitting on the sidelines.

This is certainly an interesting correction for a number of reasons, but primarily for its breadth. From agriculture to copper, if it comes from the earth nobody wants it right now. There has been a resumption in the attitude that the world economies are in worse shape than anticipated. I don’t believe that to be the case. I feel that the markets were just a little too optimistic with the speed that things would pick up. It seems to me that if we look at most of the forecasts from a few months ago that it wasn’t until 2010 that anything would improve in any meaningful way. It seems to me that we are right on track for that to happen.

If you remember what I said in previous posts you will recall that I mentioned how political the price of oil was. Well guess what, if you are following the hoopla right now about how the price drop back to $60.00 is manipulated we should all be getting a good laugh right now. It seems to me that we spent a number of months being told that the price was too high because there was no demand, and oil was being put into storage at a record pace. Well why would we now say that the price is out of line as crude comes back down to earth and gives the poor consumer some relief from gas prices that were out of line with demand? If there was manipulation in this last price it was all on the upside as the large fund pools entered a market that they did not understand. Economically I can assure you that $60.00 dollar crude is much easier on everyone than $70 or $80 dollar crude when your economy is trying to recover.

The same situation is happening in the grain complex. The wheat, corn and soybeans have all fallen a great deal in the last three weeks. See this chart…

If you look at the December wheat chart (same as above link) you will see a very precipitous decline in the last few weeks. These moves are only partly due to farmer or end users (grain companies) hedging in the markets. These very large swings have much to do with funds chasing trades. If you look at the market you would surmise that the crop was large, wonderful and already in the “bin”. It isn’t! It is doing fine right now but ask any farmer how he feels about the next 60 to 100 days. In Canada a very substantial amount of the crop has already been written off for insurance due to drought, in most of the U.S. the pervasive cool temperatures are starting to worry many corn and soybean growers as time to tassel and head out are quickly approaching. I can promise that if you asked them they would not be nearly as sure as the market seems to be that the crop will be as good as the low prices that are with us. Remember what I said about making and breaking a crop all within a few weeks every summer. We made the crop the last two weeks, when are we going to break the crop? Next week or the week after?

So to end this at the moment, we should all be using this last price action to get ready to enter the markets that we have been waiting for. Agriculture is cheap, potash is cheap. If you like oil at all, most of the better oil stocks have sold off much more than the crude has. This correction will be the opportunity for the vast pools of money that stayed on the sidelines as the market over recovered, from the over done lows, that it made earlier this year.

Talk to you soon

Ritch

Mackie Research Capital Corporation (MRC) makes no representations whatsoever about any other website which you may access through this one. When you access a non-MRC website please understand that it is independent from MRC and that MRC has no control over the content on that website. The content, accuracy, opinions expressed, and other links provided by these resources are not investigated, verified, monitored, or endorsed by MRC.

The opinions, estimates and projections contained herein are those of the author as of the date hereof and are subject to change without notice and may not reflect those of Mackie Research Capital (”MRC”). The information and opinions contained herein have been compiled and derived from sources believed to be reliable, but no representation or warranty, expressed or implied, is made as to their accuracy or completeness. Neither the author nor MRC accepts liability whatsoever for any loss arising from any use of this report or its contents. Information may be available to MRC which is not reflected herein. This report is not to be construed as an offer to sell or a solicitation for an offer to buy any securities. Member CIPF.