Random Musings: How now my dearest MooMooCow?

Pretty interesting Saturday Morning.

On Business Times, two articles caught my attention.

1. JP Morgan cuts Asia stock index targets
2. Sell Asian currencies, advises Morgan Stanley

JP Morgan wrote

• JPMorgan strategists trim Malaysia’s Kuala Lumpur Composite Index target by 7 per cent to 1,500
• “Investors’ focus needs to move to increasing policy risk as governments manage a poorer growth-inflation balance,” the report said. “The downside risk is that higher inflation reduces domestic demand and investment, as disposable income and profit margins are squeezed.”

And the following was said about the currencies.

• “As soon as growth decelerates, policies should shift to protect growth” as Asia is not single-minded about inflation risks, the analysts said. “For the first time in two years, we are recommending that investors be cautious about short US dollar-Asian ex-Japan positions.”

Yes, USDollar is showing some signs of 'strength' yes?

Market commentator, Tim Woods, posted the following technical commentary on the USDollar. A Brief Cyclical Overview of the Dollar

• Now, that being said and as I referred to in the introduction, it is important to also understand that cycles can contract, they can expand and even skip a beat now and then. It is for that reason that we must look at averages, and in the case of the dollar, the dominate long-term cycle averages 47 months from low to low. Based upon this average, this cycle is ideally due to bottom a bit later this year. However, there is also more to cyclical analysis than just looking at an average and counting from one point to the next. There are also shorter-term cycles involved and the interaction or phasing of those cycles with the longer-term cycles as well as indicators and statistics that are used for confirmation. Not to get too complicated here, but there has been a clustering of cycle lows converging just ahead of that 47 month mark, and it is for that reason that I now feel there is a reasonable chance that the dollar could have made an important low. At the very least, that opportunity now exists. Understand that I am not in any way suggesting that just because we have seen a few good up days in the dollar that it is completely out of the woods. These up days were a good start, but there are other cyclical and statistical benchmarks that must be achieved if this advance is to continue.
  
  The other reason that I feel the dollar could have made an important low is because there is coincidentally a clustering of cycles merging together that could also mark an important top in commodities this year. This too, is something that I have been watching and expecting for several months now and the cyclical and statistical hurdles for the potential top in commodities is coming just a bit later this year. This too is something that I have been and will continue to watch very closely.
  
  In the meantime, the 3-year cycle in the CRB is still positive at this point. The dominate long-term cycle in gold is a 9-year cycle and it too still remains positive as of this writing. Just know that we are now in a window in which things could begin to change and the cyclical and statistical developments over the next several months will be key. I also want to make it perfectly clear that just because we have this long-term cyclical turn points nearing, does not mean that these turns couldn’t be short-lived. The bottom line is that we are moving into a window in which we could potentially see these longer-term cycles reverse. Whether or not these reversals will be long lasting or if we will once again see cyclical failures followed by yet higher commodity prices and still a weaker dollar will all depend upon whether or not the statistical and cyclical hurdles are cleared.

So are we seeing the reversal of this current cycle? And if so, this could weigh heavy on the commodity bull.

Commodities Boom Over? Not So Fast, Experts Say

• With the resurgence of the stock market and sudden strength of the dollar, many investors are sensing that the meteoric rise of energy, agricultural and mineral commodities prices is nearing an end.
  
  Not so, say commodities experts. Despite the recent pullback, long-range global demand and strong fundamentals are expected to keep commodity prices aloft.
  
  True to form, many commodities, including oil and gold, posted solid gains Friday after being battered for most of the week.
  
  "We are seeing some pullback," says Weiss Research commodities analyst Sean Broderick. "But nothing goes up in a straight line. The long-term fundamentals of the dollar are still pretty bearish. I expect a short but sharp rally in the US dollar. I expect it to run out of steam and then I expect the commodities trade to continue."
  
  Though most agree there is a pullback, expectations differ on how long it will last. A weak US currency helps dollar-denominated commodities, though growing international demand also is boosting prices. So with the dollar seemingly headed toward a period of strength, a lot will demand on how much demand there is for a particular commodity.
  
  On Friday, for instance, oil prices rose despite a stronger dollar. The reason: positive US economic reports fueled speculation that demand will remain strong.
  
  Analysts believe grains like corn and soybeans will trend higher while wheat is likely to slip. Silver and copper are seen as solid plays among the metals, while gold is likely to trade in a range. And oil is expected to slip some before renewing gains later in the year.
  
  Broderick thinks continued economic weakness will push the dollar back down, making the commodity pullback brief. Jeffrey Christian, an analyst at CPM Group, sees the pullback lasting through the second and third quarters. Quincy Krosby, chief investment strategist at The Hartford, believes the decline will last as long as the dollar rebound, which was sparked this week by expectations the Federal Reserve has stopped cutting interest rates.
  
  "We really don't know," admits Darrin Newsom, grains analyst at DTN. "The larger picture of the dollar index looks like it's stabilizing. This is starting to draw some of the money back. Is it all going to rush out of commodities at one time? I don't think so. But I think it's already beginning to draw out of commodities."
  
  Global demand from developing nations will at the very least keep a floor beneath most commodities. Governments in Middle Eastern countries are building entire cities. China wants to become a world player in terms of commerce as well. Brazil and India are continuing their movement toward economies that embrace free-market principles more broadly and are demanding oil, wheat, copper and other supplies to forge ahead.
  
  All of which makes for a healthy commodities market, if not for the short term than at least over the long haul.
  
  Broderick sees oil prices hitting $157 a barrel but likes natural gas even more and plans to buy should there be a sustained pullback.
  
  Broderick also sees copper as a strong play with its demand from manufacturing, while also liking silver for a second-quarter rally.
  
  "If we've seen the bottom in the US economy that means that our demand for overseas goods will ramp up again, which means their economies which are already in overdrive will only accelerate," he says. "That means global demand in commodities will keep accelerating."
  
  Corn as a Wild Card?
  
  Krosby is less bullish on commodities, contending that investors must still keep them in their portfolios but recommending that they limit their exposure going forward. Emerging markets are a "crucial" element of the trade right now, she says.
  
  We would be trimming our positions but we would still have exposure to commodities," Krosby says. "If, however, you start to see data points suggesting that growth in emerging markets is coming down substantially you're going to see even more of a selloff--but we're not expecting that. We do see signs of a slowdown in emerging markets, but certainly not one that would suggest a recession-like environment."
  
  Demand for ethanol will see corn's prices stay high, she says, while Newsom also identifies soybeans as a strong crop due to foreign demand. Corn is particularly tricky as it had a late start to a growing season that is supposed to be wetter than usual this year. That could act as a severely bullish factor for prices that have nearly tripled in the past two years and risen 18 percent in 2008 alone to more than $6 a bushel.
  
  "If there's a market that could still act as a wildcard it is the corn market," Newsom says. "Not only are we going to have fewer acres ... but the weather has been less than cooperative. ... The market remains a bit on edge. While we had been predicting ($6.50) for quite some time, there's a lot of talk about blowing through that top."

How?

Rather tricky period, yes? One on hand, it looks like we have seen the worse, and it looks like the train is leaving.

• “We’ve seen a 50% retracement of the market’s losses, a 10% rally, and we’re 10% away from new highs,” says Steve Goldman, market strategist at Weeden. “The lower fruit has been picked. ( link here )

And the ever popular Richard Russell's newsletters are rather bullish and insist that we have seen the bottom!

• But Russell's market timing is among the best of any that the Hulbert Financial Digest has tracked over the last three decades.
  After Wednesday's stock soufflé sagged, Russell said flatly: "Until proved otherwise, I'm going on the assumption that we've seen the bottom for this market. I have to think that the market has fully discounted all the bad news. The only thing I think would break this market down would be a total surprise such as 9/11 or a sudden war or something in that order." ( link here )

However, there are many who are still not convinced.

• According to the poll, which was prepared for Business News Network, 78% of Canadian Chartered Financial Analysts (CFA) said they believe so-called safe investments no longer have the same reputation. The biggest concerns expressed by individual investors were doubts about the U.S. market and economy due to issues surrounding sub-prime mortgages and the shrinking availability of credit.
  
  “Investors feel that uncertainty about the future is the biggest reason for market volatility,” said a respondent. “They wonder if all of the bad news has been discounted or if there is more 'out there' that has not yet been fully reflected in stock prices.”

How now my dearest MooMooCow?