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CATTLE TODAY

COMMODITY INSIGHT

by: Jerry Welch

November 23, 2007--The holiday weeks of Thanksgiving and Christmas tend to be yawners for all markets because there is only a half session of trading the day before the big day, no trading on the holiday itself and another half session of dealings after the big day is over. All of which makes for at least a three day weekend. Investors and traders seldom place big bets because volume of trade is thin, trading is literally stop and go for days, the end of the year close at hand. And new, long term trends are seldom started nor ended during the holidays. Yet this week, Thanksgiving arrived and two big events unfolded. The first; crude oil prices closed at a new all time high of more than $98 a barrel. Because crude has become the, "stick that stirs the drink" anyone with money tied up in any market, be it stocks, bonds, currencies or commodities needs to understand the implication of $98 crude oil. In theroy, it is exceptionally inflationary for commodities. The second event; the dow jones posting a "dow theory sell signal" when the market closed under the August low of 12,845. The drop took place Wednesday, when the dow fell 211 points to close at 12799, a seven month low and down nearly 10% from the record high set a few months ago. Here too, anyone with money tied up in any market needs to understand what could lie ahead if the "dow theory sell signal" proves to be a prophetic because it is highy deflationary for stocks! One widely followed service says, "...a reason to pay attention to the Dow

Theory: it's long term track record is good. Confirmation comes from none other than the Ivory Tower, which traditionally has pooh-poohed the notion that the stock market could be timed. Upon testing...the Dow Theory over the nearly 70 year period from 1930 to the end of 1997, they found it beat a buy and hold by an annual average of 4.4 percentage points per year." The Los Angeles times in an article dated November 23 says, "Wall Street is beginning to face its primal fear; that the 5 year old bull market may be over with oil prices at record highs, the dollar plunging, consumer confidence falling and no end to the housing slump in sight." The same article went on to state that some investment pros are convinced, "that stocks have begun a bear market, meaning a decline that would ultimately slash at least 20% from major indexes such as the Dow." Stock market investors may be wringing their hands about the problems facing the economy this holiday season but those participating in the energy, metal and agricultural markets are enjoying an incredibly bullish year all due to a weak dollar and the fact the, "stick that stirs the drink" shows no sign of running out of steam. But as I have mentioned several times, my work shows that most commodities are overvalued, long overdue for a meaningful set back and with economic weakness weighing on the dow, the same fate should soon be in store for hard assets. Being bullish high priced commodities with a strong economy is one thing. Being bullish high priced commodities with an economy some feel is on the verge of a recession is entirely different matter. How bad are some viewing the situation facing the U. S economy? Some fell it could become very bad. The Chief investment officer of PIMCO, the worlds biggest bond fund is Bill Gross. When asked about the mortgage crisis and if it could get worse he said, "we haven't faced a down turn like this since the Depression. It's effect on consumption, its effect on future lending attitudes, could bring us close to the zero line in terms of economic growth. It does keep me up at night" he went on to say. Fortunately, the Fed is willing to cut rates quickly to offset whatever problems the economy may face. Lower rates will lend long term support to stocks as well as commodities. But it is too soon to say if the rate cuts already given will succeed in time to avoid a recession. In 2001, for instance, the rate cuts were too few and too late and could not forestall that years recession. Wednesday's, " dow theory sell signal" is scofted at by many because it was flashed during the holidays, a period of light dealings and stop and go trade. But maybe that is the markets holiday gift to investors and traders giving them a peek at what lies ahead in 2008. Or, maybe the signal was a head fake. Only time will tell.

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