I have to chuckle in amusement at the notion that is circulating so widely out there whenever we see one of these black box selling binges that commodities are "overpriced". My question to these self-appointed price experts is; "How do they define overpriced?" As I have been repeatedly showing, many of these commodities, when adjusted for inflation, are NO WHERE NEAR overpriced on an historical basis As a matter of fact, even after the move higher many are still ridiculously cheap. Many are complaining about $5.00 corn and want it to go back down to a "reasonable" $3.50 which while still high compared to historical levels would wreck less havoc upon the market. But $3.50 corn in 1980 for example, is equivalent to $9.16 in today's money. Does anyone in their right mind believe that farmers' costs have not risen in 28 years time so that they should still be getting $3.50 for their corn? Even soybeans closer to their historical norm near $$6.00 in 1980 should be worth $15.70 in today's prices. As my good friend, grain expert, Greg Pickup is fond of saying to skeptics; “Would you like to get paid your 1975 salary of $15,000/ year and live off of that today?”
 
Granted these are very crude calculations which leave out demand and supply factors but it is to make the point that no one can tell us with authority that prices are "too expensive". Those who hubristically do so, are ignorant of currency debauchment and the ravages let loose by the same. Try pricing corn in terms of Euros or even in terms of Chinese Yuan or Korean Won. It is not all that expensive even after moving higher in Dollar terms. If you consider that the Euro has moved from near .88 to 1.50 since 2001, an increase of  70%, so what if corn has rallied from $2.00 to $5.50! In terms of Euros it is still quite reasonably priced on a comparative basis. Their strong currency has negated a large portion of the price increase. It is hard for most US based traders who are so narrowly focused on commodities in Dollar-based prices to grasp the fact that these commodities are traded on a GLOBAL basis and that the collapsing dollar has had enormous implications when it comes to pricing.
 
Also don’t forget that waiting in the wings for these price setbacks are sovereign wealth funds with massive amounts of dollars to get rid of as well as even here in the States, entities such as Calpers (California Public Employees Retirement System) which was reported to have been given Board approval to invest $7.2 billion in commodities by 2010. To give you an indication of how much of an increase this is, their current allotment is reported to be $500 million. The amount of money sitting on the sidelines waiting to come into the commodity sector is simply mind-boggling!
 
By the way, once some of these markets got wind of that Calper story in particular, specs bid up prices which brought in the schizophrenic hedgies who are now bailing out. The SWF’s (Sovereign Wealth Funds) and the big pension funds like Calpers are not as stupid as the hedge fund managers. They wait for setbacks in price to buy and do not trip and salivate all over themselves chasing markets higher like the hedge fund geeks and their black box algorithms who are perhaps the clumsiest, most inept traders when it comes to execution that the financial world has ever witnessed.

I will give you an update on the Commitment of Traders reports later on this afternoon or evening as time permits. I repeat what I said yesterday and earlier this week, the spec longs had the commercial silver shorts trapped and on the run and they let them off the hook this week. In another day and time, when trading decisions were not based on black box algorithms, strong handed longs would have bled the trapped commercial shorts to death. Too bad that they let their computers do their thinking for them and are now checking their brains at the doors of the trading office upon arrival each day. Trading is a ruthless game, check that, it is outright war, and the one thing you learn in war is to never, never let your opponent regroup after you have him on the run. Ask the generals who tried doing that with Bobby Lee before Ulysses Grant came along if that was a tactic that engendered much in the way of success!

Dan