I'm not the kind of guy who goes on about the mainstream media (MSM). Sure, they get some things wrong, they are overly conflictual, and they are horribly biased against Trump. But unless they impinge on what I know best, I usually don't talk about them.
However, they are getting things absolutely wrong on the impact of the China trade wars on commodities. Here are two headlines from today on the same MSM homepage:
U.S. LNG exports to China slump as buyers look elsewhere amid trade spat
Tellurian plans to start building Louisiana LNG export plant in 2019
Now these are pretty much contradictory. No one would build a new LNG terminal if the major customer is saying no.
The point being missed is that LNG, like soybeans, is a fungible commodity. Brazilian beans are virtually identical to US beans. If China still needs beans, and they do, they will buy from Brazil. So who do Brazil's usual customers buy from. The US of course.
Now there still will be an economic loss to American farmers, mostly because of transportations inefficiencies. But that's small. Longer term, if this encourages S. American farmers to plant more acres, that will also be a loss. That won't happen at current prices, and if prices go up not for the next couple of years.
The recent bear market in corn/beans has somewhat coincided with the China spat, so the MSM have played it that way. It's conflictual, and it's a dig at T. But something else has happened during that time - wonderful weather and a beautiful, low-risk crop. That's what really did it.
I say this because I think we have made a bottom in corn/beans. Actually corn is a fair ways off the bottom. The crop is not only good, it's early. So we had an early bottom in mid July. Now the market is going to look at demand, which is good.
I'm long corn, although beans may actually be the better item here. I'm also long agricultural equipment suppliers DE and AGCO (via short puts)
Trading is not about being right.Trading is ba game of math.It is about finding setups that offer you a good risk/reward and pulling the trigger.
ReplyDeletefinancial advisory company
Yes, you should not comment on the "mainstream media" because what you are saying suggests that you do not understand modern media sociology or at the very best you view the MSM as some kind of homogeneous blob. Which it is not.
ReplyDeleteThen you cherry pick unrelated items from the not-to-be-named MSM homepage which provides more proof that you do not understand the nature or the role of modern mainstream media.
These daily news outlets are primarily reporting news and not analyzing events. These news outlets are not working on technical and peer-reviewed papers that might take anywhere from 6 months to 3 years to be published. Journalists are generalists and typically lack the mathematical and technical background necessary for a better understanding of markets.
LNG is not all sold in the spot market. Transportation costs may not matter that much but transaction costs do.
That said, treating soybean and to a lesser extent LNG as fungible commodities is probably the correct first blush treatment of these markets.
Treating oil as a fungible commodity and down-playing the Iran sanctions is probably also the correct first blush treatment. But if you stop there, you completely miss the geo-political, military, investment and technology factors that will likely contribute to higher oil prices near-term and much farther down the road.
You could have written this article and commented on how the media misunderstands markets without hinting at your what appear to be partisan-inspired views. Daily news reporting media have been getting economic and financial matters wrong for a very long time, long before President Trump was elected.
Does overtly politicizing these 'fungible' commodities make markets less or more fungible? I would think less as it introduces the potential for additional political criteria to play a greater role in international trade.
The Trump administration is doing long-term damage to the American brand -- a capital concept -- and those consequences will be felt in every area of international endeavour including trade and foreign investment.
best of luck -Erik
In the last few weeks I have seen this argument in several business media. So maybe it just takes some time.
ReplyDeleteI do think you are being too charitable about the news media. In an era of little job security, it is imperative for a journalist to get the clicks/views. In many outlets, they get paid directly on this. Two good ways to do this are by stoking controversy and by scaring the viewer with worst case situations. I know a number of business journalists, and I know they are somewhat economically sophisticated. But they have to get the clicks.
The media have always had an adversarial relationship with people in power (speak truth to power), but the relationship with Trump is a whole nother level. There are professional, principled journalists who freely admit that they give the news an anti-T slant.