Futures' friend of the program and long-time contributor Jeff Greenblatt (aka Fibonacciman) is an expert at measuring market price/time cycles. He has written often on Gann, the importance of price/time cycles and made several on target calls.
He has a theory that often major (and sometimes not so major) geopolitical events tend to occur around these cycles allowing the business media to manufacture a cause and effect scenario. He, of course, is more technically and cyclically focused. He has written several articles on this and participated in panels explaining his theories.
I thought of this today as I was looking through various market stories on the newswires. Nearly every market story, whether talking about bonds, equities, energies or grains attributed price movement to a potential cease fire between Russia and the Ukraine. Now I know that Russia is a major energy producer and that Ukraine has a maze of pipelines that delivers much of Russia’s crude oil and natural gas to Europe. I also know that Ukraine is a major wheat producer and that Western sanctions against Russia affects both countries' currencies and many European stocks. However, on a daily basis over the last month things have either gotten better or worse in the region and if you don’t refresh your screen you can be reading a dated story that is suggesting something diametrically opposed to the prevailing wisdom of the fundamentals on the ground.
I also just previewed a coming story that talks about the lack of a risk premium in crude oil prices despite all of the bubbling conflicts in the region that produces much of crude oil in the world. There were times several years ago when there wasn't nearly as much going on in the Middle East as there is today, yet traders assumed a $10 to $20 risk premium in the price of crude. Why not now? Have we gotten immune to it?
Perhaps it is time to look at the real fundamentals—or perhaps price charts as Greenblatt would suggest—and not the news headlines.
Futures contributors Bob Otter and Chad Burlet pointed out in their monthly grain outlook today that Russia and Ukraine was a key area of focus for the wheat market. They noted, “U.S. wheat futures ebbed and flowed with each update of military activity or peace talks. Interestingly, the prices in the Black Sea never rallied. In fact, they ended the month slightly below where they started.”
The report went on to point out that “Both Russia and the Ukraine enjoyed record yields and harvested crops that were 10% to15% larger than what was expected two months ago.”
The war torn region creating such a fuss over here is reacting less to daily headlines than our markets.
I learned long ago that often headline writers play a game of connect the dots trying to match a price movement with the most likely headline they can attribute the move to. There may have been times when we fell into this trap as well though we always have been cautious of the prevailing wisdom. Today it was a potential cease-fire between Russia and Ukraine; tomorrow it is likely to be ‘Breakdown in cease-fire talks between Russia and Ukraine.’ The funny thing is that the actual markets won’t even need to reverse for them to make the case.