Bottoms last months, tops last minutes
While market tops seem to last minutes or hours, market bottoms generally last months or even years. Since November, markets have rallied back about $1 in corn, $1.50 wheat, and $2 soybeans only to lose most of that from January to today. Nov09 soybeans have pushed back to their 2008 fall lows, and now many of the other grains aren't far from these targets.
This is consistent with the old idea that bottoms last months, while tops last just minutes or hours. That might be the best news we have right now, as markets of all kinds (not just grains or commodities, but stocks as well) are pushing near recent lows. Stocks have dropped to new lows, with both the S&P 500 and the narrower Dow Jones 30 Industrials dropping to new lows this week.
That leaves open two possibilities for markets right now:
1) Markets slip into new low territory, with the next target at much lower levels in nearly everything (like $2 corn, $6 soybeans, and $3.50 wheat as well as a DOW at 4000). In other words, a prolonged recession which becomes a depression.
2) Markets bottom where they are, with grains possibly hitting a double bottom with the fall 2008 lows and rallying from there. The DOW and S&P would have to rally from here, pushing back above 7000 and reversing recent losses to make it clear it was just a bear trap!
Lets look at these two possibilities and relate what they might all mean. The first case is an economic disaster, with the housing crises not only bankrupting many banks, but also spreading to every other area of life such that it puts almost every investment on the planet in jeopardy as nearly everything would suffer dramatic depreciation above and beyond the economic devastation that has already occurred. Not only that, but fear and dismay would become the predominate economic drivers of decision making - not the kind of environment you'd want anyone to live in. Putting money under your mattress might be the best investment on the planet not just for months, but for years! That could cripple economic activity, and the US might take decades to recover from this disaster - much like it did in the 1930's depression era. Many people believe this is inevitable now considering all the terrible economic news the US has experienced in the past 6 months. Given the current status of the US economy, one cannot argue that this is becoming more and more likely each passing day.
The second possibility is the most positive outcome at this juncture, with a turnaround in the next few months that could propel the US economy back into a strong position. This is what the Obama administration is cheering for, and also is backing up with some rhetoric (such as the 'buy stocks now' comments by our fearsome leader). However, it is going to take more than words, but eventually some actual signs of recovery for the public to buy into this deal. Given the sad current state of affairs, perhaps the best we can hope for is stability for now, which can then be followed by improving performance which can lead to a recovery.