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Soy Roy: Rally Ends When Barber Asks About It

04/17/2014 @ 2:58pm

Yesterday, I had a phone call from an individual I hear from about once a year. His occupation is remotely connected to the markets. His interest is the equity markets, not commodity futures. He asked a very simple question. How long do you think that the stock market rally will continue? It was easy to answer that question because he asked for an opinion, not a fact.

It was easy to respond. My reply was that prices will continue to go up as long as the public is afraid to invest.  When the public is comfortable in putting their money in the market and small traders rush to get on board, the party will be over.

A good friend of mine who has farmed all of his adult life once told me that when your barber meets you on the street and asks how to get long corn futures, it is time to sell. This philosophy is the background for one of my marketing anecdotes about two farmers who trade a worthless old horse back and forth instead of putting the horse to sleep.  With each transaction the price got higher and higher. Finally the price reached an astronomical level. On that day, a city slicker stopped at the farm and bought the horse for the going price of a $1 million.

The farmer who was left out of the trade was naturally mad. However, he had his half million to soothe his disappointment. The fortunate first farmer replied “One of these days the horse was going to die, and we would both be out of business.”  

My IRA includes a small account that contains a portfolio of common stocks. There is risk of losing money on that investment. When there is a break in the stock market, my equity will shrink. However, today the investment looks sound. I am no more of an expert in investing than most stock brokers are experts in soybean futures. However, just like the story of the worthless old animal, someone is going to own that horse when it dies.

The soybean market could be headed for a “dead horse” move. It will happen one day. One needs only to study charts of soybean prices in previous years to see that such moves are not rare. This is why I am a believer in incremental sales throughout the marketing year. The “dead horse” theory is a little more difficult in the stock market because of the need to continue generating money for college tuition or retirement. However, with either stocks or grain futures, it is important to remember that no horse - or price rally - lives forever !

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