Jim Cramers Real Money Sane Investing In An Insane World
MANAGING THE DOWNTREND
If the soybean market was trending downward, the inventory manager would not build inventory. The inventory manager would buy from hand to mouth because each subsequent purchase would be made at a lower price. Patience may pay off, but at some point abundant supply fosters increases in usage and increases demand. A base is eventually built and prices level off.
MANAGING CONGESTION
What does the inventory manager do when prices are in a sideways or consolidating pattern? As prices move in a channel, the buyer perceives the top of the price channel as being too high or prohibitive. The buyer backs off. Prices move lower and become a "bargain." The buyer steps in and his buying generates support at the bottom of the channel.
Eventually something upsets this pattern. It could be some fundamental news, such as a drought or news of record yields. The supply-demand scale tips one way or the other and a new trend begins. Your emotional or instinctual reaction to price changes is a valid input. After all, the market is the sum total of all the players' reactions to what has happened, what is happening, and what everyone expects to happen. In short, it can be said that a commodities futures price is the composite opinion of all market participants and influencers.
GET THE RIGHT HAT ON!
When you put yourself in the position of an inventory manager, you must first give some thought to the specific situation you'll be facing. An inventory manager can just as easily represent a country as a company. Therefore, you want to match the commodity and the situation with the inventory manager's motives. If you are looking at the long-term outlook for grains, you may want to look at the situation from a variety of viewpoints. Then you will be able to anticipate what each player will do and the cumulative impact on the price of grains.
The motivation of the inventory manager from a South American country, which is a net exporter, differs substantially from that of an inventory manager of an Eastern European country, which is a net importer. You must also sort out the political motivations of countries like the United States, which has a history of using food as foreign policy. In our current situation, the grains appear to be making a technical bottom. What is going through the minds of inventory managers around the world?
