An Urban's Rural View

Why There Could be More Volatility to Come

Urban C Lehner
By  Urban C Lehner , Editor Emeritus
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By the time you read this, markets may have calmed down. Then again, they may not have. The scary volatility we've been seeing could well be with us awhile.

Wall Street was down more than 3% Friday and is now 10% off its highs in May. (It was down another 4% Monday). Oil fell 2.5% metals collapsed, and the damage spilled over into cattle and hog prices. The Vix, which measures volatility, rose 46%. Is this the start of something big?

Probably not. A rerun of 2008 doesn't seem to be in the cards. But that doesn't mean the immediate future looks pretty.

If greed and fear are the two main movers of markets, uncertainty ranks a close third. As investors scan the global economy, they see a lot to be uncertain about.

The big worry is China. While the country represents only 15% of the world economy, it has been providing 50% of the world's growth. China's slowing economy and stumbling stock market have spawned worries that its captains aren't up to the task of righting the ship. Compounding investors' unease, other developing countries are teetering, too.

Unlike 2008, this is an economic swoon, not a financial meltdown. Reigniting growth isn't easy, but it's easier than bailing out banks and dealing with the aftershocks of a financial crash. In the U.S., at least, corporate profits and the economy generally are still growing. While it's possible our stock market will venture into bear market territory, it's also possible we're experiencing a bull-market "correction," a pause before heading up again.

Commodities are more vulnerable to the developing-world demand downturn and cascading currency devaluations. What the China boom giveth, the China bust taketh away. That's especially true for oil and metals, but agricultural commodities are also at risk. Yes, people have to eat, and yes, China can still afford to import edibles. But who really knows how much has been stockpiled?

And who really knows how seriously to take the rumblings of a leadership struggle in Beijing? The New York Times reports that in the past two weeks, "Two leading official news outlets have published unusual editorials hinting at internal turmoil (…)." President Xi Jinping, it seems, is using the government-controlled media to fire warning shots at powerful critics of his economic management.

In a political system as opaque as China's, it's impossible for outsiders to know what's going on. But something clearly is, and that has to jangle investors' already frayed nerves. Meanwhile, there are no signs yet of a Chinese economic turnaround.

It all adds up to continued fear, continued uncertainty and the possibility of continued market volatility.

Urban Lehner can be reached at



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Freeport IL
8/24/2015 | 9:40 PM CDT
It is easy to disagree with those "in the know" but it is much harder to prove their point of view wrong. Their point of reference generally comes from some use of a vast pool of personal experience not hard fast debatable numbers. (Our point of view comes from an "attic" that is mostly lit by a low watt bulb but every once and a while flashes with a light that seem to provide a seemingly clear view. The source of that light might be an old disco strobe from our dancing days but that has yet to be confirmed.)) When we talk of China, with our farmer hats on, our main issue is Soybeans. The drop or for that matter a rise in the Chinese currency (Yuan) relative to the dollar does not change the relative advantage or disadvantage of the US to export to China. Soybeans tend to trade off the CME price in dollars. So a weaker Yuan increases the cost to the Chinese but does not change our advantage to other counties - like Brazil. Local country of origin basis and transportation determines Chinese port of origin. The relatively small change in cost from the currency change has been out paced by the general drop in soybean price. The net result should/could/might be stronger Chinese demand not weaker. Brazil economically and politically is a much bigger mess then China. The situation there might find Brazilian growers using a hedge strategy of withholding soybeans from the market to provide protection from inflationary and currency issues. This would be a similar approach to the one used by the Argentinean soybean growers. (Some say our strong soybean meal prices and demand are related to the Argentinean's holding their soybeans from the market.) This hedge would be most effective with a declining real against the dollar. The generally good soybean production here and expected larger planting in Brazil should/could/might continue to place pressure on soybean prices. Any benefit from Brazilian growers holding of new crop soybeans from the market, may not be indicated until February of 2016, if it occurs at all. The Chinese economy has been blamed for the general decline of all markets. This has resulted in a "Risk Off" investment strategies. Time and new news will be needed to turn the switch back on.China's current or future economic position, from our point of view, will not change their soybean demand. But the issues in Brazil could/might provide and unexpected boost in the demand for our soybeans if conditions continue in their current direction. Freeport, IL