FITTING IT ALL TOGETHER (or Economics 101 in a nutshell)

Here is an encapsulated generalized view of markets and trading:

Try to develop an inter-market view of how futures markets correlate with one another. Cows are fed grain to fatten them up, so when grain prices rise, expect higher meat prices — ergo, be ready to trade from the long side.

If meat prices go up, then so should other food prices like cocoa and sugar for candy bars.

Orange juice, coffee, and pork belly bacon are served for breakfast with eggs, and wheat toast is buttered with (ugh) corn oil margarine. If corn prices rise, the demand for wheat will rise, and both wheat toast and corn oil margarine will rise in price. Lesson: favor grains to the long side.

Half-witted politicians think they are being ecologically responsive by pushing for ethanol, but all this does is push the price of corn higher, then the price of meat higher, and finally the price of a lot of other things higher. Why do I call the politicians half-wits? Because anyone with even the smallest amount of knowledge knows that all you can get from corn as an energy source is exactly what you put into it. One unit of energy in and one unit of energy out.

If the trend in gold and interest rates has been declining, deflation is prevalent. Be ready to trade bonds and notes from the long side.

The opposite trends apply to inflation. When the prices of gold and interest rates are rising, expect most commodities to follow that trend, except independent currencies and the stock market, which decline with rising rates.

Manufacturers increase profits two basic ways without the need for increased efficiency: by lowering labor and raw materials costs, or by raising prices.
When inflation is prevalent, higher raw material costs are passed on to higher finished product costs to maintain a fixed profit margin. The Producer Price Index, PPI, usually increases before the Consumer Price Index, CPI, does. Factory utilization over 85% is thought to forecast rising inflation as well.