Commodity Insight: More March madness

A few days ago, former President Barack Obama, a basketball junkie, said “this is the best time of the year.”

What he was excited about was the fact the NCAA Division 1 men’s basketball tournament is played each March to determine the national champion. The tournament is called March Madness. Obama loves this time of the year.

This year, the tournament was sheer madness with historic upsets. From CBS Sports: “No. 16 seed Fairleigh Dickinson pulled off the biggest upset in NCAA Tournament history Friday night, taking down No. 1 seed Purdue 63-58 in the first round of the East Region. The Knights became just the second No. 16 seed to take down a No. 1 seed in the history of the men’s tournament, but that is just one layer that makes this historic result the biggest upset in the history of March Madness.”

Few would have guessed that Fairleigh Dickinson would beat Purdue. But at least one person had a hunch and he bet on it.

From Bleacher Report: “Fairleigh Dickinson pulled off one of the biggest upsets in college basketball history when the 16th-seeded Knights upset No. 1 Purdue in the NCAA men’s basketball tournament. At least one person had a strong hunch on Tobin Anderson’s squad. A $33,000 bet on Fairleigh Dickinson netted the person $495,000 at DraftKings Sportsbook.”

Is that madness or what!

But there was also more madness in the marketplace with the entire Big Four: stocks, bonds, currencies and commodities.

The month of March began in a nervous state and a bearish bias because the Federal Reserve was hiking rates at the fastest level in 40 years in an effort to fight inflation.

All markets were squirming as the Fed and most other major central banks were pushing rates upward in coordination. And then out of the blue a banking crisis unfolded in the United States and it quickly spilled over to Europe.

The Harvard Gazette summed up the banking crisis that still has time to cause angst by stating the following: “Steps taken by the federal government to boost confidence in the U.S. financial system appear to have contained a potential banking crisis after the collapse late last week of Silicon Valley Bank and Signature Bank. But uneasiness remains over possible spillover effects on global finance from increased scrutiny by U.S. regulators and questions about the fitness of banks around the world, concerns that have rattled financial markets this week.”

What are some of the spillover effects on the Big Four that unfolded due to more March madness?

To name just a few: Cryptocurrency investments lost 10% of assets, the largest exit in history. Crude oil prices, after kissing $130 a barrel in early 2022, fell to less than $65, a 17-month low.

Cattle futures fell to a three-month low. Hog prices hit a six-month low. Copper a two-month low. Silver a five-month low.

The two-year Treasury yield posted the biggest three-day decline in 36 years — yes, years.

Dow futures hit a five-month low. And the CRB index, that is to commodities as the Dow Jones is to equities, fell to levels not seen since late 2021.

The banking crisis sparked huge selling by the fund managers that follow technical or chart signals, causing them to adjust their market positions.

By any measure, the bank failures are viewed as a black swan event, giving the Fed reason to pause with further rate hikes.

But will they do so with so much more March madness blanketing so many different markets? Or, will they pivot and actually cut rates by June to take pressure off the economy and the banking system?

In 2001, Nassim Nicholas Taleb developed the black swan theory. According to Wikipedia, “Taleb is a Lebanese-American essayist, mathematical statistician, former option trader, risk analyst and aphorist whose work concerns problems of randomness, probability and uncertainty. The Sunday Times called his 2007 book, ‘The Black Swan,’ one of the 12 most influential books since World War II.”

This week, despite the banking crisis, the Fed lifted interest rates another quarter percentage point. It was the ninth hike in a year.

However, the Fed went on to state it has penciled in one more rate hike and then a long pause with further hikes is likely. Actually, cutting rates may be more appropriate.

It was that portion of the Fed statement that I viewed as a bullish and a positive for the commodity markets moving forward.

The Fed is taking their proverbial foot off the neck of the economy just as the first quarter comes to an end.

As I wrote last December, I am bullish on the commodity markets once the first quarter comes to an end. And I hope not to read about, hear about or experience any more March madness for another year.

This March was simply madness on the basketball court with major upsets and with the entire Big Four — stocks, bonds, currencies and commodities — as well.