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Growing Financial Success

Contents The Deflation Monster Is Growling

Published By Hackett Financial Advisors, Inc.

Shawn Hackett, President 9259 Equus Circle

Boynton Beach, FL 33472 (888) 535-5525

Email: [email protected] www.HackettAdvisors.com

Monthly SPOT CCI Futures Prices

Convergence-Divergence-The Deflation Monster Is Growling

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If over-all commodities fail to hold the 540 level than a full retest of the June 12 lows at 500 will be seen in swift fashion. The month of March 2013 will be the tipping point either way

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CCI Seasonal Pattern

CCI/U.S. Dollar Index Price Ratio

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Despite massive money printing in 2011 and 2012, the U.S. dollar has outperformed overall commodities. This is a microcosm of a deepening global recession and building deflationary forces. We are it critical support.

Seasonal lows are typically seen in the CCI by late February/March.




CCI/S&P 500 Index Price Ratio

CCI/30 Year Treasury bond Price Ratio

The point of the above series of charts is to convey that despite massive money printing efforts and wide agreement of runaway inflationary trends in commodities, the reality is that all the commodity deflationary trends that began in early 2011 remain in place an may actually intensify in the month of March before bottoming out.

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The long term commodity inflation cycle that began in 2000 has been eroded in dramatic fashion since 2011 as stocks continue to outperform overall commodities. Is this indicative of a new bull market in stocks or forewarning an imminent stock market crash?

30 year treasury bonds continue to outperform commodities and the CCI/30 year treasury price ratio seems ready to roll over. When Treasury bonds outperform commodities it is a sign of a strong deflationary trend




My biggest concern at the moment is that stocks have entered a bubble phase that is not healthy. Everyone is chasing the stock market performance at the expense of hard assets and at the expense of sound risk management. The money printing this time around has been focused in stocks while the U.S. and global economy continue to worsen and overall leverage continues to get more dire. This is not the set up for a new bull market in stocks but likely the precursor to a significant stock market decline in the very near future. A 10% to 20% decline from current levels would be perfectly normal and would likely exert further downward pressures in overall commodities. This decline would be felt to a much greater degree in precious/industrial metals and crude oil/crude oil derivatives (heating oil and gasoline) than in agricultural commodities. CCI/GSCI Price Ratio

The CCI which is an Ag over-weighted index, in my view, began a long term upswing in relative prices to the industrial commodity complex (as represented by the GSCI which is an energy/metals over0weighted index) starting in 2008 that will likely intensify over the next 2 years as the next great global recession plays havoc with industrial demand to a greater degree than it will with the much more inelastic demand for food. Stock and commodities are showing a massive non-correlation/divergence very similar to what occurred in the 2007/2008 timeframe in reverse. Back then, it was everyone selling their stocks to chase outperformance in commodities that preceded one of the greatest commodity velocity declines in history. One should expect a similar fate for stocks once the buying frenzy burns out. However, in commodities most of the key markets are seeing price convergence that should lead to a volatility event over the next 30 to 60 days. I would like to run through some of these markets so that you can get a flavor and appreciate the critical nature of this convergence.

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Ag commodities made a long term double bottom in 2005-2008 timeframe relative to Energy/metal commodities. As we enter the next great global recession in 2013/2014, I expect another surge in the Ag complex relative to the industrial complex.




Spot Bean Oil

I am a bull in the bean oil market. The EPA has increased the biodiesel mandate by 30% in 2013 and this should increase the demand for soy oil for this function. This will be occurring at a time where bean crushing for bean meal will slow as bean supplies dwindle at a time when South American supplies will become available. This will lower the crush rate and thereby reduce the amount of soy oil produced. I see a significant supply squeeze coming up domestically for soy oil which should allow for bean oil prices to outperform soy meal and soybeans themselves. I am a bull on bean oil and expect a breakout in this market in March,

(MRCI)

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This pattern for bean oil ends in March. Something big is going to happen to bean oil. I am a bull.

Bean oil is at the cheapest level in over 35 years to soybeans. Generational opportunity.




(MRCI) I believe that going long soy oil futures or bull spreading soy oil to soybeans and soy meal should be a great profit opportunity in 2013. Spot Rice

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Rice prices have broken out to the upside of the long term wedge formation. The initial attempt at breaking $16 has failed for now. Strong support resides in the 1525 to 1550 area and March is the breakout point.

Soymeal in relation to soy oil is the most expensive in over 35 years. Soy oil relative undervaluation is an amazing opportunity.




July 13/Sep 13 bull rice spread

March 13/ May 13 Oats bull spread

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Similar to rice, some of the tightest oats supplies ever seen in North America are in store for 2013/2014. I have promoted the spring /summer bull spreads as a low risk way to play this. As you can see, fireworks have started to erupt in this spread and is forewarning bigger moves ahead. I fully expect oats bull spreads to achieve +30 or higher by midsummer. This should continue to be and attractive place to be.

The bull spreads in rice have erupted showing extreme supply tightness dead ahead. Rising spreads are very bullish as a leading indicator to rising nominal prices over time




Spot Copper

Spot Crude

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This pattern ends in March. Which way copper breaks will have a lot do with how the world views the health of the Chinese economy.

This pattern ends at the end of March. Which way it breaks will have a lot to say on how the world views the global economy.




Spot Coffee

Spot Silver

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Coffee continues to find support at the decade long bull trend line. A bullish breakout is slated for the spring. The Roya infestation for Central America coffee is getting worse and will likely provide the fireworks for a bull move.

Silver appears to have broken down. This is not a good sign.




Spot Lumber

Spot Brazilian Real

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The Brazilian real appears to have bottomed. If so this should be a bullish underpinning for coffee and sugar.

Lumber remains the short of the year. I am expecting a significant set-back in the second half of 2013 in housing and lumber prices always lead this well in advance.




Shanghai Stock Index

Summation: I am looking for a significant low in overall commodities in the month of March 2013. My original forecast was calling for a higher low than the low seen in June 2012 near 500 on the CCI. I am beginning to feel that the recent bubble in stocks created by the latest round of money printing is likely going to lead to a 10% to 20% correction over the very near term in stocks. The recent runway advance in stocks has actually been a detriment to commodities instead of a support. The Bludgeoned hedge funds in commodities last year are feeling the need to chase stocks and sell commodities to save face. They are doing exactly the wrong thing at exactly the wrong time. It appears to me in order to get money flowing back into commodities you will need a stock market correction sizeable enough to break this trend and cause a rotation. Unfortunately, the process of correcting stocks this strongly is likely to exert one finally downward push on overall commodities before a bottom is reached. This suggests that a final waterfall decline in commodities in the month of March 2013 could be seen to fully retest the June 2012 lows near 500. If my original forecast is to prove correct for overall commodities, then current levels must support out and turn higher quickly. Either way, a major final buying opportunity should be in place in the March 2013 timeframe. I believe that the most affected commodities, should this final downturn occur, would be in the crude oil complex and the metals complex. Although the Ag complex can still fall, the declines should be much more modest. With so many markets converging to a tipping in March 2013, I am expecting a significant increase in volatility to develop. In the SOFTS, coffee remains my favorite to buy, in the grains oats (bull spreads) and rice remain my favorite and in the livestock sector milk remains my favorite.

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It appears that the Chinese stock market may finally have bottomed. Could this be a sign for economic stability in China over the short term?




On short side lumber remains the short of the year and get ready for a special sell alert to be issued over the very near term. Corn and beans seem to me to be set up for an interim low in March 2013 in advance of the wildly bearishly anticipated Farmer survey acreage report to be issued at the end of March. I think a “selling the rumor and buying the news” effect is a very likely outcome. Once the acreage report is out of the way, I would expect the big funds to make bets on higher grain prices on poor weather this summer. Placing some weather premium in the spring ahead of the summer months seems logical to me. For 2 years the big funds have gotten creamed betting on good weather. I cannot conceive that they will try doing the same thing for a 3rd

year in a row. Of course, this will probably be the year the weather turns out ok in the end. Bottom-line in corn and beans is that even a poor crop will still likely create surpluses. For corn anything 135 bushel/acre yield or higher and a surplus will be seen. That should not be very hard to do. For soybeans a 40 bushel/acre yield or higher will produce a surplus. With larger grain supplies coming out of South America in 2013, it is very hard to be bullish grains beyond a weather related rally into mid-summer. With Love and Blessings Shawn Hackett

Also remember that you can also open an account with us at Hackett Financial Advisors Inc. We clear all our operations through R.J. O'Brien & Associates whcih is the oldest and largest independent futures brokerage and clearing firm in the United States. A futures commission merchant (FCM), RJO is a full clearing member of: the CME Group (founding member of the Chicago Mercantile Exchange) and all its markets; IntercontinentalExchange (ICE); NYSE Liffe U.S.; and the CBOE Futures Exchange (CFE).

RJO offers the latest in order entry technology coupled with 24-hour execution and clearing on every futures exchange worldwide. Clearing more than 100,000 client accounts, the firm provides a full range of services to the industry’s largest global network of introducing brokers (IBs) and to commercial, institutional, international and individuals clients. These include more than 400 IBs and many of the world's largest financial, industrial and agricultural institutions. We do not engage in proprietary trading; all of our business focuses on our valued clients.

Founded in 1914, RJO is one of the last 'boutique' futures firms in the industry. It is a privately held business majority owned by the O'Brien family of Chicago. The O'Briens have been instrumental in the development of the futures industry and remain committed to the continued growth of the company and our leadership within the industry.

With client assets of approximately $3.6 billion, RJO is a well-diversified, fully integrated FCM. The firm regularly captures top-tier market share in both agricultural and financial futures products at both the CME and CBOT

Our Place in the Industry

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Hackett Financial Advisors Inc. specializes in the agricultural space where there is far less coverage by the commodity analyst community and where some of the greatest opportunities should remain in the years ahead. While everyone on the planet has an opinion on Crude Oil or Gold there are very few who study agriculture in the manner that we do. We would be happy to see if opening an account with us would fit your needs whether as a commercial operator and/or a professional investor/firm. We also put God first in our dealings with you and our approach to the markets. Our heart is in the right place and through is honor and grace great things are possible. We take the view that the more successful you are the more you can give back to those in need. It hardly makes any sense to do it for any other reason. As always thank you for your support and thank you for your healing presence. God Bless

If you have any questions about any of the content in this report, please call me at (888) 535-5525 or e-mail me at [email protected] . Thank you for reading and I hope your future investment decisions turn out to be prosperous ones.

Best Regards, Shawn Hackett, President

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T Thheee HHHaacckkeeetttttt MMooonnneeeyyy … · The CCI which is an Ag ... decade long bull trend line. A bullish breakout is slated ... TThheee HHHaacckkeeetttttt MMooonnneeeyyy