Not too unexpectedly, North America is being hit with “strange” weather patterns, in this case a dramatic nasty drought and heat wave right over the heart of the corn belt. This in turn has quickly moved crop conditions from 72% to 56% good to excellent. Modern crops are amazingly drought resistant but ultimately need water. Crop observers generally feel that this must arrive by July 4 to keep serious harm to this crop. This is hardly bullish, and would not be conducive to QE and more throwing fuel on the fire.The other question: does this heat spread east, which would use up a good bit of natural gas, and start to put a higher floor in. Supply is still running too high. Accuweather indicates
this heat is moving eastward, but will likely contact a cooler air mass creating storms. Many stocks in the energy sector have been trading in a descending wedge and I think there is a very good chance a bottom is being put in.
Valuations are at very deep value, but a heat wave in the east would be the catalyst. The energy stocks are getting off the deck Wednesday, but there could still be a few days of quarter end window dressing to set up entries.NOAA discusses the dynamic:
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- Even though El Nino should form this Fall and the tropics are having some EL Nino-based weather events, the U.S. weather is acting more like La Nina due to the negative Global Angular Momentum of the earth.
- Global Warming & trends of the implications of historically warm winters and springs (like we had this year).
- Dry Midwest soils from the warm, snow-less winter that is helping to feed the hotter weather.
- The MJO (Madden-Julian-Oscillation)—A 40-60 day wave cycle moving into Phase 1 (below)