This post was published at Kitco NEWS
2017 saw global central bank balance sheets explode almost 17% higher (in USD terms) – the biggest annual increase since 2011 – and while correlation is not causation, one can’t help but see a pattern in the chart below…
Global stocks up, Global bonds up, Global commodities up, Financial Conditions easier (despite 3 Fed rate hikes), and Dollar down (most since 2003)…
As we noted earlier, Craig James, chief economist at fund manager CommSec, told Reuters that of the 73 bourses it tracks globally, all but nine have recorded gains in local currency terms this year.
‘For the outlook, the key issue is whether the low growth rates of prices and wages will continue, thus prompting central banks to remain on the monetary policy sidelines,’ said James. ‘Globalization and technological change have been influential in keeping inflation low. In short, consumers can buy goods whenever they want and wherever they are.’
Still, the good times may not last: an State Street index that gauges investor risk appetite by what they actually buy and sell, suffered its six straight monthly fall in December, Reuters reported.
“While the broader economic outlook appears increasingly rosy, as captured by measures of consumer and business confidence, the more cautious nature of investors hints at a concern that markets may have already discounted much of the good news,’ said Michael Metcalfe, State Street’s head of global macro strategy.
This post was published at Zero Hedge on Fri, 12/29/2017 –.
European stocks are steady in post-Christmas trading if struggling for traction after a mixed session in Asia, amid trading thinned by a holiday-shortened week and ongoing worries about the tech sector; however a strong rally in commodities – including copper and oil – buoyed expectations for a strong 2018 and helped offset concerns over the technology sector triggered by reports of soft iPhone X demand.
U. S. equity futures nudged higher while the dollar weakened against most G-10 peers as investors await the release of U. S. consumer-confidence data, with much of the spotlight falling on commodity currencies. The OZ dollar holds onto gains as copper surges to a three-year high; oil retreats after reaching the highest close in more than two years following a pipeline explosion in Libya on Tuesday. Treasuries and core European core bond yields are a touch lower.
The Stoxx Europe 600 Index edged lower, with tech stocks hit for the third day amid rumors of weak iPhone demand and leading the decline as chipmakers slumped after analysts lowered iPhone X shipment projections, sending the Nasdaq Composite Index lower overnight. While mining and oil stocks strengthened due to a surge in copper prices to a 3.5 year high (see below), the European STOXX 600 index slipped 0.1% as European tech stocks tumbled on reports that demand for Apple’s iPhone X may be weaker than expected. The equity benchmark index is poised for an annual gain of 8.1%, the best advance in four years. Elsewhere, Volvo rose as China’s Geely bought Cevian’s stake in the truckmaker, making it Volvo AB’s largest stakeholder. IWG surged the most since 2009 after confirming it has received a a non-binding takeover offer from a consortium backed by Brookfield Asset Management and Onex.
This post was published at Zero Hedge on Dec 27, 2017.
From “The Exhaustion of the Reserve Fund” in Human Action, Chapter XXXVI by Ludwig von Mises:
The idea underlying all interventionist policies is that the higher income and wealth of the more affluent part of the population is a fund which can be freely used for the improvement of the conditions of the less prosperous. The essence of the interventionist policy is to take from one group to give to another. It is confiscation and distribution. Every measure is ultimately justified by declaring that it is fair to curb the rich for the benefit of the poor.
In the field of public finance progressive taxation of incomes and estates is the most characteristic manifestation of this doctrine. Tax the rich and spend the revenue for the improvement of the condition of the poor, is the principle of contemporary budgets. In the field of industrial relations shortening the hours of work, raising wages, and a thousand other measures are recommended under the assumption that they favor the employee and burden the employer. Every issue of government and community affairs is dealt with exclusively from the point of view of this principle.
An illustrative example is provided by the methods applied in the operation of nationalized and municipalized enterprises. These enterprises very often result in financial failure; their accounts regularly show losses burdening the state or the city treasury. It is of no use to investigate whether the deficits are due to the notorious inefficiency of the public conduct of business enterprises or, at least partly, to the inadequacy of the prices at which the commodities or services are sold to the customers. What matters more is the fact that the taxpayers must cover these deficits. The interventionists fully approve of this arrangement. They passionately reject the two other possible solutions: selling the enterprises to private entrepreneurs or raising the prices charged to the customers to such a height that no further deficit remains. The first of these proposals is in their eyes manifestly reactionary because the inevitable trend of history is toward more and more socialization. The second is deemed “antisocial” because it places a heavier load upon the consuming masses. It is fairer to make the taxpayers, i.e., the wealthy citizens, bear the burden. Their ability to pay is greater than that of the average people riding the nationalized railroads and the municipalized subways, trolleys, and busses. To ask that such public utilities should be self-supporting, is, say the interventionists, a relic of the old-fashioned ideas of orthodox finance. One might as well aim at making the roads and the public schools self-supporting.
This post was published at Ludwig von Mises Institute on December 25, 2017.
Tonight I would like to update some charts for the commodities complex as we are starting to see some action in this sector. Back in the summer months when we first started to get long some of the different commodities sectors, we got many breakouts from some very nice H&S bases. After the initial move up came the first consolidation phase that has been going on for nearly four months or so. We are now starting to see some of these consolidation patterns breaking out which should lead to the next impulse move higher in most cases.
Lets start with BHP, one of the biggest miners on the planet, that shows a good example of where we are at in the bull market. Today the price action broke out with a gap above the top rail of an almost 5 month triangle consolidation pattern. A backtest to the top rail would come in around the 43.50 area.
This post was published at GoldSeek on 21 December 2017.
In its November report, mortgage security firm Freddie Mac called 2017 the ‘best year in a decade’ for the housing market by a variety of measures. These include low inflation, strong job growth and historically-low mortgage rates. This assessment is very encouraging, not just for homebuyers and builders and the U. S. economy in general, but also for commodities, resources and raw materials as we head into 2018.
Although past performance is no guarantee of future results, it’s still instructive to look back at how materials performed the last time the U. S. was ramping up housing starts and mortgages. The last housing boom, which peaked in 2006, was accompanied by elevated commodity prices. We could see a return to these valuations over the next couple of years on higher demand, a stronger macroeconomic backdrop and cyclical fundamentals, as shown in the following chart courtesy of DoubleLine Capital:
Speaking on CNBC’s ‘Halftime Report’ last week, DoubleLine founder Jeffrey Gundlach said he thought “investors should add commodities to their portfolios’ for 2018, pointing out that they are just as cheap relative to stocks as they were at historical turning points.
‘We’re at that level where in the past you would have wanted commodities’ in your portfolio, Gundlach said. ‘The repetition of this is almost eerie. And so if you look at that chart, the value in commodities is, historically, exactly where you want it to be a buy.’
This post was published at GoldSeek on Thursday, 21 December 2017.
Goldman Sachs continues to ratchet up predictions for commodities, laying out a bullish case for commodities of all stripes in 2018.
The investment bank said that its forecast a year ago for higher commodity prices ‘played out much better than expected.’ The bank pointed to industrial metal prices, which are up 24 percent this year, plus the 13 percent increase in oil prices.
But looking forward, Goldman sees plenty of room to run. ‘The demand backdrop today is now even stronger than a year ago, with robust and synchronous global growth clearly evident,’ Goldman analysts, led by Jeffrey Currie, wrote in a December 11 research note. The extension of the OPEC deal also led the bank to revise up its forecast for oil prices, as inventories should continue to fall throughout 2018.
There are other reasons to be bullish on commodities. The investment bank argues that commodities tend to outperform other asset classes when central banks move to tighten rates. That is because rate hikes typically occur when demand is exceeding supply – the higher prices resulting from that mismatch are why central banks are trying to raise rates, but it is those higher prices that support the investment case into commodities.
The report concluded that “a positive carry in key commodity markets and already strong global demand growth across the commodity complex reinforces the case for owning commodities. And hence we maintain our 12-month overweight recommendation, now with a forecasted return of almost 10 percent.”
This post was published at FinancialSense on 12/15/2017.
One day after Stanley Druckenmiller confessional to CNBC that as a result of central planning and markets that make no sense, the legendary hedge fund manager had a “terrible” year, and his “first down year in currencies ever” (he also said many not very nice things about bitcoin), it was Jeffrey Gundlach’s turn to confess some of his more controversial views. And so, the man who two years ago correctly predicted the Trump presidency, first discussed his best investment idea for the new year. To those who listened to his latest DoubleLine investor presentation last week, the answer will hardly be a surprise: namely commodities, because they’re “historically, exactly where you want it to be a buy.”
“I think investors should add commodities to their portfolios,” Gundlach says on CNBC’s Halftime Report.
Gundlach said commodities are just as cheap relative to stocks as they were at historical turning points, while the macroeconomic backdrop also supports the case for commodities; he was referring to the following chart which he highlighted last week.
This post was published at Zero Hedge on Dec 13, 2017.
We keep returning to the subject of Australia and the growing signs that its bubble economy is bursting. Earlier this month, we discussed how the world’s longest-running bull market – 55 years – in Australian house prices appears to have come to an end. We followed this up with ‘Why Australia’s Economy Is A House Of Cards’ in which Matt Barrie and Craig Tindale described how Australia’s three decades long economic expansion had mostly been the result of ‘dumb luck’.
As a whole, the Australian economy has grown through a property bubble inflating on top of a mining bubble, built on top of a commodities bubble, driven by a China bubble.
Last week, in “The Party’s Over For Australia’s $5.6 Trillion Housing Market Frenzy”, we highlighted some scary metrics for Australia’s housing bubble – notably how the value of Australian housing is more than four times gross domestic product – higher than other nations with housing bubbles, e.g. New Zealand, the UK and Canada. Two days ago, we noted the number of Australians optimistic about the year ahead had plunged to a record low.
This post was published at Zero Hedge on Nov 30, 2017.
US equity futures continued their push higher into record territory overnight (ES +0.1%), and the VIX is 1.5% lower and back under 10, after yesterday’s blistering surge in US stocks which jumped 1%, the most since Sept. 11, following Powell’s deregulation promise, ahead of today’s 2nd estimate of U. S. Q3 GDP which is expected to be revised up. U. S. Senate Budget Committee sent the tax bull to the full chamber to vote, and on Wednesday Senators are expected to vote to begin debating the bill. It wasn’t just the S&P: MSCI’s all-country world index was at yet another record peak after all four major Wall Street indexes notched up new highs on Tuesday. Finally, completing the trifecta of records, and the biggest mover of the overnight session by far, was bitcoin which topped $10,000 in a buying frenzy which saw it go from $9,000 to $10,000 in one day, and which is on its way to rising above $11,000 just hours later.
In macro, the dollar steadies as interbank traders and hedge funds fade its rally this week; today’s major event will be testimony by outgoing Fed chair Janet Yellen after Powell said there is no sign of an overheating economy; the euro has rallied on strong German regional inflation while pound surges on Brexit bill deal news; yields on 10-year gilts climb amid broad bond weakness; stocks rise while commodities trade mixed.
In Asia, equity markets were mixed for a bulk of the session as the early euphoria from the rally in US somewhat petered out as China woes persisted (recovered in the latter stages of trade). ASX 200 (+0.5%) and Nikkei 225 (+0.5%) traded higher. Korea’s KOSPI was cautious following the missile launch from North Korea, while Shanghai Comp. (+0.1%) and Hang Seng (+-0.2%) initially remained dampened on continued deleveraging and regulatory concerns before paring losses into the latter stages of trade. Notably, China’s PPT emerged again with Chinese stock markets rallied in late trade, with the CSI 300 Index of mainly large-cap stocks paring a drop of as much as 1.3% to close 0.1% lower. The Shanghai Composite Index rose 0.1%, swinging up from a 0.8% loss, with property and materials companies among the biggest gainers on the mainland. The Shanghai Stock Exchange Property Index surged 3.8%, the most since August 2016. The Shenzhen Composite Index was little changed, after a 1.2% decline, while the ChiNext gauge retreated 0.4%, paring a 1.5% loss. In Hong Kong, the Hang Seng Index was little changed as of 3 p.m. local time, while the Hang Seng China Enterprises Index fell 0.3%Stocks in Europe gained, following equities from the U. S. to Asia higher as optimism over U. S. tax reform and euro-area economic growth overshadowed concerns about North Korea’s latest missile launch. The Stoxx 600 gained 0.8%, reaching a one-week high and testing its 50-DMA. Germany’s DAX, France’s CAC, Milan and Madrid were all up between 0.5 and 0.7% and MSCI’s all-country world index was at yet another record peak after all four major Wall Street indexes notched up new highs on Tuesday. ‘It seems to me markets are still trading on the theory that the glass is half full,’ said fund manager Hermes’ chief economist Neil Williams.
This post was published at Zero Hedge on Nov 29, 2017.
Zero Hedge readers might have noted our increasingly bearish tone on all things Australian – economic that is, since the cricket team just whipped the English in the first test match in Brisbane. The focal point of our concern is the housing market and, earlier this month, we discussed how the world’s longest-running bull market – 55 years – in Australian house prices appears to have come to an end. We followed this up with ‘Why Australia’s Economy Is A House Of Cards’ in which Matt Barrie and Craig Tindale described how Australia’s three decades long economic expansion had mostly been the result of ‘dumb luck’.
As a whole, the Australian economy has grown through a property bubble inflating on top of a mining bubble, built on top of a commodities bubble, driven by a China bubble.
Last week, in “The Party’s Over For Australia’s $5.6 Trillion Housing Market Frenzy”, we highlighted some scary metrics for Australia’s housing bubble cited by Bloomberg. In particular, we showed how the value of Australian housing is more than four times gross domestic product. This is higher than other western nations, like New Zealand, Canada and the UK, which are experiencing their own housing bubbles. The ratio of house values to GDP in the US seems positively tame in comparison.
This post was published at Zero Hedge on Nov 28, 2017.
‘Bubble, bubbles everywhere, and not a drop to drink…yet’
– Willy Wonka, Willy Wonka & the Chocolate Factory, 1971
‘Money…. Money, Money makes the world go around’
– Liza Minnelli, Joel Grey, Cabaret, 1972
‘There is too much money in the world’
– Lawrence Luhring, New York art dealer, on sale at auction of Leonardo da Vinci’s ‘Salvator Mundi’
Yikes! $450.3 million for Leonardo da Vinci’s ‘Salvator Mundi’ sold on Wednesday night at Christie’s auction, shattering the high for any work of art sold at auction. It far surpassed Picasso’s ‘Women of Algiers’ which fetched $179.4 million at Christie’s in May 2015. It also far surpassed the $127.5 million that Russian billionaire oligarch Dmitry E. Rybolovlev paid for it in 2013. In 1958, the painting sold for 45 because it was believed this was not an authentic da Vinci but merely one done by one of his students. In 2005, an art dealer purchased it for $10,000. There have been numerous questions surrounding its authenticity and the fact that it had at times been restored. The painting dates from around 1500 and is believed to have been commissioned for King Louis XII of France. The current buyer is unknown.
Bubbles, bubbles everywhere. There are bubbles in the stock market, the bond market, the corporate bond market, auto loans, student loans, real estate, government debt, art and collectibles, and yes, Bitcoin! But it also begs the question – why isn’t there a bubble in commodities and especially gold?
This post was published at GoldSeek on 19 November 2017.
The PBOC stepped up cash injections this week, suggesting authorities are trying to shore up financial markets as a selloff in bonds spreads to equities… but it is not working!
As Bloomberg reports, the central bank has already added a net 510 billion yuan ($77 billion) via open-market operations into the financial system this week, matching the third biggest weekly injection this year.
This post was published at Zero Hedge on Nov 17, 2017.
As we just detailed in great depth, China’s credit growth is slowing at just the wrong time – as exemplified by last night’s economic malaise and bond market weakness – and tonight we are starting to see it ripple through commodity and stock markets…
As we noted earlier, Chinese bonds are breaking key levels as China’s credit impulse begins to weigh…
And tonight we are seeing that deleveraging pressure filter through to equity markets…
This post was published at Zero Hedge on Nov 14, 2017.
COMEX gold contracts recovered a $5 drop against a weakening US Dollar in London lunchtime trade Tuesday, rising back to last week’s finish at $1275 after what analysts called another “large sell” order on the futures market.
Commodities retreated and bond prices edged higher as world stock markets fell again.
Germany’s Dax dropped for the fourth session running after the 19-nation Eurozone released a raft of stronger economic data, led by 2.5% annual GDP growth across the region for the third quarter of the year.
“Speculative financial investors stopped withdrawing from gold and built up net long positions again in the week to 7 November,” says German financial group Commerzbank in a commodities note today, looking at the latest Comex gold derivatives data from US regulator the CFTC.
This post was published at FinancialSense on 11/14/2017.
As I’ve been noting again, again, again, again, and again the macro backdrop is marching toward changes. I’d originally thought those changes would come about within the Q4 window and while that may still be the case, it can easily extend into the first half of 2018 based on new information and data points that have come in.
One thing that has not changed is that stock sectors, commodities and the inflation-dependent risk ‘on’ trades and the gold sector, Treasury bonds and the risk ‘off’ trades are all keyed on the interest rate backdrop; and I am not talking about the Fed, with its measured Fed Funds increases. I am talking about long-term Treasury bond yields and yield relationships (i.e. the yield curve).
People seem to prefer linear subjects like chart patterns, momentum indicators, Elliott Waves, fundamental stock picks or the various aspects of ‘the economy’ or the political backdrop. They want distinct, easy answers and if they can’t ascertain them themselves, they seek them out from ‘experts’. But all of that crap (and more) exists within an ecosystem called the macro market. When you get the macro right you then bore down and get investment right. That’s the ‘top down’ approach and I adhere to it like a market nerd on steroids. And with the recent decline in long-term bond yields and the end of week bounce, the preferred plan is still playing out.
So let’s briefly update the bond market picture with respect to its implications for the stock market, commodities and gold.
This post was published at GoldSeek on 10 November 2017.
The global risk levitation continues, sending Asian stocks just shy of records, to the highest since November 2007 and Japan’s Nikkei topped 22,750 – a level last seen in 1992 – while European shares and US equity futures were mixed, and the dollar rose across the board, gains accelerating through the European session with EURUSD sumping below 1.16 shortly German industrial output shrank more than forecast, eventually dropping to the lowest point since last month’s ECB meeting. Meanwhile soaring iron-ore prices couldn’t provide relief to the Aussie as the RBA held rates unchanged as expected; Oil traded unchanged at 2.5 year highs, while TSY 10-year yields rose while the German curve bear steepened, both driven by selling from global investors.
The Stoxx Europe 600 Index edged lower, erasing an early advance, despite earlier euphoria in stocks from Japan to Sydney, which reached fresh milestones. Disappointing reports from BMW AG and Associated British Foods Plc weighed on the European index as third-quarter earnings season continued. Earlier, the Stoxx Europe 600 Index rose as much as 0.3%, just shy of a 2-year high it reached last week. Maersk was among the worst performers after posting a quarterly loss, saying a cyberattack in the summer cost more than previously predicted. Spain’s IBEX 35 gains crossed back above its 200 day moving average. European bank stocks trimmed gains after European Central Bank President Mario Draghi said that the problem of non-performing loans isn’t solved yet, though supervision has improved the resilience of the banking sector in the euro region. Draghi was speaking at a conference in Frankfurt.
Over in Asia, equities rose to a decade high, with energy and commodities stocks leading gains as oil and metals prices rallied. The MSCI Asia Pacific Index gained 0.8 percent to 171.40, advancing for a second consecutive session. Oil-related shares advanced the most among sub-indexes as Inpex Corp. rose 3.7 percent and China Oilfield Services Ltd. added 4.6 percent. The MSCI EM Asia Index climbed to a fresh record. The Asia-wide gauge has risen 27 percent this year, outperforming a measure of global markets. The regional index is trading at the highest level since November 2007. Hong Kong’s equity benchmark was at its highest since December 2007 as Tencent Holdings Ltd. advanced for an eighth session. Australia’s S&P/ASX 200 index closed at its highest level since the financial crisis.
This post was published at Zero Hedge on Nov 7, 2017.
While the Fed may still be confused by the lack of inflation, if only in the “real economy”, if not in financial assets, increasingly more analysts have realized that what the Fed has done is tantamount to blowing an roaring inflationary bubble, if largely confined to the realm of asset prices. And while we used a Goldman chart to demonstrate this divergence a little over a month ago…
… now it’s JPMorgan’s turn to undergo the proverbial epiphany.
In a note from JPM’s Jan Loeys, titled “Financial overheating a problem yet?”, the strategist writes that “growth-sensitive assets, such as equities, credit, cyclicals, and commodities continue to gain and outperform, keeping us comfortably in the Growth Trade. Growth prospects have been rising and accelerating over the past two months from the only slow and dispersed upgrades of the previous 12 months. By now, we are in a full-fledged and globally synchronized move up in growth optimism.” Perhaps, but there is a catch as JPM unwillingly concedes:
The speed of these upgrades and asset price rallies is both exhilarating and scary. The faster we rally, the greater the joy, but the more one should be worried about the eventual reckoning. How far from now is that and what should we do about it?
This post was published at Zero Hedge on Nov 5, 2017.