Notes From Underground: I Report The Body Of News Electric

There was no main theme during the last week as the global financial markets try to measure Chinese growth while attempting to weigh the impact of a FED tapering of its quantitative easing program (QE). There is a continual to and fro as the equity markets are holding up well in the face of rising long-term interest rates, but as I have maintained, the yield curves are steepening as investors understand that the FED may be tapering but it is not tightening. This is not 1994. With this in mind let us examine some other issues.

1. Friday’s Canadian unemployment report was interesting once the details of the report were digested. The market was looking for a gain in jobs of 6,000 but the actual number was a headline loss of 39,000. The Canadian dollar immediately weakened on the release but upon further analysis the jobs loss was due to the decline of public sector workers (74,000). For a country the size of Canada that is an astounding number, which will need much explaining. More importantly, manufacturing jobs increased by more than 13,000 and overall private sector jobs increased by 31,000. This is another example of the opportunities sometimes presented by the algo-headline readers. But overall not a bad number from the Canadians.

 2. This week we will get news from Mexico about allowing private investment into the energy sector. This is an issue that I have discussed for more than three years and deem it to be a major issue for Mexican peso support. Last week the Wall Street Journal has a very strong article about President Nieto’s attempt to put forward legislation to change the Mexican Constitution. In 1938, the Mexican government, under Lazaro Cardenas, nationalized the energy sector and codified it by preventing foreign entities from investing in petroleum and other fossil fuels, creating PEMEX. President Nieto is making the point  that the law banned “… concessions to private firms but secondary laws explicitly welcomed private involvement in oil exploration and production through contracts, including sharing profits or production.” Mexico badly needs increased capital investment so as to increase production, which has been in a steady decline. The Mexican federal budget receives 40 percent of its revenue from Pemex, so bringing in foreign capital will ensure government revenues without being stunted by the massive capital investment into the energy sector.

In tomorrow’s Financial Times, Nieto’s rationale is strengthened: “The need for Mexico to reopen its oil industry is clear. Oil and gas production has declined by nearly 25 percent over the past decade.” Further, “… the country, which sits on energy reserves the same size as Kuwait’s, is now a gas and gasoline importer.” The leftist Presidential candidate, Mr. Lopez Obrador of the PRD, has announced massive demonstrations against President Nieto’s proposal on September 8. While I understand the desire to maintain the nation’s petroleum assets in government control, it seems that Mr. Obrador is fighting as if the world was still a realm of colonial dominators that ran roughshod over the assets of the third world. It is a far different world today and Mexico needs to enhance its energy assets but do it under very favorable conditions for the Mexican people.

3. Last week brought news of the dissolution of Russia’s potash cartel. The URALKALI group has been broken up because it failed to sustain a floor under global potash prices. The equity markets sold all fertilizer companies on the news and the Canadian potash group was particularly hard hit. This is a story we will continue to watch as conspiracy abound as to why the Russian group collapsed. Some analysts maintain that the Russians wanted to break global potash prices so as to enforce global compliance in its effort to keep prices high. Regardless of the conspiracies, with global planting intentions soaring and the Chinese demand for food imports very high, global demand for potash will stay strong. It would not surprise me if the Chinese sovereign wealth  funds did not begin searching for investments in international fertilizer concerns. Put it on your radar screens.

 4. Tonight the precious metals are on the rise. No news out to prompt the move but as I have written about before. The metal spreads are beginning to signal a change in the world’s desire for precious metals. PLATINUM/GOLD has been on the move even though the European auto market remains soft. Last week the gold/silver ratio began to show technically that Silver was gaining momentum in relationship to gold. It is time to prepare your technicals and look for opportunities in the world’s most demeaned asset class. After working on the METALS CROSSES, go to the GOLD CURRENCY CROSSES FOR ADDED SUPPORT FOR ANY GENUINE METALS MOVE.

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4 Responses to “Notes From Underground: I Report The Body Of News Electric”

  1. arthur Says:

    great post, 100% global macro, thanks!

  2. abee crombie Says:

    if the mexico trade wasnt so crowded I’d jump head first into it but it seems like every macro punter has been on it for a while. And mexican bond markets have very high foreign ownership.

    As for Urakali, they are basically breaking belarus. Gotta love russian strong arm tactics. And people wonder why russian stocks trade at ridiculous low valuations. Its called political risk! Stick with their bonds, IMO

    Great post, great blog!

  3. Mario Says:

    Great catch up on potash there. Send me articles of your favorite or most impactful UNDERGROUD blog. mario@vfund.com or paste it here. It will be a great compilation of great minds consolidating a great read and blog.

  4. Darius Dale Says:

    Great depth and breadth of your commentary, Yra. I appreciate you directing me to your blog. – Darius Dale

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