Posts Tagged ‘Commodities’

Notes From Underground: Will the European Summit Yield Another Financial Valley?

June 28, 2012

If it is Thursday it must be another major Euro summit in Brussels. There is so much chatter about the outcomes and German capitulation that is impossible to conjecture the result. Will George Soros’s apocalyptic prognosis bear fruit or will the European policymakers provide enough initial capital to help stem the financial cliff for another three months and allow the EURO ELITE to enjoy the beaches of Spain and Greece? So before we return to the SUMMIT let’s examine a few other financial thoughts.

***ARE THE SWISS GOING TO COMMIT FINANCIAL SUICIDE? HYPOTHESIS: The Swiss National Bank has resigned itself to defend the 1.20 EUR/CHF crossrate and in so doing has committed to buy EUROS at that level. The question the SNB needs to ask is what happens if the GERMANS were to abandon the EURO and leave the PIIGS at trough and create a DEUTSCHE MARK ZONE? The Swiss would be the bagholders for a huge amount of depreciating EUROS while the most valuable part of the EURO project was denominated in D-MARKS.

There is speculation that it is the SWISS who are pushing German SCHATZ to record lows as the SNB is buying two-year German paper with the EUROS they buy to maintain the cross. I have no certainty to this but if I ran the SNB that is certainly one way I would hedge my exposure. If the SNB is not buying German DEBT, then the answer to the question is that they stand to commit FINANCIAL SUICIDE. This possibility is just another variable in the game of disruption caused by the credit crisis in Europe.

***An interesting story yesterday was that the long-awaited merger between XSTRATA and GLENCORE looked to be falling apart. Some large shareholders in Xstrata were pressing the BOARD to ask for an increased price and thus were threatening to block the merger. RUMORS AROSE THAT GLENCORE WOULD WALK AWAY FROM THE DEAL BECAUSE OF ALL THE ACRIMONY. This merger has been the biggest commodity story of the year and if the two parties were going to cancel the deal  it would seem that GLENCORE FELT IT WAS PAYING TOO MUCH FOR XSTRATA IN AN ENVIRONMENT OF SOFTENING COMMODITY PRICES (except grains).

There have been several stories about the Chinese economy slowing and the impact the slowdown is having on raw material prices. Rumors abound about bulk cargo ships sitting off Chinese ports and nobody desiring to take delivery of pre-arranged shipment for lack of funds. If global commodity prices are headed lower, GLENCORE may believe that it could make a better deal in the future for XSTRATA. It seems that XSTRATA’s newfound greed is giving GLENCORE the excuse to walk on the deal. IF GLENCORE ALLOWS THE DEAL TO COLLAPSE BY NOT MEETING XSTRATA’s INCREASED DEMANDS,IT MAY BE A PRECURSOR TO FALLING COMMODITY PRICES.

IF THIS IS CORRECT, A TRADE THAT WOULD COME TO MIND IS LONG GOLD AND SHORT COPPER. COMMODITY PRICES REFLECTING INTERNATIONAL SLACK WILL SIGNAL THE WORLD’S CENTRAL BANKS THROWING ALL CAUTION TO THE WIND ON THE NEXT ROUND OF QE. This is something to pay close attention to as the rumors of a Chinese slowdown begin to gain traction. Looking at the world right now I would advise XSTRATA TO TAKE THE MONEY AND RUN.

Notes From Underground: Larry Summers and His Discontent

July 19, 2011

In Monday’s Financial Times there is a column by Lawrence Summers, the GODFATHER of U.S. economic policy. Mr. Summers offers the Europeans a great deal of advice on “HOW TO SAVE THE EUROZONE IN THE COMING CRITICAL WEEKS.” The article is actually a good policy prospective if there was not the issue of politics that play a large and important role in the EU‘s inability to resolve its fiscal difficulties. Summers wants to believe that the EUROCRATS have the political mandate to negotiate Brussel’s desire for a peaceful, state-supported EDEN of entitlements.

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Notes From Underground: Mr. Bernanke, Remember your Bailiwick is MONETARY POLICY

June 15, 2011

Today’s economic data continued the recent pattern of tepid activity. The EMPIRE MANUFACTURING INDEX was very soft but the analysts believe that the Japanese earthquake played havoc with global supply chains and thus impeded some manufacturing sectors. The CPI number was right on target and thus had no impact. The CAPACITY UTILIZATION and INDUSTRIAL PRODUCTION were on the soft side, which added more concern to the fragility of the U.S. economy. Markets are left with moderate growth while being plagued with the continual problems of the PIIGS.

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Notes From Underground: EXIT, PURSUED BY A BEAR??????

May 19, 2011

Let us hope that the FED and Chairman Bernanke are not following Shakespeare’s most famous stage direction. Today, the FOMC released the minutes from the last meeting and as widely expected the predominant interest was in the discussion of the FED‘s exit strategies from the QE2 program. It seems that FED BOARD members were pushing the idea of raising rates prior to the unloading of assets that have accumulated on the FED‘s balance sheet. There were many opinions about the significance of the various proposals that the FED is considering, but it seems that the FED itself is very uncertain about which procedure will produce what impact.

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Notes From Underground: Dominique Strauss-Kahn Arrested on Rape Charges AND FOR THE FIRST TIME IT’S NOT OF A COUNTRY

May 15, 2011

Today’s NOTE‘s headline wrote itself as the history of the IMF and its relationship to stressed emerging markets is replete with acts of “nation violation” in its efforts to ensure that creditors were/are always satisfied–most recent example is Greece. All levity aside, the accusations against DSK have important implications for FRENCH domestic politics as well as the role of the IMF in the current SOVEREIGN DEBT CRISIS plaguing the EU. Last week, the ASSISTANT MANAGING DIRECTOR of the IMF, John Lipsky, announced that he was leaving, thus the leadership of IMF is really  going to be in turmoil.

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Notes From Underground: One Big Question For the FED

May 11, 2011

If the prices of commodities are falling because of increased margin requirements on ENERGY and PRECIOUS METALS, WHY DOESN’T THE FED JUST ASK FOR EMERGENCY POWERS TO CONTROL MARGINS FOR ALL INVESTMENTS? Chairman Bernanke is on the record as believing that INFLATIONARY PRESSURES ARE TRANSITORY. Well, it seems that the power to make higher commodity prices transitory is to raise margins and force the speculators to disgorge their positions. The increase in MARGINS and the RESULTING LIQUIDATION WOULD ALLOW THE FED TO MAINTAIN QE POLICIES WITHOUT THE FEAR OF TRANSITORY PRICE INCREASES.

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Notes From Underground: CNBC-Market’s Disaster Response

March 16, 2011

Click on image to watch Yra on CNBC.

Notes From Underground: China Imports Coal so it Can Stuff it in the World’s Stockings

December 26, 2010

Again, the world is given a Christmas “surprise.” Last year, the U.S. Treasury was nationalized Freddie Mac and Fannie Mae on Christmas Eve when no newsrooms were stirring with even a click of the mouse. This year, the Chinese Central Bank took center stage and announced a rate increase of 25 basis points. Now, I am convinced that this rate increase is NEGLIGIBLE to say the least. The world financial news is going to make this rate increase into an effort by the Chinese authorities to combat inflation but that is pure NONSENSE. The benchmark lending rate was raised 25 basis points to 5.81 percent and the benchmark deposit rate increased to 2.75 percent from 2.75 percent. The economic impact won’t even register.

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Notes From Underground: All is well in Ireland as the debt crisis has been resolved–and no corporate tax increase

November 21, 2010

It has been a very slow news weekend. There were no major events, and, if you can believe it, the EU and IMF have agreed to a support package for the Irish banks and other institutions that are under stress. Nobody can really be shocked by this as the readers of NOTES have been prepped as to this outcome. The Irish polity at this point did not have to surrender its sovereignty as it doesn’t have to raise its corporate tax, at least not yet. Markets are responding positively as the S&Ps, EURO and COMMODITIES are all higher as the all-clear signal is given.

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Notes From Underground: Bernanke sings with Huey Lewis–Your Cash Ain’t Nothing But Trash

November 4, 2010

In day one of the world held hostage, the FED‘s QE2 program proved a great success. The dollar declined. Commodities soared. Metals shined. The equity markets took its newfound wealth effect in full stride. And the Treasury market rallied. Even though the 30-year bond is not a major component of the FED‘s purchasing program, it too rallied strongly as the sub 2.5 percent yield on the 10-year note sent investors further down the curve looking for a little more yield. The FED got all the bang out of the “wealth effect” that it could as investors around the world have realized that their  “cash was nothing but trash”–exactly the outcome the FED is looking to achieve.

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