Posts Tagged ‘copper’

Notes From Underground: It’s Halloween and Nothing Scares the Markets

October 31, 2017

It has been a few days since the ECB announced its intentions. There was no surprise as President Draghi met market expectations by beginning a NON-TAPER, cutting QE by 30 billion euros beginning in January 2018. So as we considered the outcome of PACE and DURATION, the ECB cut the pace in half and extended the program by nine months to September 2018. The most significant piece of the Draghi press conference was his persistence on making the composition of future purchases. It seems that the ECB will utilize the European corporate bond market to meet its requirement and stay true to its CAPITAL KEY. By buying more corporate debt the ECB will find enough German assets to buy. The major problem for the European markets is that UNLIKE the U.S. financial system, European banks are a much more important actor as they provide far more corporate loans on a percentage basis of GDP than U.S. banks. The U.S. financial system relied to a far greater extent on issuing bonds. We have previously discussed the absurd chart showing European high yield debt to have a lower interest rate than 10-year U.S. Treasuries.

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Notes From Underground: Arthur’s Song, Lost Between the Moon and New York City

August 28, 2017

A long-time reader of Notes From Underground posted a comment to a previous post promoting long GOLD/short YEN. When I asked him about this trade he noted the onset of currency wars. There is no question, as I have regularly shown that many foreign central banks’ currency’s strength is a reason to maintain very low interest rates and if in place QE programs. I certainly agree with Arthur about this narrative. But from a relative value perspective the Japanese yen has already benefited from its weakening versus the EURO, Aussie, Kiwi, Canada and Swiss franc.

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Notes From Underground: Let’s Deflate the Cult of Personality and Media-Inflated Infallibility

August 18, 2015

Some follow-through from yesterday: The DAX,Dow and Russell 2000 closed below their 200-day moving averages but it is early in the week so while a negative it is not definitive of any sustaining activity. Just another effort to be attentive to global developments. The Chinese markets were under assault last night, which led to a selloff in copper and silver prices although GOLD remained firm. Some analysts maintain that the selling in copper and silver was due to having meet margin calls with account collateral being liquidated. I have no argument with that analysis but if so silver should regain itself above 15.10 and GOLD should rise above its recent highs. If China’s recent market developments is the onset of global deflation the world’s central banks will be forced into renewed crisis mode and the precious metals will again be viewed as a “reliable haven.” Let the market be your guide for theory confirmation and have your technical levels ready especially for GOLD resistance.

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Notes From Underground: Enduring the Doldrums of a Central Bank-Controlled Market Structure

July 27, 2015

Never has such calm winds cause so much turbulence. The markets have been grinding up and down during the last four weeks as traders and investors weigh the consequences of the Greek resolution and the Chinese intervention into their equity markets. ONE THING IS FOR CERTAIN, THE CHINESE EQUITY MARKET IS AN OXYMORON. If a government can set the price of individual stocks or the price of bonds it is not a MARKET but a plaything for the ruling party. The Chinese Government can try to mandate rising stock prices but ultimately it will take more than a mandate but actually spending of capital to support prices, or else invoking the fear of capital punishment for all short sellers of equities (PUN INTENDED). The talking heads are concerned that the Chinese weakness is causing selling in all global equity markets. The DOW JONES did close under the 200-day moving average last Friday and continued its downward path today. The SPOOs tested the 200-day and managed to save itself by the market close.

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Notes From Underground: Fed Creates Jobs by Printing `Data Dependent’ T-Shirts

May 11, 2015

Today, CNBC‘s Steve Liesman interviewed San Fran Fed President John Williams. In a swipe at Fed gallows humor, President Williams presented Liesman with a T-Shirt that said the Fed was DATA DEPENDENT. The humor part was Williams’s effort to cut-off Steve Liesman’s well choreographed question which amounts to: “Come on, John, share your inside view about the possibility of a RATE RISE at the next FOMC meeting (just between us, John).” So as to make sure that Liesman understands the consistent answer: It is data dependent. If the FED wants to create some jobs it can send everyone with a bank account a free “Data Dependent” shirt, compliments of their regional Federal Reserve. All sarcasm aside, President Williams’s view puts added importance now to the inflation data on Friday and of course the retail sales input on Wednesday. The consensus on the CORE RETAIL SALES is 0.3% increase so a strong number would be above 0.6%. If the theory of data dependence holds then it should be the SHORT END of the curve that gets sold and here is my reasoning: The 2/10 and 5/30 parts of the yield curve have steepened dramatically during the last two months as the market accepts the fact that the recent bout of weak economic data has pushed the FED further away from raising rates.

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Notes From Underground: Larry Summers In Mister October

October 7, 2014

There is not doubt that Larry Summers is excited by October G-20 and IMF meetings as the top policy makers meet to discuss the state of the world economy and other significant global interests. It’s a time when the media is focused on the world’s leaders and Mr. Summers likes the role of being a major player. There is no question about Summer’s academic qualifications and his wealth of policy making experience. If success in the field of economics was based on eugenics, well, Larry Summers would certainly have a Nobel Prize. My one major criticism of Secretary Summers was his running interference for Robert Rubin and Sandy Weil in their efforts to repeal Glass-Steagall, which even Mr. Weil has admitted was a great mistake. In today’s Financial Times, Larry Summers had an op-ed, “Why Public Investment Really Is A Free Lunch.”

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Notes From Underground: The Reserve Bank of New Zealand Stands Alone

March 12, 2014

This afternoon the little bank from down under announced it was raising its overnight cash rate (OCR) by 25 basis points to 2.75%. There is no question that the New Zealand economy has been growing (as has private credit for housing) but the KIWI has been elevated by the strength of the economy and the huge global demand for New Zealand commodities–dairy and other agricultural products. Previously, the RBNZ has refrained from raising the OCR because of the strength of the KIWI versus the Aussie dollar and other commodity-based currencies. But the improvement in global financial conditions gave Governor Graeme Wheeler reassurance for increasing the interest rate. Wheeler noted that “the high exchange rate remains a headwind to the tradables sector. The bank doesn’t believe the current level of the exchange rate is unsustainable in the long run.” The market had been expecting the Bank to raise rates  so the initial market reaction was a short selloff but within two minutes the KIWI was trading higher and actually closed on its high of the day in the spot market. If the RBNZ doesn’t intervene, which it shouldn’t, the NZ currency should hold up on the crosses, especially with the high yield on its 10-year note. Finally, one bank breaks out of the pack, even in the face of a potential slowdown in China.

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Notes From Underground: Four Central Bank Meetings, and, Oh Yeah, the Fiscal Cliff

December 2, 2012

The weekend news was rather sparse as the Greeks got their trust fund check from the overlords in Brussels. The Greeks need to be leery of Eurocrats bearing gifts. The Sunday news shows in the U.S. highlighted the vast chasm between Speaker Boehner and Secretary Geithner. There was finger-pointing all around about as to which group was holding up the negotiations as to affect genuine compromise and a resolution to the fiscal cliff. As the rhetoric heats up, the S&Ps and global stock indices all closed higher on the week, showing that the price action speaks louder than words. The market has fears that failure to resolve the fiscal crisis will result in a new U.S. recession and will also undermine the global economic recovery, but yet the COPPER closed above the 200-day moving average for the first time in many weeks. Other industrial metals also performed well last week making me wonder if all the fiscal cliff rhetoric is missing some larger picture. We will watch to see if the COPPER can sustain its recent strength or whether we are in the midst of a short covering rally.

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Notes From Underground: It’s Raining Liquidity All Over the World

September 9, 2012

Friday’s unemployment report solidified the TRIFECTA of LIQUIDITY for the week. ECB President Draghi seeded the “liquidity clouds” at Thursday’s press conference by announcing the installation of the OTM (outright monetary transaction), which will allow the ECB/ESM to purchase unlimited amounts of sovereign debt of up to three-year duration–of course with conditions for those asking for help. Draghi is hoping to buy the whole EU project enough time so that a FISCAL UNION CAN BE FORMED WITH THE ABILITY FOR THE EU TO ISSUE A TRUE EUROBOND.

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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.