Monday, December 28, 2015

Commercials are net long of Gold - Bullish indicator for gold

So after a 4½ year bear market, it's time to be bullish. I've been long gold. I got longer of gold late last week, and if we get above 1,085 I will get longer.

What really had my interest was the CFTC reports that came out last week indicating that "the commercials", as they're called, who are normally enormously net short, are almost net long. These are changes that are material. The fact that commercials are effectively net long and the public is abundantly out — that is a reason to be abundantly in.

Commercials are always ahead of the public. The last time we saw this happen in the other direction was when the commercials got egregiously net short back in November of 2011. They're the ones that call the top, they're the ones that call the bottom, so that alone has me interested.

Monday, December 21, 2015

Dennis Gartman full interview with ETF dot COM Natural gas has been absolutely crushed, with prices trading at 16-year lows. Is this sustainable?

Gartman: They can still produce from some of the most productive wells. They can produce natgas at $1.50/mmbtu and do it at breakeven. When you get down to these levels, people have to produce just to maintain cash flow. Is it sustainable? No. Will natgas be $2 or less two years from now? Probably not. But will it be less than $2 six months from now? Probably so. The other energy commodity that's in all the headlines is oil. Are you still bearish long term? And what do you think about the short-term price action with prices moving below $35 on WTI earlier this week?

Gartman: [Last week] might have marked a short-term interim and reasonably important low that may allow crude to bounce back to $40 or $41 a barrel. But that's as high as they'll be able to take it. You have so much that has been drilled for and capped. EOG Resources, for example, has 300 wells that it’s drilled in the Bakken, in the Permian and in the Marcellus Shale. It’s drilled them; it’s capped them. But it's already spent the money to have them drilled. Any time you get back to $40, they'll uncap those wells because there's cash flow to be gotten. Do you think we'll see prices in the $20's in this down cycle?

Gartman: A year from now, we could be down into the $20s; that's actually quite probable. Look at Western Canadian Select, a grade of oil that for many years tended to trade at about a $5 discount to WTI. Western Canadian Select is at $13 a barrel right now. Outside of energy, we’re seeing big declines in commodities in general. Is this bust in its final stages?

Gartman: Except for crude oil, I think we've seen the lows as far as the grain markets are concerned. We probably are seeing the lows as far as cotton is concerned. And we've probably seen the low for the softs like sugar, cocoa, coffee, etc. The great bust is probably behind us.

Keep an eye on what gold is doing. That's probably the greatest barometer of all. They keep trying to break it down. We are four years and one month into a bear market, and they keep trying to break spot gold under $1,050, but it doesn't seem to want to break under that. My suspicion is that we've seen the lows in gold also. Do you have an opinion on the junk bond turmoil that we're seeing? Is there a crisis brewing there?

Gartman: It's going to get worse. When I write my rules of trading every year on the Friday after Thanksgiving, there are two rules out of the 18 that really are important. The most important is: Do more of that which is working, and less of that which is not. But the one that is the most fun is: There is never just one cockroach.

Whenever there's a problem, there's another problem. Whenever there's another problem, there's usually another problem. When a company issues a warning on earnings, rest assured that there will be more warnings on earnings, and earnings will fall.

When one company in biotech has a problem, rest assured that another is going to follow. When one steel company says its earnings are weak, rest assured that the next steel company is going to say the same thing. There's never just one cockroach; there's always more.

That's happening in the junk bond market. Third Avenue was the first to make its problems known, and then put restrictions on what you can't sell. If you're an owner of Third Avenue, what are you going to do? Well, you can't sell your Third Avenue holdings, so you have to sell something else.

Art Cashin has a great line that is applicable at this sort of time: "Sometimes you can't sell what you want; you have to sell what you can." The stock market hasn't gone anywhere this year, though we've seen a lot of volatility. You've been a bull on U.S. stocks for many years. What's your outlook now?

Gartman: I'm neutral. The best thing to do is to go to the sidelines, say thank you and let other people trade. Do you think the Fed did the right thing by hiking interest rates?

Gartman: They had no choice but to raise rates. They've signaled it so often that if they didn't, they would lose any and all remaining credibility.

We'll have one or two more rate increases next year, but that's probably as much as we'll get. At best, they’ll take the fed funds rate late next year to less than 1%.

That said, they should have begun raising rates two years ago. They should have already had the overnight Fed funds rate at 2.5%. They made a mistake in not doing so, and now they're stuck. Do you think they're behind the curve now because they haven't moved for so long?

Gartman: Absolutely. Are there any areas you're optimistic about?

Gartman: Not really. I love owning crude oil tankers, but that's about the only thing that makes fundamental sense to me at this point. You can own tanker stocks, but other than that, there's nothing I find compelling. What keeps you up at night?

Gartman: One is geopolitical risk. We probably have enemies within the country already. Though it's nothing compared to what the Europeans have to deal with. We at least have two oceans to protect us; they don't have oceans to protect them. My other concern is about the electrical grid in the United States. I'm concerned about potential hacking into and closing down of the grid. That's my real fear.


Tuesday, December 15, 2015

Opportunity to reducing long exposure

THE S&P LOOK OMINOUS:… And It’s the Best of Breed: The market is “bouncing” a bit this morning but the volume is coming in on the downside and yesterday’s rally was on terrible “internals” as the number of stocks falling dwarfed the number rising!
SHARE PRICES HAVE FALLEN FOR YET ANOTHER DAY, as seven of the ten markets comprising our International Index have fallen while only three have risen and of the seven that have fallen five have fallen by more than 1% with the European markets leading the way lower. For the year-to-date, stocks in global terms are now down 512 “points” on our Index or 5.2%, while stocks here in the US are down a much less severe but still nonetheless important 1.8%. Interestingly, stocks in “Asia” have tended to lead the way lower for most of the year, with the market Sydney down 9.3%, or with stocks in Hong Kong down 9.6%... and let’s not forget the weakness in Brazil, where that market is down 10.5%. So, just as some here in the US say that this is not a stock market but a market of stocks, we say that global investing is not a global market but may be a market of specific spots around the globe.

That said, we are very gravely concerned about the validity of a bull market and the harsh reality of a bear market in global terms, for one after another after another of the various markets around the world is breaking upward sloping trend lines; has topped out well below previous highs and is making new and lower lows. This we find disconcerting and this we find worthy of note. It is time once again to seek the safety of the sidelines. This is not the time to be aggressively bullish of equities but rather this is the time for… as we say here in the South… “hunkering down,” for getting smaller, for curtailing exposure.


Monday, December 14, 2015

Hedging retirement portfolio with shorts

SHARE PRICES HAVE FALLEN VERY, VERY SHARPLY since we marked them here on Friday and as our old friend Doug Kass likes to say, “Risk happens fast.” Risk has indeed happened very fast as one major trend line after another in one market after another has been broken through materially and importantly. 

Nine of the ten markets comprising our International Index have fallen and only the market on the mainland in China has risen, with eight of those nine having fallen by more than 1% and with two of those nine having fallen by more than 1%. Our Index has lost 153 “points” since Friday or 1.6% and for the year-to-date, stocks in global terms are now down 481 “points or 4.9%, while the S&P is 48 “points” or 2.3%.

Sell into strength

On Friday we said that we were considering adding short hedges to our retirement funds in order to protect against the downside, but we failed to act; that is we did not make that an “official” recommendation and indeed we did not take any such action on our own. Clearly we should have. Clearly things were coming apart at the edges of the markets and clearly, in retrospect, we should have taken action. We’ll do so today on any minor intra-day strength that might evolve and as we write stock index futures are trading 12-13 “Big Figures” higher and that might serve as enough intra-day strength into which to sell.


Thursday, December 10, 2015

Sell the crude oil rallies for now

As long as crude is bidding for storage, as long as there's an abundance of crude — and there is an abundance of crude — as long as the Saudis continue to say we're going to defend our market share, any bounces that you get will be short term.

End of OPEC influence on oil prices ?

OPEC, really, for all intents and purposes is now just a visit to Vienna. They've said to the free market, you price this stuff, we have lost our capability.

Monday, December 7, 2015

The Germans see inflation under every rock; in a period of deflation I find it astonishing.

I've been trading for 40 years, and anytime you see a four Euro move, you have to stand back in absolute awe of in the majesty of that move. It is stunning. This is something more than a bounce. 

This is a big turning point for the currency and the commodity markets, If you can buy grains, gold and cotton lower you probably should.

What you saw Thursday is probably supportive of gold for the next few months. Own gold in Yen terms, that's the trade.

Fed Rate Hike
There's no doubt she's [Janet Yellen] going to raise. But the question is how aggressive she will be at the turn of the year.