Monday, October 31, 2016

Reasons Oil will stay between $40 - $52

As long as Rosneft continues to stay outside and produce as much as they want, as long as you have problems in Venezuela, as long as you have the Iranians continuing to increase production, and having the Chinese remove themselves where they had been buyers buying for their own SPR(Strategic Petroleum Reserve) and apparently having removed themselves. I think it's going to be difficult even if they get an agreement to put prices very much higher at all, if at all.

Maybe, we get spot WTI back to $52 again. I think that will be difficult. Maybe we get Brent, the official international marker crude, to $54 per barrel again but the problem is the contango continues to be extremely wide.

Wednesday, October 26, 2016

Medium term 10 year bond rates to stay below 1.95

Rates can go higher, but not dramatically so. It's going to be very difficult to get the 10-year much beyond 1.95, at least over the course of the next year or two.

Ten years from now, where will rates be? A lot higher than where they are right now. Where will they be a year from now? Not much higher than where they are now.

Monday, October 24, 2016

Trend is up despite some warning signs

SHARE PRICES ARE UNIVERSALLY HIGHER as all ten of the markets comprising our International Index have risen in tandem, and they’ve done so with some sense if vigor, for four of the ten have risen by more than 1% and as several others were very nearly 1% higher. It is rare when there is this sort of universality in equity prices around the world, and historically such occurrences have taken place either at the very beginning of material new moves or at the very end of sustained bull or bear markets.
Margin debt continues to give us a great reason for pause and concern about equities. There are any number of ways to look at margin debt numbers and we’ve included charts of margin debts several times over the course of the past several weeks noting that the peak in margin usage characteristically… at least since the turn of this century… has led the downturn in equity prices by a year and one half or so.

We have to admit that the trend is up; that the monetary authorities are continuing to supply reserves to the systems around the world and that that supply is making its way into equity prices rather than into plant, equipment and labor. We are seeing, in broad global terms, what we have previously referred to as the Zimbabwe-isation of the global capital markets and we’ve no choice but to accept that fact and to recognize that that trumps all other “fundamental” and/or technical concerns:

Thursday, October 20, 2016

If I was forced to buy or sell gold in US dollar terms.....

If you made me take a position in dollar gold—if you said, “Dennis, you have no choice, you must take a position, you must either buy it or you must either sell it”—I'd be a buyer, but only if a gun were held to my head and I were forced into taking action.

Wednesday, October 19, 2016

Why Corn prices may have bottomed

It's time to be a buyer of corn, so maybe it's time to look at the Teucrium Corn Fund(CORN).

If there's one thing in the world you can absolutely count on, it's that year in, year out—as long as the weather is average―we produce more grain every single year than we did the previous year.

Our farmers are the best in the world. Our agricultural universities continue to do a better job at genetically making plants better and more efficient. We apply better types of fertilizer each year than we did before, because the genetically modified crops use less water and use less fertilizer.

We're just better at growing crops. This year, we're going to grow a crop of corn totaling 15.1 to 15.3 billion bushels. It was only 10 years ago that a 12-billion-bushel corn crop was a record crop. Now we're growing 15 billion. Next year, unless the weather gets ugly, we'll grow 15.4 billion.

Corn prices have come down a long way. Everybody knows we're going to produce an all-time record crop and yet, corn doesn't make a new low. One of the oldest rules in the book is that a market that doesn't go down any longer on bearish news isn't going to go down anymore.

That's why I like corn.

Tuesday, October 18, 2016

Simple reason crude could go down | All OPEC members cheat

At the meeting in Algeria last week, some sort of agreement was reached, to at least at freeze or maybe even curtail production. OPEC's been producing about 33 to 33.25 million barrels of crude a day. They say they're going to freeze production at something closer to 32.5 million barrels of crude per day.

If history has taught us anything about OPEC, it's that OPEC cheats. Every one of its members cheat. They cheat when they need to. They cheat when they don't need to. They cheat when it's good for them; they cheat when it's bad for them. They'll cheat again.

What I find interesting is that everybody got excited because Russia said it was going to perhaps sign on with a production freeze. And yet [Tuesday] morning, Mr. Sechin, the president of Rosneft, Russia's largest crude oil producer, asked, "Why should I curtail production? I'm going to continue to increase production."

He is brutally aware that $50 oil plus the $4 contango for one-year forward futures gives you $54. Every fracker in the United States is wonderfully profitable at $50-55 per barrel.

If you can have $55 for the one-year forward in crude, every banker who's lent any money to crude producers here in the United States is going to mandate that they get some hedges in place. Crude oil wells that have been drilled but capped are going to be brought on to production. It's going to be very difficult to push nearby WTI above $50 by more than a buck or two.

The rally in crude oil probably is going to very swiftly run its course.

Monday, October 17, 2016

Commodity markets on balance do not look healthy | Gold Bullish in Euro and Yen terms

Click here to watch the video if it does not play.

I have liked gold solely in euro terms and in yen-denominated terms. The monetary authorities in Europe and in Japan have no choice but to continue to be extraordinarily expansionary. Their economies are weak and getting weaker. Our economy is at least holding up reasonably well. By December, the Fed will probably take the overnight rate up 25 basis points.

Europe can't even consider the notion of tightening in at this point. The political and economic circumstances mandate that the ECB remain as expansionary as it can be. Therefore, gold in terms of the euro can go a good deal higher. I'm very bearish of the euro itself. Once we get under 1.095, the next stop is 1.05, and then we go to par.

Let's say dollar gold holds steady at $1,250 or so, and the euro goes to 1.05. In that instance, gold predicated in euros—and an ETF like the AdvisorShares Gartman Gold/Euro ETF (GEUR)—goes up another 5% or 6% from these levels.

So I'm bullish gold, but only in terms of the euro primarily, and then in terms of the yen secondarily.

Sunday, October 16, 2016

Hillary Clinton victory would mean Washington gridlock and its a positive for stock markets

If you’d asked me a week ago what the election impact will be on the capital markets generally, I would have said it's clear that Mrs. Clinton is likely going to win the presidency. At the same time, the Senate and the House were probably going to remain in the hands of the Republicans. Then we would have the best of all governments—we would have utter and complete and total gridlock. Markets like gridlock, because government can't do anything to you; they can't hurt you.

Now, however, with the virtual collapse of Mr. Trump's campaign over the course of the past week, I fear the Senate may actually be taken over by the Democrats.

It's also somewhat possible—maybe only a 20% probability—that the Republicans may even lose the House. If that were to occur, if we were to get a Democratic president, a Democratic Senate and a Democratic House, that would be terribly bearish for stock prices.

Thursday, October 13, 2016

Long term commodity bull super cycle is not over

Given the numbers of people who have truly thrown up their arms and given up on commodities, and the number of commodity hedge funds that have been forced to close—that’s  the hallmark of a market that’s about to go in the other direction.

Wednesday, October 12, 2016

Feeling uneasy about the market

Regarding the market here in the US, the trends of the broad indices remain upward, if again we define the “trend” by the 200 day moving average of the index in question or of the individual stock. The Dow, for example, is nearly 3.1% above its upward sloping 200 day moving average and that obviously remains bullishly inclined. The S&P’s 200 day moving average continues to move “from the lower left to the upper right” .... and the broad Russel Index is a stunning 9.2% above its upward sloping 200 day moving average. Clearly the trends, in broad terms, remain upward.

But… and isn’t there always a “but” of some consequence?...we are nonetheless bothered by the fact that so many of these broad indices “seem” to be turning for the worse, not the better. We are bothered by  the fact that the S&P “seems” to be failing in recent day, refusing to make new highs while breaking short term, but nonetheless seemingly important, short term upward sloping trend lines as seen in the chart of the S&P this page. The same can be said of the Dow; of the NYSE and of the Russel. This we find worrisome; this is what keeps us up at night.

Finally, we found it more than merely passing strange that on the first of the month stocks did not advance. Historically, new inflows of money have taken the indices higher on the first trading day of each new month. This time that did no happen, and that has given us reason for concern. ...... we find ourselves uneasy about the equity market… very, very uneasy

Tuesday, October 11, 2016

Why Gold took a beating last week

SPOT GOLD: Gold fell relentlessly, ostensibly on the news that the ECB might well “taper” its purchases of sovereign debt securities. With the Chinese removed from the market because of the National Week/Golden Week celebrations, and with the Indians reticent for whatever reason to step into the fray, gold had sellers everywhere without buyers of consequence. Do we think gold is overdone on the downside; yes, we do indeed, but so much technical damage has been wrought that any bounces toward $1292-$1297 will prove to be formidable resistance on a first bounce. For now, we have wounds to lick and heal.

As for gold and the other precious metals they remain rather obviously weak and as we move away from Tuesday’s collapse it appears more and more that this was a forced liquidation on the part of a large… actually a massive… hedge fund out of London. The sheer panic that swept through the gold market then really hadn’t the look of a sell off predicated upon a rumoured push by the ECB to curtail its purchases of sovereign debt securities, nor had it the look of a rush on the part of hedgers in the gold mining industry to hedge forward production. Rather it had the look of forced margin-clerk liquidation. It looked like panic on the part of someone, somewhere who had lost control of the situation.

Reading through the always interesting… but usually openly anti-everything and especially anti-TGL… ZeroHedge comments, we came across the following regarding Mr. Crispin Odey and the troubles he and his funds have been having of late. ZeroHedge wrote

        In mid-August, when the market was enjoying its low-volatility grind higher, we observed that one of the biggest bears in the hedge fund industry, Crispin Odey, was having a bad year, with his hedge fund sinking some 30% through the end of July. Since then, conditions have only gotten more precarious for the billionaire hedge fund manager, and as the FT writes, for Odey, who is betting it all "on a violent unwind of a QE bubble", the endgame may have arrived.
         As Miles Johnson writes [for the Financial Times], "many financial commentators have warned that current monetary policy has inflated a bubble that will one day violently pop. Few of them have risked money betting on the precise manner in which a chaotic unwinding of quantitative easing will play out through financial markets. This makes the portfolio of Crispin Odey, a London-based hedge fund manager, an interesting outlier. Mr. Odey is one of only a handful of investors who has backed up his dire prognosis for the global economy with a series of large, leveraged trades designed to pay off in the event of a crash."

To be sure, as we noted two months ago, Odey's bets are predicated on a collapse of Japanese bond prices, a surge in the price of gold and immolation of equities. Or as the FT puts, it, "If it works he may make hundreds of millions of dollars for his clients. If wrong his fund may not survive."

We are not rumor mongers here and we do not like to report on other people’s problems for we’ve plenty of our own errors and sins to account for; but the fact that much of this was reported in The Financial Times allows us to speculate that Tuesday’s sell-off did look like liquidation rather than fundamentally warranted selling. This view is further supported by the fact that the open interest in the COMEX futures has fallen by more than 4% this week, suggestive strongly of forced liquidation and a throwing up of the hands… and of the stuff in one’s stomach.

via ZH

Monday, October 10, 2016

Oil term structure bullish for oil prices

WTI CRUDE OIL: The Trend Line’s Been Broken and The Term Structure’s Bullish: 

Supply has never been a problem; there is plenty of… indeed an increasing supply of… crude; the problem is with demand. But the contangos are narrowing and the trend line’s been broken and any correction over the next week or two back to this trend line is to be bought.

Thursday, October 6, 2016

For the last 17 months we have been in a global BEAR Market

I think you’re going to be better off sitting in cash, being very quiet, being patient, and if you have to own something, hedge it up.

Tuesday, October 4, 2016

Deutsche Bank MAY be let off with a punitive fine

We should have understood that the pressures being put upon the Deutsche Bank by the American government in its demand for a fine of $14 billion would be ameliorated in some manner. Perhaps we should have understood that the demand for that fine was solely and completely one of political expedience as the Obama Administration wanted to appear to be rather obviously anti-Wall Street and rather more obviously set upon teaching capitalism a lesson, but would also be amenable to some lessening of the fines in question so that a substantive sum of money could be secured from a foreign, global bank prior to the November election. 

Yes, perhaps we should have known that the whole US government attack upon The Deutsche Bank was political in nature and that it would be resolved not from an economic perspective but from a political one instead. But amidst the chaos of Friday morning and amidst the collapsing stock markets evident at the time, and amidst the shocking weakness of the EUR on all fronts… relative to the dollar; relative to the Swiss franc; relative to gold et al…perhaps we should have decided then that the streets were running with figurative blood and that the time had come to turn bullish of shares… perhaps. But we are not that wise; nor are we that courageous that we shall step out into heavy traffic and dodge the dangerous cars and trucks of ill fortune that seemed so intent at the time to kill us at a moment’s notice.

If the US government is intent now to let the Deutsche Bank off with a relatively small fine… and $5 billion or so seems like a rather archly punitive fine of the first order, but that’s another question for another time… then perhaps the “Zimbabwe-isation” of the global capital markets remains firmly intact. This process of global monetisation on the part of the major central banks is still firmly intact and is not going to go away anytime soon and it is this process that does trump all else. 

If the great Marty Zweig taught us all decades ago never to fight the Fed, then we are to learn today never to fight the collective force of the central banks in aggregate either, but should instead see this as a wind at the stock market’s collective back.

Monday, October 3, 2016

Deutsche Bank will be bailed out if needed

We are not privy to the goings-on in Germany at Deutsche bank and we are certain that there are myriad problems all of a sudden seemingly coming to a head that are causing the bank to be talked about in “Lehman”-like terms. The question is whether Merkel & Company shall come to the Bank’s aid and save it from failure, and although Ms. Merkel has said countless numbers of times that she has no intention of doing so, in the end she will. She shall have no choice. Germany… and by extension the whole of Europe, and buy even further extension… the industrialized world cannot abide the collapse of the Deutsche Bank. It will be bailed out. Other banks in Germany can and would be allowed to fail, but the Deutsche Bank cannot and will not be.

In the world of capital markets, perception is all-too-often reality; if the market “perceives” you as impaired, you are impaired and if the market “perceives” you as insolvent, you are effectively insolvent… at least for the moment. This is the harsh reality of the market and as our old friend from 25 years, Mr. Barry Bausano, the Chairman of the Deutsche Bank’s hedge fund business said yesterday, even though the bank’s prime brokerage operation is very nicely profitable the bank still has “a perception issue.” Barry and others at the helm of the Bank’s various capital markets divisions have said that there have been no noticeable outflows of funds from the Bank, and given that that is so the Bank will likely weather the storm. Certainly we expect that that is true and at the moment we’ve no doubt but that that is indeed and in fact true. However, once again, in the capital markets, perception is all too often reality.

Risk does indeed happen fast, as our old friend, Doug Kass, reminds everyone.