Here in so cal I've been in shirtsleeves almost every afternoon since Xmas, but today I had to turn on the air conditioner at the office, and I'm on the coast! Inland they must really be running AC. I don't know if there are any short-term implications for NG, but there is no snow in the Sierra so no hydro this summer so all electricity will be nuclear or gas-generated. Also it will be against the law to water a lawn. Or take a solo shower.
He has missed the move on gold and gold miners. Sentiment, overall is still quit negative. Looking for a short-covering rally to $1320-$1330 in coming day, then it will be time to sell some "trading shares".
I did most of my buying last year when gold was under $1220. As far as technicals, yes a close above the $1268-$1275 area would be bullish as the DEC 2013 high (before taper) was in the $1268 area.
For many weeks, I have been predicting that there will be a deflationary event, perhaps financial but it could be any sort of "black swan" event. For a few days or weeks, if I am correct, prices will fall for everything as there will be a mass grab for liquidity. It will be at that time, I will be a buyer again of miners as gold may hold its double bottom of $1180 or may break down all the way to $1000-$1050.
It is my view that the policy responses will be stepped up QE and increased fiscal deficit spending. Central banks cannot "afford" deflationary forces to set in as debt service by all borrowers-governments, banks, industry and consumers-would be much harder. With so many asset prices around the world at extreme highs and loans taken out against them, credits that were "good" at high asset prices would go bad, with a negative self-reinforcing loop-should asset prices (bonds, stocks, and real estate) fall for more than a few months. Central banks, especially, will yield to political and social pressure to ease as:
1)There is little inflationary pressure
2)QE has worked in the past to combat deflationary forces
3)Gold will do extremely well as an alternative to fiat currencies
With Germany's Constitutional Court ruling, it seems Euro-Zone bond investors gave themselves a "green light" to buy more periphery bonds.
1)Spain's 10yr hit an 8 year high (low yield) of 3.58%
2)Italy same at 3.68%
3)Ireland, in recent days 10yr got as low as 3.06%
The underlying financial situations of these countries are not their best in 8+ years-they are all worse and getting worse each month. What we have is a money flow, out of EM and Japan, seeking higher yields or relative safe haven, in the case of former EM bond buyers. The FED, BOJ, BOE and anticipation of the ECB's QE control the markets. It will work as long as their is confidence in the bubble. But it is a bubble and it is my view that further trouble in the EM markets and/or initial trouble in the Euro Zone market is soon to reveal itself. Most likely, no later than the 2nd Q.
TrimTabs views of econ, they look at withholding taxes to determine job and income growth shows;
1)Increase jobs, in recent months, at about 100,000/mo
2)Nominal income up 2%, or about equal to inflation
Bottom line, if the 1%s keep spending because of the wealth effect, the economy can keep muddling through. However, if the 1%s cut spending, then the rest of us will not be able to spend enough to make up the difference as real income is consistently flat y/y.
Also, for the week end 2/1, both steel production and RR shipping were down vs flat lining the prior 3 weeks of Jan.
Consistent with a prior post I commented on why some, Spain and Ireland, bonds were way over-valued. For example the Spanish 10yr yields less than AAPL's 10yr and the Irish 5yr yields less than the US and UK's 5yr The reason, above and beyond US money going into those markets because of QE? It is the Japanese.
The Japanese, with their active QE, are chasing yield (their 10yr is at .6%), around the world and trying to diversify out of the Yen and fast as they can as it is the stated policy of the BOJ to weaken the Yen. As a consequence, the Yen got as weak as 145.7 Yen to the Euro. It is now close to 139 Yen/Euro. When, and it is a matter of just "when" the ECB has to do QE, that will weaken the Euro and strengthen the Yen. Japanese investors/traders, that have sunk so much money into the Euro-zone bonds chasing yield will start losing money as the weaker Euro reduces the value of those bonds. The Japanese will become big sellers of Euro-zone bonds. The ECB will have to respond by buying those bonds, the Euro should continue lower-inducing more selling by the Japanese. At some point the "war" of QEs will stabilize. In the meantime, gold will catch a bid as the US, UK, ECB, and BOJ are all depreciating their currencies vs independent stores of value.
Wait till China starts devaluing their currency to help out their export industries. How will they devalue their currency? Flood the market with Yuan. More depreciating paper currencies vs independent stores of value.
Today, the German Constitutional Court passed on ruling on whether OMT (QE) was legal or not for the ECB to do. German nationals brought this suit back in 2012 when Draghi first suggested the ECB would do QE. By deferring to the European Court of Justice, the Germans are not going to stand in the way of QE by the ECB. In fact, members of the ECB, said in response to today's ruling, commented that the European Court of Justice is "friendly" to the EU and that will rule OMT (the ECB's language for QE) is within its mandate.
When the dung hits the fan in the Euro-zone, the ECB can engage in "active" QE, to stabilize the finances of its sovereign members. It simple terms, the ECB can buy bonds of any of the 18 Euro-zone members to help those governments finance:
1) budget deficits
2) bank bailouts
3) debt service
4)Counter panic selling
Bullish for gold (although it may not be immediate) as the supply of money (bank reserves) can go up without any increase in goods and services.
Within today's "jobs" number, construction was plus 48,000 jobs in Jan vs down 22,000 in Dec.
Yet, ISM services, employment sub index construction employment was down-one of the 9 industries that were down.
Which do you believe, the "government's" number, which has political bias and goes against the anecdotal evidence of poor weather most of Jan, or do you go with the private industry number?
My take is today's jobs number is artificially juiced by BLS seasonal adjustments to make the Jan's jobs number stronger than it really was.
Still, total hours worked were lower in Jan, than they were in Nov. At best, you can say, the economy flat lined in the Dec/Jan time period.
Within today's ISM services report was an employment sub-index. It was up in Jan vs Dec. However, when you look at the details, 6 industries were up, 9 industries were down. Perhaps the 6 that were up, hired more people than the 9 that were down and/or maybe those industries are larger. Still, when 50% more industries are laying off, then that suggests to me the employment sub index should have been down month over month or below 50-instead of 56.4.
Also, backlog was below 50 for the 3rd month in a row and export orders turned lower than 50 as well. Today's report was not a strong report.
My comment is beware the "happy talk" most of time and quite frankly most of the guests on CNBC just don't know what they are talking about. One of the biggest myths, that has been passed for truth the last couple years is that corp. America is flush with cash. Well, they do have more cash, but debt is up as well, with net debt up 15% since 2008-9. Bottom line, corp. America is more leveraged today that it was before the great recession.
As most can tell, from my posts, I am quite skeptical of other peoples conclusions w/r to economic data. For example, in recent months the ISMs, both Mfg and Services, have been strong-giving most the view the economy is quite strong. I have two issues with that:
ISMs are measured by rate of change. So lets say mfgers were operating at 90% capacity, but a severe recession happened taking capacity usage down to 60% with some firms going out of business. Should business improve, for the surviving firms, to 62% and continue higher the ISM numbers would be very strong-over 50 for as long as business is improving. Yet is would be quite obvious, the improving business by a couple % per month, is no where near the prior 90% capacity level-even though ISMs could be over 50 for years. Also, ISMs, over state the underlying strength of what they are trying to measure because, the surviving firms get more business that they would have other wise because of businesses that failed in the severe recession. So 90% capacity post recession is actually weaker than the prior recession 90% because there are fewer firms. Its called the "surviving firm effect".
To continue from the prior post. The US, Japan, much of the Euro-zone along with dozens of other countries have to reflate. They simply will be unable to service there debt and unfunded liabilities.
Quite frankly, I think the "process" is already set-it is going to happen. The political will to do the correct policies to forestall financial collapse-high inflation followed by years of depression is just a matter of when. My investing horizon as to "when" is 2-5 years out.
Gold will do well if I am correct. That then begs the question? When I sell my gold-hopefully for over $3000/oz, what do I park my proceeds in? I don't have that answer yet. The commodities you are thinking of will go way down in price during years of depression. I would want to be a buyer when prices fall below production costs, but that maybe a few years into the depression. What do I hold until then?
Gold, for centuries has been the ultimate store of value. Plus, with the recent lower price, many gold projects around the world are not being put into production. So, by 2015, world gold production will fall vs the recent annual plateau since 2011. Production will continue to fall in 2016 and 2017. The supply of paper currencies, fiat money, will continue to increase by mid-high single digit %s. Simple supply and demand, in my view, gold will have to rise vs paper currencies because of its relative scarcity.
Now, given my view in recent months, that there is going to be a "deflationary event" that will take just about all commodities and stocks down-some bonds may get a bid as safe haven-gold may have one more move down. Maybe it holds its double bottom of $1180 of June and Dec 2013-maybe it breaks lower. However, coming out the other end will be policy responses by central banks and perhaps fiscal policy (by many countries because of the fear of deflation) that will be easing and stimulative. The growth of fiat currencies may grow double digits %s for several years. That should be a perfect scenario for gold.
From my posts, you know that China, Asian in general, Saudi Arabia, Middle East in general have been big physical buyers in 2013. Swiss gold refiners are very busy shipping gold to these locations and have commented that physical supply is short and some bars, from the West, are time stamped in the 1960s. So far the US is failing to delver the gold Germany wants back after they deposited with the US in the early 1950s. The Saudis have been net sellers of treasuries for the last 7 months, but upping their gold holdings.
Gold is a very curious market, in recent months, physical supplies are scarce, yet the price doesn't go up to reflect this scarcity. Some day that is going to change. As we know, with the exception of Germany, the ability to service their debt of the other euro-zone countries is getting worse as is the US.
Looking at the fall of the Euro at the catalyst for a bond selloff, then it is important to know its recent ranges vs the $.
Recent high, 12/27, was 1.3893. Recent low 1.3477 on 2/3. It is my conclusion if the Euro traded and stayed below 1.3477 and goes down past 1.3450, then US buyers might start to be concerned about their principal in Euro-zone bonds and start selling.
ECB meeting on 2/6, not normally important to US investors, now for me they are very important. Certainly, if there is Q&A with Draghi, will questions arise about not sterilizing in 6 of the last 10 weeks and is this a policy shift?
Japan is "stuck" in a negative loop of QE. The ECB is "actively" doing QE by the back door by not sterilizing. The FED now tapering, and will probably continue to do so, unless there is enough negative macro-econ news and/or fears contagion from the EZ or EMs-will have to ramp up QE later.
Some "negative news" and some time will have to pass, but if I'm correct all 3 central banks will have to go full bore with QE. That will be the time to be a buyer of stocks, for a time, but a time to own gold as all three will depreciate their currencies vs independent stores of value. S&P 500 will make new highs 2100+, until inflation becomes a problem, but gold will continue higher until $3000-$5000.
Massive QE is weakening their currency-by design by the BOJ. Falling Yen increases the costs of imports, currently growing faster than exports, and the closing of nuclear plants has caused a surge in energy imports. As a consequence, Japan's trade deficit (2013) was $113 billion, double 2012's deficit-after running surpluses for decades. Why is this important? Debt as a % of GDP is 250%. When Japan ran surpluses, they could self finance their budget deficits and debt with domestic savings and trade surpluses. Now that they are running trade deficits, there will come a time when they will need foreign capital to finance budget deficits. Well, foreign capital will not come in if the currency is in constant decline as it puts the principal as risk.
If foreign capital doesn't come in, then the BOJ will have to be the buyer of last resort-more QE. Too much QE, coupled with a falling currency is a self-reinforcing loop of higher inflation and a falling currency.
Rick Santelli of CNBC has an interview with a well traveled guy this morning. One of his stops was Mexico. Mexican officials told him that Japan Inc. is buying all it can in Mexico because they want to diversify out of their Yen risk. This is the start of the negative loop as capital leaves the country instead of staying in the county to invest to build export capacity.
At some point in time, when the market cares and wants to test Japan, there will be a tipping point. The gentleman Santelli interviewed thought the Yen could go to 200-300 to the $. If that happens, Japan blows up financially as interest rates will rise, making the debt unserviceable.
Putting these posts in bite size in case YHOO has continuing problems. So why is the ECB unable to sterilize?
1)Euro-zone banks have stress tests later this year, they are building cash in order to pass those tests
2)Euro-zone banks have been loading up on sovereign debt since the crisis. As a group think they may think they have enough and don't want to overwhelmingly own sovereign bonds
3)EZ banks may think, lack of progress on the solvency issues for many Eur-zone countries is becoming a credit risk
4)Maybe the ECB, knowing the capital shortage EZ banks have, stress tests coming up, negative private sector loan growth y/y since 6/12 is purposely being a buyer of sovereign bonds to re-liquify EZ banks to keep a financial crisis from happening.
Given my views that "liquidity" is not solvency, I think the markets will "test" the Euro-zone, just as it is testing the EMs. If I am correct, there will be another leg down in US stocks as a stronger $ will hurt corporate profits that come out of the Euro-zone and questions arise that some EZ sovereign bonds are not good credit risks.
If there is Euro-zone trouble, then the FED will have to ramp up QE, so it doesn't become contagion for the US. Just before the FED ups QE and just after, will be the time to buy stocks again. Until then, we may rally for a few days/weeks here and there, but those are rallies to raise cash.
4th attempt to post-YHOO having lots of problems. First of all the title should have been, "Which central bank will blink first?". I already have the answer. In addition, in all my reading/research etc, I have not read what I am about to post.
The ECB, in the 10 Tuesday's since and including 11/26/13 has failed to sterilize 6 of those 10 weeks-I have no data for today's (2/4) activity. Failing to sterilize is a back door way to increase Euro-zone bank reserves by accounting book entries-QE by another method and name. How much since 11/26? Approx, 223 billion Euro or about 22.3 billion Euro/week. So while the FED is tapering, the ECB is making up the difference and then some. Implications: Given the relative scarcity of $s in the future, by $20 billion/month, and the ECB's backdoor QE, if they continue at the current pace of 20+ billion Euro/month-the Euro should fall vs the $. For Euro-zone exporters that would be good news. On the other hand, for a foreign investor in periphery Euro-zone sovereign bonds, a falling currency puts principal at risk. Currency weakness is what started the sell-off of EM bonds/stocks flight of capital. Back in early/mid December the Euro hit $1.38/Euro, today is closed near 1.3515 a decline of about 2%.
So how will the "market" react when it learns and cares that the ECB is doing QE? The Euro-zone needs a weaker currency (strengthen exports) and inflation-at least if it increases nominal GDP to help service the increasing debt of its weakest members. But will a weaker currency #$%$ bond inventors first, forcing a sell-off of those weaker member sovereign bonds? If bonds start selling off, then EM events of January will hit the Euro-zone.