Free Editorial
A Cold Wind from the East
From the August 17, 2015 HRA Journal: Issue 237
Well, that wasn’t fun. Gold plunged through $1140 and toyed with $1080 for three weeks before making a small comeback. You can make a case the drop and the reaction to it being the “capitulation event” we’ve been waiting for but I’m not totally sold on that. I still want to see that first Fed rate hike next month which I think is more likely to mark a bottom though the longer gold holds above $1100 the stronger the case for the last plunge being “it”.
China provided the black swan with its Yuan depreciation. How far that goes remains to be seen. Beijing is managing the Shanghai market “well” so maybe it has the same luck with the currency.
Intervention
From the July 16, 2015 HRA Journal: Issue 236
Right now it looks like Greece will be resolved though I think it’s destined for a fourth bailout which won’t be completed. Hope I’m wrong about that but the debt mountain is getting to be un-scalable and the damage to its banking system worsens hourly.
Chinese markets look like they will get a reprieve either though volatility is so high in that market its dangerous to read much into one and two day moves. Interventions like this don’t work most of the time. Assuming this one won’t either is simply betting the odds.
Visibility
From the June 28, 2015 HRA Journal: Issue 235
As I’m sure most of you figured out long ago I write this sidebar last. Quite a bit has happened in the past 24 hours only some of which is dealt with in the issue.
Greece is obviously a big deal in Greece but I still think the damage is containable and largely contained already. I don’t expect markets to be happy if Grexit happens in the next week or two but I’m not convinced its crash material either. Indeed, unless some markets trade substantially worse in coming days it should be clear even to the Syzira caucus that they badly overplayed their hand. The simple truth is that the Greek economy is not that important, something that should have been factored into the game theory a bit better.
Selectivity
From the June 9, 2015 HRA Journal: Issue 234
Summer’s here. That global warming thing sucks for most of the planet but its done wonders for the weather in the Pacific Northwest and Canada’s west coast. You can see the impact of longer sunnier days already in the local markets which are seeing lighter volumes and in calls to brokers during the trading day. The background noise sounds suspiciously like a patio full of drinkers rather than an office. Probably just a line problem.
We all expect summers to be slow and boring in the markets. So much so that it’s usually a self-fulfilling prophesy. That doesn’t mean we should completely ignore the markets though. Summer often gives us a foretaste of the autumn. If we see even a little positive action during the doldrums we’re usually set up for a better fall market.
Central Banker Speak
From the May 25, 2015 HRA Journal: Issue 233
We near the end of May with most major indices again at or near record territory. Traders have pushed back their estimates of the first Fed rate increase. This came in the face of slightly stronger US economic readings and slightly weaker ones just about everywhere else.
Gold is holding its range better than the last three times and base metals are trading better than most mainstream publications would have you believe. More importantly, companies with real good news continue to see traction. That is the first step to the resource sector rebuilding itself – if it lasts.
Who to Believe?
From the May 6, 2015 HRA Journal: Issue 232
Markets, or rather the inter-relationships between markets, just seem to get stranger. The US puts out weaker than expected economic readings but bonds locally and overseas trade like the odds of a rate increase are better. That doesn’t translate to the US Dollar at all which seems to be falling off its pedestal.
The falling dollar lights a fire under a number of commodities, even hapless iron ore, but has no positive impact on precious metals that have a currency trading component. It’s hard to know which market you should trust or take a cue from, assuming you should trust any of them of course.
Priced In or Priced Out?
From the April 15, 2015 HRA Journal: Issue 231
The major markets are refusing to view anything as bad news. Weak economic reports mean the Fed will hold off—good ones mean it doesn’t matter if they do. With all that positivity it’s hard to know what is priced in these days. Everyone is buying into the script that any weakness in Q1 was just weather related and will soon turn around. The fact that most April indicators haven’t really done that doesn’t seem to faze anyone.
We’re into earnings season now. As I note in the editorial traders need to hear lots of positive forward guidance. If they get that they won’t care if earnings are down overall which they will be. It’s all about tomorrow.
Painted Into a Corner
From the March 31, 2015 HRA Journal: Issue 230
After a month of pain gold traders got some relief thanks to a dovish Fed. The price hasn’t moved enough to have a big impact but it’s nice to see a bit of green on the screen. The next US payroll report will define market sentiment for the balance of the spring. Fed chief Yellen basically said there would be no April rate hike and the wage gains, or lack thereof, in the next payroll report should decide if the first rate increase comes in June or not until autumn.
So far there hasn’t been much of a financing window for the juniors this year. After good activity in January thing have cooled and there are few placements getting announced. That could change if the next payroll report gives gold another boost.
US Dollar: Killer App
From the March 9, 2015 HRA Journal: Issue 229
More of the same. The US Dollar continues to surge and mow down everything in its path. The distortions created by these currency moves are getting large enough to be dangerous. The potential for one or more emerging markets to get into serious trouble based on US denominated debt is quite real now.
Even Wall St which refused to view any news as negative is starting to worry. Imported deflation won’t be enough to save profit margins for a host of multinationals if the Dollar keeps rising. The minor—and they are minor—rate increases the Fed is considering shouldn’t matter but in a zero bound world they do. Traders are more convinced than ever that rates will rise soon. I’ve thought they should for over a year but Yellen needs to be very sure when she makes her move. A policy mistake now could be expensive for everyone.
Tarnished - Part Two:
From the February 12, 2015 HRA Journal: Issue 227-228
This last of three issues covering my thoughts about 2015 will focus on base metals and a couple of bulk materials with some guesses on major markets. The editorial was a long one and has been split into two parts of which this is the second. This final installment of the early year market overview deals with bulk minerals, oil and major equity indices.
Iron Ore and Coal: Just Ugly.
The chart below shows the slow motion collapse of the iron ore market through 2014. The price is off 45% from the start of the year and hovering at lows not seen since the modern era of open market (rather than negotiated) iron ore pricing started in 2009.
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