A link to the full report is posted in the Subscriber's Area. 

The biggest takeaway from this report is RBC, one of Canada’s largest banks, is only now re-assuming coverage of the North American gold mining sector. Nothing signals a prolonged bear market like banks culling trading desks and firing analysts. As prices deteriorate, interest evaporates, liquidity declines and coverage disappears. When a new bullish story evolves it takes time for management teams to warm up to the idea of spending the money necessary to build a business unit to profit from it. The fact more banks are now engaging with the market suggests the sales effort is also going to receive a boost.

The estimate of the Brazilian coffee crop of 2019 is 49 million bags of 60 kg This means a 20 % drop from 2018, when Brazil produced a record crop of 62 million bags. This is a big difference. But it is due to the fact, first that Brazil is in the “off-year” of its two-year coffee production cycle, which alternates between years of high and low production cycles. The coffee trees are resting one in two years. Second, there has been irregular weather that was not good for the crop. And third, the farmers are diminishing the crop care because of prices that have fallen too low. This is happening after a bumper “on-year” which brought a collapse of prices. The influence of Brazil on the world coffee market is important because it is the largest producer. (62 million bags on a total world production of 175 million bags). But in the other countries the same causes have most of the time had the same effect.

What must be noticed also is that very low prices because of overproduction were normal to a certain extent, but as always, investment funds and speculators (or call these also investors with a euphemism) went about 51.000 contracts short (equals 12.750.000 bags) and then suddenly reduced these short positions to about 17.000. This of course amplifies the movements of the market, this time to higher but still not normal prices. In the meantime, the farmers are starving with a daily income of 3 dollars, flee their central American countries and try to get in the U.S. It’s a shame, a hard world. That’s why in my company we promote Fair Trade Coffee, now at about the double of the price of the market. We are making nearly half of our turnover with this coffee.

The Real is also an important parameter, but it is not the only one. The two charts of coffee and Real are often linked, but not always when such fundamental events are happening;

Thank you for this valuable insight into the machinations of the coffee market. The two-year cycle of coffee tree productivity is an important consideration when weighing the likelihood of a downtrend due to overproduction persisting. The fact farmers are walking off their farmers in Central America is an inhibitor to increasing supply but as you point out Brazil is the primary source of Arabica.

Linking his trade agenda with his Fed criticism in an early morning tweet, he said the two South American countries “have been presiding over a massive devaluation of their currencies, which is not good for our farmers.”

The president’s action amounts to retaliation against two nations that have become alternative suppliers of soybeans and other agricultural products to China, grabbing market share away from the U.S. Rural voters, including farmers, are a key constituency for Trump as he heads into the 2020 presidential elections.

While the steel tariffs could crimp trade, the Latin American countries gain much more shipping crops to Chinese buyers. In the first 10 months of the year, Brazil has shipped $25.5 billion in farm products including soybeans and pork to China. That’s more than 10 times the value of steel and iron product sold to the U.S.

This action is as much about the persistent strength of the Dollar as it is about pandering to farm voters in swing states. The US Dollar has been trending higher against the vast majority of international currencies for the last few years. The growth differential the USA has enjoyed has been one factor in that strength but the Fed’s policy of balance sheet contraction and hiking interest rates was more important.

Instead, he said he wanted to demonstrate the strength of his nation’s $586 billion economy -- the largest in the EU’s east. Poland has doubled its gold holdings in the past two years and now has the region’s biggest stockpile.

Hungary, though, has been an active buyer too. Gold reserves surged 10-fold last year, setting the clamor for the metal in the countries around it in motion. Serbia’s strongman leader Aleksandar Vucic took note, ordering the central bank to boost reserves and prompting the purchase of nine tons in October. Vucic said last week that more should be bought because “we see in which direction the crisis in the world is moving.”

The biggest nation to emerge from the breakup of Yugoslavia still keeps some of its gold abroad, the central bank said by email. The region is buying more of the metal because of global uncertainty over trade and politics, Brexit and low interest rates, it said.

Romania had also sought to relocate some of its gold reserves from the U.K., but those plans were put on hold when the government behind them was ousted in October.

The massive investments in new gold supply made during the commodity bull market, in the decade to 2011, have resulted in mined supply of gold rising steadily. One of the reasons the gold market has been able to sustain a breakout from its base formation is because much of that supply is being acquired by global central banks. They are attempting to insure themselves against the threat of a disorderly resolution to the looming debt mountains built up over the course of a forty-year secular bull market for bonds.

Investors remain very concerned about the impact of slowing economic growth on global oil demand. While Q2 did show some softening, there have been several very bullish developments that most investors seem to ignore. For example, analysts focused all of their attention on the IEA’s recent downward revision of 2020 global demand projections by 100,000 b/d over the course of the last three months. However, at the same time, the IEA quietly revised historical demand higher by 190,000 b/d in 2017 and 110,000 b/d in 2018–a fact that few people wrote about. Notably, Q4 of 2018 was revised higher by a very large 300,000 b/d.

Our models tell us that more revisions are forthcoming. As always, our analysis revolves around the “missing” barrels. For example, the IEA still claims after its latest set of historical revisions that global demand for all of 2018 equaled 99.3 mm b/d while total supply equaled 100.3 mm b/d. This suggests that inventories should have grown by 1 mm b/d or 365 mm b for the full year. Instead, the IEA reports that inventories were unchanged for the year. We refer to the “missing” barrels as oil that was produced but neither consumed nor put in storage. We have long argued that “missing barrels” are a clear indicator that the IEA will revise higher its demand figures and once again that has been correct.

The IEA has a long history of demand underestimation. In eight of the last nine years, they have been forced to revise global demand higher by 1.1 m b/d on average (a number that is creeping higher). Despite this chronic underestimation and the continued presence of “missing barrels,” investors continue to ignore the warning signs of stronger than expected demand.

The backwardation in the oil price curve suggests at least a near-term supply deficit relative to demand. That has been created either by the slowdown in the global economic which could have impacted demand growth or it is a combination of factors like the reduction in OPEC and Russia supply and the slowdown in unconventional onshore US production. Regardless of the argument, the backwardation doesn’t lie.

A link to the full report is posted in the Subscriber's Area. 

Christine Lagarde’s first speech was today and she made a point to saying the EU’s governments need to step up and make a contribution to providing stimulus. The USA, UK, Australia, Canada’s provinces and China are already engaged in fiscal stimulus. The USA is also now inflating the size of its balance sheet and the total asset figure for the world’s major central banks is up by a commensurate amount suggesting the other central banks have not yet embraced the need for major additional asset builds.

The investment data shows how cautious private companies have become, with their spending in the first 10 months of the year at the lowest level since 2016. The continued stability in spending by state-owned firms’ is preventing an even stronger drop in the headline data.

Investment in the property market is one bright spot, with spending by the manufacturing sector barely above the record low recorded in September. Infrastructure investment growth continued to bounce along around 4% as it has all year.

“I’m quite concerned with property investment, the only stable element in fixed-asset investment now,” according to Xue Zhou, analyst at Mizuho Securities Asia Ltd in Hong Kong. “Monetary policy needs to be more supportive on economic growth and there should be more cuts to banks’ reserve ratios to help smaller banks.”

The first couple of months of the year are when the Chinese financial system gets its annual quota for lending and generally makes its full allocation by around Chinese New Year. That sends a surge of liquidity into the market in January and February but the broader question is how much of that is already priced in considering it is so predictable.

Finally, there’s little evidence that negative rates have held back lending. A recent ECB working paper shows deposits with commercial lenders have increased since the central bank introduced negative deposit rates. At the same time, companies with large cash holdings have cut their deposits and invested more. That’s exactly the goal of this policy.

In fact, banks that pass on negative rates to customers appear to provide more credit than other lenders. This suggests that, contrary to what those Wall Street titans say, the problem with negative rates is that not enough banks inflict them on their clients.

It’s certainly possible that monetary policy becomes less effective as central banks cut interest rates deeper into negative territory. Gauti Eggertsson of Brown University and Larry Summers of Harvard have looked at Sweden, a pioneer in cutting rates below zero. They concluded that while its first two negative moves reduced lending rates, this wasn’t repeated after two later cuts.

However, similar diminishing returns are seen in other unorthodox measures, including asset purchases. The authors also acknowledge that the rate cuts might have boosted Sweden’s economy via other channels, for example by depreciating the krona, allowing the government to borrow more and boosting asset prices.

Forcing people into speculative activity when asset prices are already at record highs is not exactly a recipe for financial security over the medium to long term. In the short-term it greatly increases bubble risk.

Drier than average conditions are forecast across the Brazilian coffee region over the next five days, particularly in Cerrado, Marex Spectron said in emailed weather report.

Regions of southern Espirito Santo, southeast Minas Gerais and southeast Sao Paulo are forecast to be wetter than average
In the next five days thereafter, the whole Brazilian coffee region is expected to be wetter than average, except for the northern coffee region, which is expected to be slightly drier than normal

VIETNAM

Typhoon Nakri is forecast to weaken to a tropical depression before it makes landfall over central or eastern Vietnam between Nov. 10 and 11

“It is associated with heavy rain and strong, sustained winds”

There is an anomaly of 10 mm predicted across the Central Highland region over the next five days
Drier than average conditions expected in the northern coffee areas
NOTE: Vietnam Coffee Harvest Threatened by Tropical Storm: Maxar

Arabica coffee is particularly affected by weather conditions in Brazil and the price is also influenced by the outlook for the Real. Meanwhile Robusta coffee is much more dependent on growing conditions in the Vietnamese highlands

“If China, U.S. reach a phase-one deal, both sides should roll back existing additional tariffs in the same proportion simultaneously based on the content of the agreement, which is an important condition for reaching the agreement,” Gao said.

Such an understanding could help provide a road-map to a deal de-escalating the trade war that’s cast a shadow over the world economy. China’s key demand since the start of negotiations has been the removal of punitive tariffs imposed by Trump, which by now apply to the majority of its exports to the U.S.

The US Presidential election is less than a year away. The time to prime the pump so growth is humming by the time people vote is now. China might have suffered more from the tariffs, because it has more to lose, but it is also well aware of the electoral timing the Trump administration is pressured by. That suggests a deal is likely to be signed and it is likely to be valid for at least a year.

“The jobs data was not really inflationary but very good for the stock market,” George Gero, a managing director at RBC Wealth Management, said by phone Friday. “On the other hand, you don’t see any kind of a sell-off because of all the global worries. So now it’s a waiting game to see what will happen with interest rates and the stock market and all the worries.”

I like that expression “all the worries”. It implies the only reason gold can rally is because of worry about something else. There is some accuracy to that statement but the bigger point is a hedge is a risk mitigation strategy. If you are not worried about something as an investor, it is really time to take a close look at one’s portfolio. The best definition of bravery I have heard is “feel the fear and do it anyway”. That’s about as close to the best maxim for investing I have ever seen. When we worry about nothing, and are supremely confident in our convictions, it is usually when we are at most risk.

But about 95% of gas stations with convenience stores are independently owned, which includes mom-and-pops that license brand names. Some consumers will pay more for brand-name gas as they will for Prada purses or Starbucks lattes. As gas prices rise, consumers may also burn more money than they save driving in search of the cheapest stations.

Notably, the commission ignores that retail margins include labor costs, utilities, rent and taxes. In 2012 the state increased taxes on high earners, which hit many small businesses. California’s minimum wage has increased by 50% since 2013. According to the Bureau of Labor Statistics, worker wages at California gas stations over the last five years have increased 50% more than nationwide.

Mr. Newsom has threatened legal action against oil companies to “protect the public.” But liberals have long wanted higher gas prices so folks will ditch gas-powered cars. The Governor last month ordered revenue to be redirected from the last gas tax hike, which was supposed to fund highway construction, to projects that “reverse the trend of increased fuel consumption and reduce greenhouse gas emissions.”

So Californians in the future can look forward to paying more to drive on deteriorating roads as they head to homes without electricity due to blackouts. How long will it take California voters to figure out that these are problems made in Sacramento by politicians?

Spikes in crude oil prices are associated with recessions because they represent a tax on consumption. It’s not coincidence that one of the reasons Europe’s economies have subpar growth is because they tax economic output through regulation and carbon trading with the express aim of increasing costs. California is well on the way to achieving the same outcomes.

“Can you please give me the key to charting gold bullion in GBPs from your chart library. Many thanks in advance”

Thank you for this question which may be of interest to subscribers. Gold tends to do best in a negative real interest rate environment and when it is appreciating against most currencies.

There are a number of charts for gold in various currencies in the Chart Library. The easy way to find them is using the ticker code for gold as a currency which is XAU. Using XAU as the search term you will find charts for Gold in South African Rand, Indian Rupee, Swiss Franc, Brazilian Real, New Zealand Dollars, Swedish Krona, Singapore Dollars, Japanese Yen, Turkish Lira, Chinese Renminbi, Euro, British Pounds and Australian Dollars.

“There is a lot of confusion and uncertainty out there,” said Paolo d’Amico, head of Intertanko, a trade body representing tanker owners. “Everyone is afraid of being hit by the U.S., sanctions, rendering about 50 VLCCs untouchable.”

U.S. oil exports to Europe, which usually move in smaller tankers, hit a record 1.8 million barrels a day for the week ending Oct. 7, according to Kpler, an energy market intelligence company. The figure is double the 924,000 barrels in the previous week. But shipments to Asia, which are typically done on VLCCs, were reduced almost in half to 508,000 barrels.

A Singapore broker said rates for some VLCC cargoes on sailings from the U.S. Gulf Coast to the Far East were more than $120,000 on Thursday. Average earnings for supertankers picking up cargoes from around the world hit $94,124 a day, up from $18,284 on Sept. 25, when Washington blacklisted the Cosco fleet.

“VLCCs to Asia are a rare commodity, the market is red hot and will stay that way while the U.S. sanctions on Cosco ships are in place,” said the broker, who asked not to be named because he isn’t authorized to talk to the media.

The Baltic Dirty Tanker Index broke out on the upside last week, to trade above 1500 for the first time since 2008. That follows the breakout in the Baltic Dry Index in August. The latter’s move has not been as pronounced but does highlight the additional pressure on the shipping sector from the impending implementation of the IMO2020 rules on ship emissions.

I have to admit I don’t look at the internals of the market all that often because it is the trend rather than the day to day moves which lend some insight into the health of the market. I thought it might be useful to look at some of the most common measures to discern if any clues to market direction are evident.

The Total Number of New 52 Week Highs on the NYSE Index is coming back down towards the lows December 2018 and towards the end of 2015. The significant spike on the upside in late 2017 was an anomaly suggesting a period of underperformance ahead, but generally lows are better predictors of market bottoms than spikes are of tops.

Multiple surveys show that traders and investors see the U.S.-China trade war as the biggest risk facing markets. Bank of America Merrill Lynch’s latest monthly poll of global fund managers, released in mid-September, revealed that the number of respondents who said trade tensions were the biggest danger outstripped by far those who cited ineffective monetary policy and the potential bursting of the bond bubble. In her first major address as head of the International Monetary Fund, Kristalina Georgieva said Tuesday that the global economy is in a synchronized slowdown, in part due to trade uncertainty. Also on Tuesday, the National Federation of Independent Business said its small-business sentiment index fell to near the lowest level of Donald Trump’s presidency. Even more notable was that the part of the index measuring “uncertainty” plunged to its lowest since February 2016.  “More owners are unable to make a statement confidently, good or bad, about the future of economic conditions,” the group said, with 30% of respondents reporting “negative effects” from tariffs. To cut to the chase, if businesses can’t forecast with any confidence, how can investors or strategists?

U.S. and China trade negotiators are scheduled to meet on Thursday to resume talks. What’s discouraging is that instead of making conciliatory comments, each side seems to be hardening their stances. Chinese officials said Monday that what isn’t on the table from China’s perspective — and never will be — are changes to its laws to protect foreign intellectual property. Later that day, the U.S. placed eight of China’s technology giants on a blacklist over alleged human rights violations against Muslim minorities. In response, China hinted that it might retaliate. Then the news broke that the Trump administration is moving ahead with discussions around possible restrictions on portfolio flows into China. None of this sounds like either side is ready to make a deal.

Political rhetoric amplifying ahead of the start of negotiations have been a trend that has evolved over the last year. Each of the other occasions has ended in disappointment and the market is now pricing in a similar conclusion to the upcoming talks.

On a global level, bonds with a value of about $15 trillion currently trade with a negative yield. What’s going on here?

For every investor today, the starting point must be the bond market. Just a few weeks ago, we had $17 trillion of negative yielding debt. We’re now down to about 15, but even that is way too much. This is investment money that is guaranteed to produce a loss of capital. These extreme levels in today’s bond market can only have three possible explanations. One, the world faces an economic meltdown of epic proportions. Two, the bond market is the biggest bubble we have ever witnessed, and three, we have just experienced a massive buying panic in bonds.

I agree with all three of these points so we then need to address the question of what will happen to deflate the bubble. The answer is inflation which is like kryptonite for the bond market. The only way anyone can justify buying bonds with a negative yield is if they believe the deflationary argument is self-fulfilling. 

High pork prices in the northeastern province of Jilin is prompting farmers to raise pigs to reach an average weight of 175 kilograms to 200 kilograms, higher than the normal weight of 125 kilograms. They want to raise them “as big as possible,” said Zhao Hailin, a hog farmer in the region.

The trend isn’t limited to small farms either. Major protein producers in China, including Wens Foodstuffs Group Co, the country’s top pig breeder, Cofco Meat Holdings Ltd. And Beijing Dabeinong Technology Group Co. say they are trying to increase the average weight of their pigs. Big farms are focusing on boosting the heft by at least 14%, said Lin Guofa, a senior analyst with consulting firm Bric Agriculture Group.

The average weight of pigs at slaughter at some large-scale farms has climbed to as much as 140 kilograms, compared with about 110 kilograms normally, Lin said. That could boost profits by more than 30%, he said.

The large swine are being bred during a desperate time for China. With African swine fever decimating the nation’s hog herd -- in half, by some estimates -- prices of pork have soared to record levels, leading the government to urge farmers to boost production to temper inflation. Wholesale pork prices in China have surged more than 70% this year.

There is no cure of African Swine Flu and it is almost always fatal for pigs that contract the disease. That spread of the disease in China has put upward pressure on the price of pork and rebuilding the national herd is going to take at least a few years. That is assuming the necessary sanitation measures are taken to insulate the supply chain from cross contamination, which represents a significant additional cost.

A link to the full report is posted in the Subscriber's Area.

The one thing we know is the consensus’ in markets seldom reach the worst or best predictions of investors. The rationale for MMT is compelling. The US government is already running a $1 trillion deficit in a boom and needs to pay for that with a large issuance of bonds. Since this is occurring before a crisis, investors logically conclude that trend has to continue in a linear manner. However, we have ample evidence of outcomes eventually working out much differently in reality.

A strengthening dollar and the rally in equities is spoiling the party for gold bulls. Gold futures tumbled to the lowest in almost eight weeks after the Trump administration partially refuted a report that it would target Chinese capital market. Speculation is mounting that Washington issued the statement to encourage Beijing to move closer to signing a deal with Washington, a strategist at R.J. O’Brien & Associates said.

Monday’s slump trimmed the precious metal’s fourth straight quarterly gain, the longest winning streak in eight years. Bulls are retreating after taking their net-long position in gold to the highest in government data going back to 2006.

The strength in the greenback “is the biggest headwind for gold right now,” Phil Streible of RJO said by phone from Chicago.
 

The point I find most interesting about the move we are seeing in gold is how similar it is in magnitude to what occurred in the early 2000s. The initial spike occurred in 1999 but it took about two and half years for the price to breakout to new highs. It subsequently rallied 18% from the breakout point and retraced the whole move, to test the upper side of the base, before trending higher in an impressive manner for the next nine years.

Police of the PRC searched the house of Zhang Qi, 57, the former mayor of Danzhou and found a large amount of cash, as well as 13.5 tons of gold in ingots in a secret basement of his home, reported local media.

In addition to the mayor’s post, the official held others, such as the Secretary of the Communist Party. According to unofficial reports, in addition to the gold, cash worth 268 billion yuan was discovered.

Luxurious real estate with a total area of ​​several thousand square meters, which the former city manager had been hiding for a long time, became the cherry on the cake for the Chinese Anti-Corruption Committee.

One of the most memorable quotes I’ve heard in China was back in 2011 when the communist official from a small town a couple of hours north of Beijing said to me “I’m only a small guy so I’m only a little corrupt”. His boss was the county head and the gift to attend his daughter’s wedding was a stack of CNY100 notes six inches tall. They were counting the money in cubic metres. Then think about the head of the head of a province like Hainan which is being developed as “China’s Hawaii”. From that perspective the monopoly money sums are still huge but do help to highlight just how engrained corruption is.

Peloton Interactive Inc. fell as much as 9.5% Thursday after raising $1.16 billion in its U.S. initial public offering, becoming the latest unprofitable startup to fail to win over investors in its trading debut.

Peloton’s shares opened at $27 and were down 7.2% to $26.90 at 12:38 p.m. in New York trading, giving the company a value $7.5 billion. The fitness startup sold 40 million shares for $29 each on Wednesday, after marketing them for $26 to $29.

It marks the third-worst trading debut in 10 years in the U.S. for companies that have raised at least $1 billion, according to data compiled by Bloomberg. The IPO also comes as investors have been rattled by the sudden disintegration of WeWork’s plan to go public in September.

Peloton Chief Executive Officer John Foley said in an interview with Bloomberg Television that he had “some disappointment” about the reception but was confident in his company’s prospects.

The one point that seemed to get very little commentary in the lead up to this IPO was just how fad-prone the fitness industry is. Soul Cycle and spinning are all the rage at the moment. I personally go to at least two, if not three, hybrid cycling and toning classes a week. After 18 months of these classes I am starting to find them monotonous and that is a big challenge for a company that is trying to sell a range of workouts via phone or its enormously overpriced pieces of equipment. I just can’t see why someone would pay $40 to Peloton for online classes when they can pay the same or less at an LAFitness without the capital expense and space requirement of the exercise equipment.

A link to the full report is posted in the Subscriber's Area. 

Germany failed to sell a 2 billion zero coupon bond in August which was a precursor to the reversionary move seen in bond prices. However, the economy is recession and there is no prospect of the ECB raising rates. Instead quantitative easing will further increase the ECB’s holdings of regional sovereigns.

Richard Russell used to say “print or die” and that is exactly what the central banks of the world are going to do. What I find particularly interesting is the comparison with debt levels only being approximating current levels during wartime. That must mean we are in a war but this time it is with ourselves and the contention is about the ability to pay unfunded liabilities.

One of the most commonly asked questions by subscribers is how to find details of my open traders. In an effort to make it easier I will simply repost the latest summary daily until there is a change. I'll change the title to the date of publication of new details so you will know when the information was provided. 

Despite that optimism, gold miners say they aren’t planning the same sort of megaprojects and acquisition sprees that characterized the last ramp up in prices in the years ahead of 2011. Instead, wary of volatile prices, they plan to pay down debt and return money to shareholders.

Many companies, including the world’s largest gold miner, Newmont Goldcorp Corp., say they will only approve new projects if they can make money with gold at $1,200, about 20% below where the metal currently trades. Gold prices also have spent the majority of the eight years since 2011’s bust trading above that level, underscoring how conservative companies have become.

“We won’t push ahead with investments that would struggle to sustain themselves if the gold price trades lower,” said Kelvin Dushnisky, chief executive of AngloGold Ashanti Ltd. “This was a common mistake for many gold producers in the previous upcycle.” The South African miner, whose share price has risen 62% in the year to date, is among the companies sticking by the $1,200 threshold for new projects.

In the early part of a mining investment cycle, miners have been so scarred by the depth of the bear market that they run tight ships and eschew debt. However, the higher prices rise and the more pressure they come under to replace reserves and increase supply, the lure of debt, mergers and exploration increases leverage ratios.

One would be forgiven for concluding that algorithms have been programed with round numbers in mind. Roundophobia has been a topic of conversation at The Chart Seminar for decades but it is particularly relevant now because so many instruments have paused in the region of big round numbers. I’m greatly looking forward to the next event which will be in London on October 3rd and 4th.

“In reality, FedEx’s release is largely the result of many management missteps over the years, including overspending on aircraft despite weaker returns in Express over the long-term, and acquisition debacles,” he said in note to investors.

Trade-War Impact
The U.S.-China trade war has weighed on manufacturers, disrupting a key market for FedEx. A surge in industrial jobs seen in the first two years of Trump’s presidency has reversed in parts of the country, and there’s evidence that some corners of the U.S. economy are sliding toward recession. Companies have slowed business investment and capital expenditures as uncertainty over trade policies has clouded the outlook for future growth.

For FedEx, the weaker outlook underscored the hurdles as the company introduces costly changes to its ground network to handle surging e-commerce deliveries while contending with rising competition from Amazon.

Amazon is now a larger shipper of items than either UPS or Fedex within the US market, from a standing start a couple of year ago. UPS still ships items for Amazon but that business is declining while Fedex is attempting to forge relationships with upstarts in the warehousing sector like Deliverr and Shopify. If the share price is any guide that latter strategy is in its infancy at best. Meanwhile it has been my experience that Fedex is successfully. competing on price for international bulk shipping business to Amazon’s European warehouses.

China’s central bank drained funds from the financial system and kept the one-year rate on medium-term loans steady on Tuesday morning, a move analysts said shows it’s sticking with its prudent approach to stimulus. That’s even after data Monday signaled the economy slowed in August, with industrial output, retail sales and fixed-asset investment rising less than anticipated.

“Investors now realize the central bank won’t ease its monetary policy as aggressively,” Zhang Gang, a strategist with Central China Securities Co. “The market was due for a pullback after the Shanghai index climbed above 3,000-point level. Turnover failed to keep up.”

China’s government is more worried about a property bubble than a growth slowdown. it would be tempting to think they have reached the conclusion that massive money printing only helps to inflate asset prices and does not deliver quality growth which is capable of sustaining the economy during tough times. On the other hand perhaps they have an inflationary problem and don't want to exacerbate it. 

Industrial output rose 4.4% from a year earlier in August, the lowest for a single month since 2002, while retail sales came in below expectations. Fixed-asset investment slowed to 5.5% in the first eight months, with the private sector lagging state investment for the 6th month.

The data add support to the argument that policy makers’ efforts to brake the slowing economy aren’t sufficient as the nation grapples with structural downward pressure at home, the risk of yet-higher tariffs on exports to the U.S. and now surging oil prices. Nomura International Ltd. said this all raises the likelihood that the People’s Bank of China will cut its medium-term lending rate on Tuesday.

China’s monetary and fiscal policy arms are walking a tight wire between overstimulating the property market, which already has bubbly characteristics, versus trying to support flagging growth in the industrial sector which is hurting from the global slowdown and the trade war. The devaluation of the Renminbi is a partial solution but there is a clear need for more conclusive action to support the economy not least because a weaker currency stokes inflation for such a large commodity importer.

China is encouraging companies to buy U.S. farm products, and will exclude them from added tariffs. Many crop prices are heading for their best week since at least June on optimism that Beijing and Washington are inching toward a deal. The year-long trade spat has undercut farmer profits and boosted debt levels in the U.S. as Chinese demand fell off.

There was evidence of fresh Chinese buying Friday as the U.S. government reported 204,000 tons of soybeans sold to the Asian nation, the first such announcement in more than two
months.

“We are hopeful that this apparent gesture of goodwill by China leads not only to more sales of U.S. pork, but that it contributes to a resolution of U.S.-China trade restrictions,” said David Herring, a North Carolina hog farmer and president of trade group National Pork Producers Council.

The balance of the trade war hangs in how much domestic damage can be tolerated versus damage inflicted on an adversary. Food price inflation for China may be of a more urgent dilemma than the trade war at present. China is nowhere near being self sufficient in soy and the scourge of African swine flu has destroyed the domestic pig industry. Since pork is the staple protein for a significant proportion of the population that represents an issue not least as prices surge.

The unprecedented revolt took place during a fractious meeting where Bank of France Governor Francois Villeroy de Galhau joined more traditional hawks including his Dutch colleague Klaas Knot and Bundesbank President Jens Weidmann in pressing against an immediate resumption of bond purchases, the people said. They spoke on condition of anonymity, because such discussions are confidential.

Those three governors alone represent roughly half of the euro region as measured by economic output and population. Other dissenters included, but weren’t limited, to their colleagues from Austria and Estonia, as well as members on the ECB’s Executive Board including Sabine Lautenschlaeger and the markets chief, Benoit Coeure, the officials said.

The competition to influence the replacement of Mario Draghi as head of the ECB is heating up. Verbal opposition to the policies announced today came from a number of the countries who were contenders in the race for the top job. Proving your verbal commitment to monetary prudence is almost a pre-requisite in some countries, regardless of the reality once in office. 

U.S. stocks edged higher, and Treasuries inched lower after a mixed jobs report fueled bets the Federal Reserve will cut rates in two weeks. The dollar declined.

The S&P 500 headed for its second weekly gain as investors keyed on underlying strength in the report that signaled a solid labor market that isn’t too strong to deter further central bank easing. Megacap technology stocks weighed on benchmarks after New York opened an antitrust probe into Facebook Inc.

The 10-year Treasury yield erased most of its earlier gains, while the dollar headed for its fourth straight fall following the payroll numbers. Chairman Jerome Powell is set to make public remarks Friday. Crude sank toward $55 a barrel in New York.

The bond market has already priced in at least a 25-basis point cut so the soft jobs report confirms the need for additional easier policy. China also cut its bank reserve requirements today in an effort to extend credit. The ECB is expected to announce some form of easing when it meets next week and the region’s bond markets have been busy pricing in a negative short-term interest rate. All of these measures contribute to stimulative measures.

We treat gold as a separate real asset type due to its well-accepted role as a store of value. Gold enjoyed more than a 10-fold price increase from the 1970s through its peak reflecting a period of rapid inflation. During periods of inflation uncertainty, investors seek gold as an inflation hedge.41 Similarly, gold may be a good recession hedge. In 2007-2008, while the S&P 500 was down -18.5% gold was up 16.6%, and in 2001-2002, while the S&P 500 was down -17.2% gold was up 12.1%. Investors can invest in physical gold but that incurs storage and insurance costs. Investors can also invest in COMEX gold futures (which trades the gold equivalent of 27m ounces per day). The roll yield on gold futures has been only slightly negative (-0.2% from 1996 to 2017). Investors may also invest in gold mining stocks and can enter into gold royalty agreements. Although gold is an under-owned institutional asset, some institutional investors such as government pension funds have target allocations to gold-related assets (including derivatives).

A link to the full report is posted in the Subcsriber's Area.

Gold is a hedge against uncertainty but perhaps most importantly against the worst inclinations of governments to debase their currencies. While there is a clear trend towards that latter point moving into overdrive all over the world, the gold market is notoriously volatile and we still do have a clear idea of what the consistency characteristics of the evolving medium-term trend are going to be.

However, the following chart illustrates the severe decline in production, i.e., peak gold, by the six largest gold miners. This particular group of companies has gone steadily downhill from an all-time high of 955 tonnes, or over 40% of world production in 2006, to a multi-decade low of 705 tonnes, or 22.5% of world production in 2017.

So not only are majors declining in the numbers of ounces (-26% over 12 years), they have also lost a significant share of the world gold mining market (-18%):

We have shown that the current narrative promulgated for peak gold applies to the major gold miners only and not for the gold mining industry as a whole. That said, the data presented above cover a relatively short time frame of 19 years: the end of a bear market for gold (2000-2002); a long bull market cycle (2003-2012); a relatively short but deep bear market (2013-2015); and a lower, range-bound gold price over the past three years (2016-2018).

To fully assess the idea of peak gold, I submit we must take a much longer-term view and determine what factors drive mining of the yellow metal.

According to the USGS, world gold production increased from 386 tonnes in 1900 to 3150 tonnes in 2017. That is an eight times increase and an average gain of 1.8% per year:

Mines are wasting assets by definition and the only way to continue to increase production is to spend more money on digging deeper. If that cost can be contained by technological advances then the mine can make a profit, otherwise they are wholly dependent on the price of the commodity rising to justify the expenditure. Therefore, secular bull markets in commodities are defined by a rise in marginal cost of production to a sufficiently high level which encourages new supply into the market.

One of the most commonly asked questions by subscribers is how to find details of my open traders. In an effort to make it easier I will simply repost the latest summary daily until there is a change. I'll change the title to the date of publication of new details so you will know when the information was provided. 

At the end of last year, a return of inflation was assumed to be inevitable with the 10-year Treasury yield trading comfortably above 3%, commodity prices recovering, wages marching higher, full employment and high capacity utilisation. The perspective could not be more different today.

Interminable deflation has been priced in to Treasury yields as they test the lows of the last eight years. Commodity prices are under pressure, the trade war has resulted in a number of export dependent nations flirting with recessions, purchasing managers indices suggest contracting manufacturing activity and an inverted yield curve has started the clock on the next recession. Meanwhile gold has exploded on the upside to complete a six-year base formation.

Energy and Mineral Resources Minister Ignasius Jonan said on Friday that the nickel export curbs are "in line with President Joko Widodo's directives".

Indonesia's current account deficit reached US$31.1 billion (S$43.2 billion) in 2018. The widening deficits were an issue Mr Joko's political opponents frequently played up during his presidential campaign ahead of the April election. Mr Joko will be sworn in on Oct 20 to begin his second and final five-year term.

A senior government official had earlier argued that Indonesia could have recorded even higher deficits had the country not boosted efforts to climb up the value chain in the iron and steel sector, encouraging investors to build plants at home to process raw nickel into intermediate products such as stainless steel slabs.

Indonesia has long sought to gain more economic benefit from its commodity exports. That was particularly true of the tin market when exports were limited to refined products in 2013. The aim was to try and build up the domestic refining business but the collapse in prices in 2014 and 2015 killed off that idea. It now appears Indonesia is attempting to do something similar with nickel exports.

Reserve Bank of Australia comments in 2019/20 corporate plan released on website Friday.

“Over 2019/20 to 2022/23, the structure of the Australian economy will continue to evolve and economic shocks -- which, by definition, are not forecastable -- will occur. Movements in asset values and leverage may be more important for economic developments than in the past given the already high levels of debt on household balance sheets”

“Especially in the context of weak growth in household income, high debt levels could complicate future monetary policy decisions by making the economy less resilient to shocks”

“The flexible medium-term inflation target is the centerpiece of the monetary policy framework in Australia and has been well established for more than two decades. Since the early 1990s, it has provided the foundation for the bank to achieve its monetary policy objectives by providing an anchor for inflation expectations. The bank will remain alert to new developments that may have a bearing on the framework for monetary policy”

The Australian Dollar remains in a medium-term downtrend, moving to a new closing low today. With energy and iron-ore prices declining and the domestic housing market in a parlous condition the RBA may be required to embark on the same counter deflationary measures other developed markets have endured over the last decade.

Since then, we have had a mirror-like symmetrical reversal (a dis/deflationary blow-off). Look at the current inflation rates at the current cyclical peaks (i.e. not much inflation despite the world economy and financial markets being near a peak and despite all the central banks’ money printing) and imagine what they will be at the next cyclical lows. That is because there are strong deflationary forces at work as productive capacity has increased greatly. These forces are creating the need for extremely loose monetary policies that are forcing central banks to drive interest rates to such low levels and will lead to enormous deficits that are monetized, which is creating the blow-off in bonds that is the reciprocal of the 1980-82 blow-off in gold. The charts below show the 30-year T-bond returns from that 1980-82 period until now, which highlight the blow-off in bonds.

Today’s 7-year auction of Treasuries came in well below expectations suggesting at least some reticence to participate at decade-low yields. The effect on yields was minimal but we did see a pause in the run-up in gold.

Earlier this month Freeport LNG Development LP’s export terminal in a beach town south of Houston began buying and liquefying gas with the expectation of sending out its maiden cargo in September. The Freeport facility, the fifth to begin operating in the lower 48 states since the first opened in early 2016, should help push gas consumption from LNG exporters to a new high. Last week, a record nine LNG vessels left the U.S. carrying cargoes, according to Jefferies Financial Group Inc.

In July, LNG exporters consumed an average of about 6 billion cubic feet of gas per day, according to the U.S. Energy Information Administration. That is the most yet and is equal to roughly 7% of total U.S. gas production. Analysts expect demand from LNG facilities to absorb about 12% of total production by next summer as additional facilities start up and existing terminals boost their capacity.

But if those projects are delayed because of low prices overseas or if existing LNG plants slow down or take advantage of the lull to perform extended maintenance, then the domestic gas market could be swamped, sending prices even lower.

“If that demand goes away even for a couple months, it becomes a real problem for the balance of the market,” said Welles Fitzpatrick, an analyst with SunTrust Robinson Humphrey.

Natural gas is a commodity widely associated with the rise of the global middle class. As living standards improve, and infrastructure is laid down, demand for cleaner burning fuels trends higher. The big change in the market over the last few years has been the creation of the global market for natural gas. Prior to this it was primarily a regional market because of a lack of transportation options. Significant investment in LNG terminals all over the world is turning the USA, Australia and potentially Canada into natural gas exporting giants to compete with Russia and Qatar. That represents a significant change to the status quo.

We’ve seen some important moves in gold and the precious metals over the last couple of months with the yellow metal emphatically breaking out of a six-year range base formation. The total of debt with negative yields is an important support for prices but the broader conclusion that competitive currency devaluation is now a reality is a more important bullish medium-term catalyst.

Gold and silver futures rose on Tuesday (http://www.marketwatch.com/story/gold-higher-but-silver-sets-the-pace-2019-08- 7), with gold settling at a level not seen since 2013, and silver scoring its highest finish in more than two years. Prices for the precious metals got a boost from losses in the U.S. stock market, a drop in Treasury bond yields and a weaker dollar--all of which helped lift the metals' investment appeal. December gold climbed by $14.60, or 1%, to settle at $1,551.80 on Comex. That was the highest most-active contract settlement since April 2013, according to FactSet data. September silver added 51.2 cents, or 2.9%, to end at $18.153 an ounce, the highest since April 2017

The continued compression of government bond yields is creating significant demand for gold as a hedge against competitive currency devaluation. That is now starting to be manifested in other precious metals with silver playing catch up and platinum beginning to garner attention.

“Trade policy uncertainty seems to be playing a role in the global slowdown and in weak manufacturing and capital spending in the United States,” Powell said in the text of his remarks Friday to central bankers gathered at the Kansas City Fed’s annual symposium in Jackson Hole, Wyoming. “We will act as appropriate to sustain the expansion, with a strong labor market and inflation near its symmetric 2% objective.”

It is looking like the learning curve for a newly installed Fed chair is about 18 months. Today’s measured statement from Jerome Powell did an excellent job of placating investor fears while leaving open the optionality of how much to cut by. The Fed has made clear they will cut rates if they need to but will not hurry. However, the simultaneous announcement by China that they are increasing tariffs on $75 billion of US goods is likely to be prove the catalyst for deeper cuts.

A link to the full report is posted in the Subscriber's Area. 

The massive move we have seen in European sovereign bonds is definitely representative of a buyer’s panic but the broader question is who is panicking? Pension funds and insurance companies spring to mind. What are they panicking about? There is a real prospect we are going to see the ECB announce negative short-term rates as well as a raft of additional measures which are clearly designed to boost liquidity but will come at the expense of savers. That suggests what we are seeing is potentially a buy the rumour and sell the news phenomenon.

We acknowledge that: all of these negative percentages are against extremely tough comparisons; and the Cass Shipments Index has gone negative before without being followed by a negative GDP. However, weakness in demand is now being seen across many modes of transportation, both domestically and internationally.

Although the initial Q2 ’19 GDP was positive, it was not as positive upon dissection, and we see a growing risk that GDP will go negative by year’s end.

The weakness in spot market pricing for many transportation services, especially trucking, is consistent with the negative Cass Shipments Index and, along with airfreight and railroad volume data, strengthens our concerns about the economy and the risk of ongoing trade policy disputes. Weakness in commodity prices, and the decline in interest rates, have joined the chorus of signals calling for an economic contraction.

A link to the full report is posted in the Subscriber's Area.

When retailers like Wal-Mart, Nordstrom and Target are announcing surprisingly good earnings and Amazon’s Prime Day continues to grow in turnover it is hard to square underperformance of transportation figures. Macy’s remains in a clear, potentially terminal, downtrend and there is still pressure on other brick and mortar chains but I suspect the underperformance of the lower volumes on the transportation index are down to other factors.

Gold: What's the difference between ROYALTY COS., and GOLD MINERS? Please explain.

Thank you for this question which may be of interest to subscribers. Royalty companies typically provide seed capital or bridge financing for miners to reach full commercial production. In return for providing risk capital, they gain a percentage of production from the project at favourable rates in perpetuity. The best companies tend to invest in capital constrained environments like commodity bear markets and prosper in bull markets.

Dear Eoin

I hope your travels to China were interesting and rewarding. I look forward to your thoughts on events there.

I know the merits of gold are not new to you, but maybe not all subscribers are fully aware of the breakout in gold and the new bull market that appears to have started. 

The documents, mostly from 2015 to 2017, were disclosed as part of an ongoing court battle on the health hazards of the company’s Roundup weedkiller. They show:

Monsanto planned a series of “actions” to attack a book authored byGillam prior to its release, including writing “talking points” for “third parties” to criticize the book and directing “industry and farmer customers” on how to post negative reviews.

Monsanto paid Google to promote search results for “Monsanto Glyphosate Carey Gillam” that criticized her work. Monsanto PR staff also internally discussed placing sustained pressure on Reuters, saying they “continue to push back on [Gillam’s] editors very strongly every chance we get”, and that they were hoping “she gets reassigned”.

Monsanto “fusion center” officials wrote a lengthy report about singer Neil Young’s anti-Monsanto advocacy, monitoring his impact on social media, and at one point considering “legal action”. The fusion center also monitored US Right to Know (USRTK), a not-for-profit, producing weekly reports on the organization’s online activity.

Monsanto officials were repeatedly worried about the release of documents on their financial relationships with scientists that could support the allegations they were “covering up unflattering research”.

It’s hard to imagine how much more toxic Monsanto’s reputation can get but as the record of the company’s nefarious actions come to light it is understandable why they were so willing to be taken over by Bayer. They are now attempting to settle the Roundup weedkiller class action lawsuits for $6-$8 billion while lawyers are looking for more upwards of $10 billion.

“We did a review of all the battery input materials -- nickel, cobalt, lithium,” said Eduard Haegel, asset president at the BHP’s Nickel West unit. “We think that in the medium-to-longer term there will be a margin that will be sticky for nickel -- we think it’s an attractive commodity.”

BHP, the biggest miner, this year reversed long-term efforts to seek a buyer for the division, opting to retain Nickel West to benefit from forecast growth in lithium-ion batteries and a scarcity of high-quality nickel supply. From the second quarter of 2020, the unit will begin production of bright-turquoise colored nickel sulphate -- a premium raw material for the battery supply chain -- from a nickel refinery south of Perth, with plans to potentially carry out the industry’s largest expansion.

Every auto manufacturer is going to have electric vehicle offerings in the next 18 months. That is going to create a lot of demand for batteries and the commodities that comprise the anode, cathode, catalysts and electrolyte.

China has reaffirmed its policy of never being the first in a conflict to use nuclear weapons. Experts refer to this policy as “no first use,” or NFU.

The NFU policy reaffirmation, contained in Beijing’s July 2019 strategic white paper, surprised some observers who expected a more expansive and aggressive nuclear posture from the rising power.

One has to question why this statement was made now? One possible interpretation is China is stating its position in order to lay the groundwork for what it anticipates is going to be a difficult geopolitical environment in the near future.

Fitch Ratings Ltd. followed on Friday by cutting its outlook for Africa’s most industrialized economy to negative. JPMorgan Chase & Co. said the same day that a rally in the rand since the start of June was more to do with a supportive global environment than improvements in conditions locally.

“We now believe levels are stretched enough to enter outright rand shorts,” JPMorgan analysts including London-based Anezka Christovova and Robert Habib in New York said in a note. “South Africa’s fundamental picture remains very challenging with a ballooning fiscal deficit and structurally low growth.”

Citigroup Inc. recommended to clients on Monday that they short the rand against the Turkish lira. The Wall Street bank’s analysts see the latter strengthening about 7% versus the South African currency over the next three months.

The mismanagement of utilities in emerging markets whether in South Africa or Venezuela is often one of the most apparent signs of low or deteriorating standards of governance. Utilities provide essential services but are mostly state run, they have reliable cashflows and the cost of upkeeping vital pieces of infrastructure can be delayed for years without apparent loss of service. That makes them perfect candidates for political rent seeking or theft.

Newmont now expects consolidated production of 165,000 ounces of gold from Penasquito in 2019. Last year, the mine produced 272,000 ounces of gold for Goldcorp. Newmont is forecasting zero production at Musselwhite this year and doesn’t expect the mine to be fully operational until mid-2020. In 2018, it produced 205,000 ounces of gold.

The company said its full-year gold production will be 6.5 million ounces, which compares with a June forecast for 7 million ounces in 2019 and 7.4 million in 2020. The company is “very confident” it can achieve that guidance, Palmer said, noting that guidance for next year will be provided in December.

The lack of clarity about next year could worry investors, Anita Soni, an analyst with CIBC World Markets, said in a research note. “No further 2020 outlook was provided, which will likely be an overhang on the stock given the uncertainty surrounding the production profile for the recently acquired Goldcorp assets,” she said.

From a risk-adjusted perspective buying a producing mine, with well-understood resources is more favourable than committing to building a mine and contributing to proofing up reserves. That is what we are seeing from the gold mining sector at present. Major miners would rather merge than engage in speculative activity. It is that kind of conservative approach to managing mining operations that contributes to value creation. It’s when appetite for borrowing, investment and speculation increase that investors need to be particularly wary.

The US Trade Weighted Broad Dollar Index continues to trade in the region of its all-time peak. A sustained move below 125 will be required to signal more than temporary resistance in this area.

Hope you are doing well. I just thought you may find interesting this Financial Times story on gold - 

In particular, it has a chart showing that “the correlation between the growing volume of negative-yielding bonds and the rising value of gold is striking.” And, also, “Gold as a zero-yielding asset will look even more attractive versus an asset that is guaranteed to lose money,” said Paul Wong, a former senior portfolio manager at Sprott Asset Management.

Thank you for this link and I am enjoying some warmer weather by playing tennis with my children in the afternoons. It’s a been a long cool spring in Southern California and considerably wetter than any we’ve seen since we moved here. It looks like the long winter of discontent with precious metals is over too.

One of the best ways to think about gold, in an environment where an increasingly large chunk of global sovereign debt is trading with negative yields, is as a zero-coupon perpetual bond. It rises in value as yields decline and most particularly as the risk of competitive currency devaluation becomes more realistic.

Nickel has a history of attracting speculative interest on expectations of supply shortfalls, only to see rallies quashed once it became clear there wasn’t a shortage. The metal attracted a lot of interest in late 2017 from investors betting on its future role as a vital ingredient in high-performance batteries for electric vehicles, but that remains a small part of demand for now.

For Nugent, reduced LME inventory is spurring the latest bout of tightness and encouraging the spike in price. For example, it’s pushed LME September futures to a $20 premium over October, after being at an $18 discount on July 2. It’s a backwardation that contrasts with nickel’s more usual contango structure, he said.

“What I think you’re seeing now is that a lot of stock has moved from on-exchange to off-exchange,” he said. “It’s that kind of tightness that will be discouraging people from entering short positions against a rally. It’s something that is happening more often when you’re losing that on-exchange stock.”

That view is bolstered, he said, by the fact that the LME appears to be leading the Shanghai Futures Exchange, rather than the other way around. While open interest and speculative long positions have also risen on the SHFE, the gap between London and Shanghai prices has widened in the past month.

Batteries for electric vehicles are the primary demand growth driver for high purity nickel. While declining global automotive demand has been a drag on automakers the share of electric vehicles in the market continues to increase. That’s positive for the price. Additionally, the run-up in iron-ore prices may be having an effect on nickel because its role in stainless steel production.

That will happen at the same time that there will be greater internal conflicts (mostly between socialists and capitalists) about how to divide the pie and greater external conflicts (mostly between countries about how to divide both the global economic pie and global influence). In such a world, storing one’s money in cash and bonds will no longer be safe. Bonds are a claim on money and governments are likely to continue printing money to pay their debts with devalued money. That’s the easiest and least controversial way to reduce the debt burdens and without raising taxes. My guess is that bonds will provide bad real and nominal returns for those who hold them, but not lead to significant price declines and higher interest rates because I think that it is most likely that central banks will buy more of them to hold interest rates down and keep prices up. In other words, I suspect that the new paradigm will be characterized by large debt monetizations that will be most similar to those that occurred in the 1940s war years.

So, the big question worth pondering at this time is which investments will perform well in a reflationary environment accompanied by large liabilities coming due and with significant internal conflict between capitalists and socialists, as well as external conflicts. It is also a good time to ask what will be the next-best currency or storehold of wealth to have when most reserve currency central bankers want to devalue their currencies in a fiat currency system. 

Most people now believe the best “risky investments” will continue to be equity and equity-like investments, such as leveraged private equity, leveraged real estate, and venture capital, and this is especially true when central banks are reflating. As a result, the world is leveraged long, holding assets that have low real and nominal expected returns that are also providing historically low returns relative to cash returns (because of the enormous amount of money that has been pumped into the hands of investors by central banks and because of other economic forces that are making companies flush with cash). I think these are unlikely to be good real returning investments and that those that will most likely do best will be those that do well when the value of money is being depreciated and domestic and international conflicts are significant, such as gold. Additionally, for reasons I will explain in the near future, most investors are underweighted in such assets, meaning that if they just wanted to have a better balanced portfolio to reduce risk, they would have more of this sort of asset. For this reason, I believe that it would be both risk-reducing and return-enhancing to consider adding gold to one’s portfolio. I will soon send out an explanation of why I believe that gold is an effective portfolio diversifier.

Delayed gratification is not exactly popular. The world runs instead on a “what have you done for me lately” mentality. Nobody understands that better than politicians. When it comes to elections, they get very good at making promises and the only ones that ever seem to get fulfilled are commitments to spend more. Sure, there are occasionally efforts to rein in spending, but they never tend to last that long. That has been particularly true of more developed countries where poor demographics highlight the issue of unfunded liabilities in stark terms.

“The easing cycle and a potentially stronger demand environment in China will be enough to allow base metals a bit more upside,” JPMorgan analysts Natasha Kaneva and Gregory Shearer say in an emailed report received Monday “We reiterate that this bullish view is more near-term tactical rather than long-term fundamental,” they say “We agree and believe that Chinese metals demand is sufficiently solid to support prices but not strong enough to push them higher,” Carsten Menke, an analyst at Julius Baer, says in an emailed note.

I will be travelling to China and Taiwan between August 5th and 19th this year. The one big take away from last year’s China trip was the sense of unease evident on the street and among vendors. That was in response to the tightening of government oversight on every day life, the attempts to stamp out lending by the shadow banks and the souring sentiment resulting from the first salvos of the trade war. Understandably that has contributed to slowing growth.

How do you think about liquidity in the context of a narrow theme like Uranium? And how would you measure it in this case? Volumes picking up and an increase in market capitalization of the sector? Or does it all tie back to the Fed and other central banks

Thank you for this question which may be of interest to other subscribers. Uranium is a comparatively small market with lots of minor constituents and a couple of large producers. When investing in any illiquid market, whether a sector or country index, weight of money moving in and out can have an inordinate effect on prices. That generally means you will not have an issue buying but selling often needs to be done in anticipation of a peak because liquidity can quickly evaporate during a downturn.

“We’ve seen an encouraging rise in permit prices, so it’s no surprise that we see it as essential that the instrument continues to work as it should do,” Schulze said. “That’s logical. It makes no sense at all to implement an exit from coal here, only to export pollution licenses into the wider European system.”

And

“Scarcity is central to the aims of the European carbon trading market.”

Regardless of how one feels about the merits of carbon credits there is no arguing with state sponsored bull markets.

Iron ore has skyrocketed this year, hitting the highest level in more than five years, after a dam disaster at Brazil’s Vale SA and bad weather in Australia curtailed shipments just as Chinese demand expanded. The steelmaking material made another dash higher in recent weeks after Australian miner Rio Tinto Group cut output guidance again following operational problems. The ascent has spurred concerns the advance may prove to be unsustainable.

“Supply is looking pretty decent, with the exception of Rio,” Hedborg said. Exports from Australia in June should be strong as some miners ramp up in the last month of their financial year, he said. In Brazil, Vale has also restarted its Brucutu mine, a major operation that was suspended after the dam
collapse.

The iron-ore price remains in a steep uptrend and exhibits an increasingly wide overextension relative to the trend mean. The first clear downward dynamic is likely to signal a peak of at least near-term significance and the beginning of a reversion towards the mean.

Thank you very much for your excellent analysis of the precious metals on Friday's video. If possible, can you please also comment on the gold/gdx ratio in one of your future videos and/or comment of the day. As always thanks very much for your excellent service.

Thank you for your kind words and I am delighted you enjoyed the Big Picture video. It’s been a big month for gold and gold shares but the relationship between the two deserves a special mention.

I prefer to look at the ratio the other way around and I use the Gold BUGS Index because it has a more back history.

Gold shares massively outperformed in the early part of the last bull market. They had a lot of leverage to the gold price because they had not been able to invest in new supply for years and were running very tight operations. The focus was on survival rather than expansion. As profits rose and confidence improved the majority of gold miners went on a spending spree in an effort to replace depleted reserves. That erased their free cash flow and loaded their balance sheets with debt. Gold miners’ performance relative to gold peaked in 2003 and investors moved on to ETFs and leveraged products.

Gold tumbled back below $1,400 an ounce after the U.S. and China reached a truce in their trade war, dealing a blow to havens.

Prices fell the most in a year after Donald Trump and Xi Jinping agreed to resume negotiations in a bid to resolve differences between the world’s top-two economies. Still, the setback may be temporary as investors now train their focus on U.S. jobs data due Friday for clues on the Federal Reserve’s next move on policy.

“Gold was well overdue a period of consolidation and gold bulls should welcome it,” said Ross Norman, chief executive officer of gold brokerage Sharps Pixley Ltd. “This provides a welcome entry point.”

“Don’t pay up for commodities” is about the most useful adage we came to live by in the commodity bull run of the early 2000s. Commodities are volatile but even that provides a consistency characteristic that is useful for traders. Breakouts are seldom sustained.

n a separate note this week, GMS, the world’s leading cash buyer said that “the stagnating inertia in the international ship recycling markets continued this week, with Pakistan, Bangladesh and Turkey entirely offline due to Eid holidays (winding down the Holy Month of Ramadan) and the traditionally quieter monsoon season gradually getting under way in the Indian sub-continent. There was a brief bounce in the Indian market following the election victory of the pro-business Mr. Modi, but local steel prices have begun to cool off ever since and Alang Buyers appear notably reluctant to commit on new vessels as most of the market focus is now shifting to Alang, due to the overall intransigence from Pakistan and Bangladesh and the higher offers emanating from India. The market in Bangladesh remains the quietest of all, with the upcoming budget on June 13th likely to determine the immediate direction on prices, which have already lost USD 20 – USD 30/LDT over the last few weeks. Most yards in Chattogram also remain stuffed with tonnage and demand is at the lowest it has been all year, with essentially no new enquiries emanating from local Buyers. The expectation (as seems to be the case year-after-year) is that new duties / taxes are set to be announced in this budget and prices are likely to decline further thereafter. As such, Bangladeshi Buyers are no longer keen to import fresh tonnage before the date of the budget, given the likelihood of increasing duties within the next week”, GMS concluded.

I had hoped to create a composite chart of the volumes of vessel demolitions in places like India, Turkey, Bangladesh and China. Although Bloomberg has indices for all these metrics, none of them appear to have any data so that is not going to be possible. The reason I wanted to view some clear data on vessel demolitions is because it would give us some intelligence into how clear a signal the rally in the Baltic Dry Index is providing for the health of the global economy.

The U.S. dollar’s dominance as a global reserve currency is commonly thought to result from the dearth of safe assets. Russia, however, recently has provided an example of how a sizable economy with the world’s fifth biggest international reserves can minimize dollar assets ad still do well. So far, it doesn’t have many followers, but gold buying by central banks is going up.

Since being hit by sanctions for its aggression against Ukraine in 2014, Russia has had good reasons to rethink the composition of its international reserve. While the European Union hasn’t toughened its sanctions for almost five years, the U.S. has been doing it all the time. The Kremlin and the Bank of Russia consider the risk of further restrictions unpredictable and dependent more on U.S. domestic politics than on anything Russia does. In the 12 months since the end of September 2017, the central bank has more than halved the dollar’s share in its international assets and sharply increased the shares of the euro and the renminbi.

Net central bank accumulation of gold is as much about sourcing a hedge against geopolitical trouble as it is a response to the clear threat to the Dollar from the adoption of Modern Monetary Theory by the US government.

Central banks buying dipped in 2017 but started to trend higher in 2018 and hit new decade highs this year. That represents a potent source of demand which is helping to support prices.

“This is really important,” said Torsten Slok, chief economist at Deutsche Bank Securities, who expects a rate cut in July. “For many years, the Fed has been arguing that monetary policy was easy and accommodative and supporting growth and inflation. After a decade of easy monetary policy, the Fed has decided that policy is no longer stimulative.”

Reasons listed for the lower neutral rate include ongoing fallout from the financial crisis, weaker productivity, continued slackness in the labor market and an aging population, which when combined leave the economy structurally weaker and so more vulnerable to rate hikes.

The upshot is the Fed may have to lower rates if it wants to boost expansion to offset global headwinds, including slow global growth and trade disruptions from President Donald Trump’s tariff battles.

Powell will give his view of policy in a speech on Tuesday to the Council on Foreign Relations in New York.

The trend of the Fed Funds Rate is downwards. There is a clear succession of lower major rally highs since the early 1980s and the failure of the Treasury yield to hold the move above 3% late last year suggests another lower high is now in place. If we accept the conclusion the peak of the interest cycle has now passed the next big question is just how low can rates go?

Bitcoin traded above $11,000 for the first time in 15 months, recouping more than half of the parabolic

increase that captured the attention of mainstream investors before the cryptocurrency bubble burst last year.

“The bounce-back of Bitcoin has been fairly extraordinary,” said George McDonaugh, chief executive and co-founder of London-based blockchain and cryptocurrency investment firm KR1 Plc. “Money didn’t leave the asset behind, it just sat on the sidelines waiting to get back in.”

When I got on the plane yesterday Bitcoin was trading at around $10,000. When I landed in London it was at $11,000. That’s a big move even for bitcoin. So, what’s going on?

When we contemplate the market’s assessment of commodities versus stocks, we find the former, which includes oil and gas, to be at the lowest valuation point in at least 50 years.  Does this mean that the commodity market it being disrupted?  Peak valuation points occurred in 1973-74, 1990 and 2008.  Each peak was associated with spikes in oil prices caused by geopolitical events such as the Arab Oil Embargo, the First Gulf War and the Global Financial Crisis, which happened as oil prices traded in excess of $100 per barrel.  Likewise, each low has been associated with low oil prices – either absolute lows, or lows below more recent oil price ranges.  

With respect to the low points in the valuation of commodities versus stocks, the prior two lows were marked by excess stock market speculation about super-growth stock future earnings.  The 1998-99  Dot.com Bubble, which saw companies brought public with barely any revenues and no earnings, but lots of “eyeballs” on web sites or clicks on shopping sites, happened to also be associated with oil prices falling to $11 per barrel as the Asian currency crisis unfolded and a brief global recession occurred.  The 1970-73 low was marked by the market bubble created by the Nifty-Fifty growth stocks, as price-to-earnings ratios for these 50 super-growth companies soared to ratios in excess of 50 times next year estimates for earnings per share.  Of course, two energy service companies – Schlumberger Ltd. (SLB-NYSE) and Halliburton Companies, Inc. (HAL-NYSE) – were part of this Nifty-Fifty stock group.  Crude oil prices at that point were in the $3 per barrel range, and there was a battle brewing between the seven largest global oil companies that ruled the international oil business and the Organization of Petroleum Exporting Countries over the value of a barrel of oil for tax and royalty calculations.  That tax battle lit the fuse that exploded after the Yom Kippur War involving Israel and Egypt in 1973, leading to the Arab Oil Embargo and the explosion in global oil prices.  

A link to the full report is posted in the Subscriber's Area.

This ratio has been doing the rounds of pundit commentary for the last couple of years because commodities are trading at a such a record low level relative to stocks. Jeff Gundlach in particular has been predicting a resurgence in commodity prices because of their relative discount to stocks and one of the reasons private equity has been so interested in the energy space is because of the relative discount to equities on offer, coupled with the prolific production profiles (and early payback) of unconventional wells.

I am enjoying the commentary as usual. 

I had two questions for which I would be grateful for your opinion:

I don't understand why gold should be priced differently in different currencies. One would have thought that the market would arbitrage out the differences. 

The second one is more general and applies to looking at long term trends such as that for oil versus the stock market. Could it not be argued that technology changes such as the advent of green energy or electric cars or indeed new modes of producing oil (fracking, oil sands etc) render these charts ineffective as predictors of future price action?

I thank you and look forward to hearing from you in due course. 

Thank you for these questions which I’m sure will be of interest to other subscribers. Gold is a commodity and subject to supply and demand fundamentals just like everything else but it is also a monetary metal. That means it tends to trade more like a currency than a commodity.

That’s all put the economy on track for its weakest fiscal year since the last recession in 1991. Even the Reserve Bank, which rarely wades into political territory, is urging more government stimulus after cutting interest rates for the first time in almost three years.

But whether boxed in by his sunny disposition or pledges to deliver a budget surplus made ahead of the government’s shock re-election last month, Frydenberg appears unfazed. While he’ll push to pass tax cuts when parliament resumes on July 2 and ramp up infrastructure spending, that’s about it, leaving the heavy lifting of stimulus to the central bank.

“I’ve found the treasurer to be remarkably sanguine,” said Danielle Wood, an economist at the Grattan Institute, an independent think tank in Melbourne. “When you’ve got the central bank governor coming out and talking about perhaps moving to stimulatory fiscal policy as well as the need for more long-term structural reforms, I’d be hoping for a more substantive response.”

The RBA cutting interest rates to previously unimagined levels, with more to come, is a bonus for consumers with floating rate mortgages, but the wider concern is about the health of the Chinese economy which Australia depends on for export demand growth.

Nationwide, farmers are expected to harvest the smallest corn crop in four years, according to the U.S. Department of Agriculture. The agency last week reduced its planting estimate by 3.2% from May and its yield estimate by 5.7%.

Farmers think more cuts are likely as the late-planted crop could face damage from hot summer weather and an autumn frost.

“An early frost will turn this world upside down,” Rock Katschnig, a farmer from Prophetstown, Illinois, said at the party.

It is one thing to have worries about being able to sell into overseas markets like China, it is quite another challenge not to have inventory at all. The failure to plant spring crops represents a significant risk for farmers if they plant late because of getting the wrong weather at the wrong time and potentially delaying winter crops.

Quick thought, following your comment on America's oil glut, and Morgan Stanley's report you highlighted.

I have been watching the difference in price between the WTI and Brent Crude for a long time now. The difference seems to vary between 10 and almost 20% depending on the day, with WTI obviously being the cheaper. Is it too SIMPLISTIC to say?

1) that US factories, offices, homes etc enjoy an enormous advantage over their global competitors with energy costs being so much cheaper, not forgetting it already enjoys a significant tax advantage over many as well.

2) when the US does become a significant oil exporter, it can make a lot of profit, even by offering only minor discounts to the Brent price to attract business. Possibly more profit than from its LNG exports.

Thank you for highlighting these points. I’ve always been a fan of Ockham’s Razor. There is no need to get over complicated. The USA has a massive advantage in terms of its oil and gas production capacity. That is reshaping global geopolitics, it will have a meaningful effect on the balance of payments and it has already had a meaningful effect on the chemical industry because of reduced input costs.  one.

Enviro Minister Schulze recently said that Germany will stick to its timetable to close the last nuclear reactor by YE22.  Some critics like Volkswagen CEO Herbert Diess believe that it should wind down coal before nuclear. A recent Forbes article “What Does It Actually Cost to Charge Up an Electric Car focused on cost of charging an EV.  We took it one step further and also determined the environmental impact of Germany’s decision.  Given that France’s electricity generation is 73% nuclear and Germany is only 12%, we compared estimated costs and emissions associated with charging a Tesla Model S with a 100-kWh battery. First off, electricity prices appear 45% lower in France.  Secondly, CO2 emissions from electricity generation to charge an EV in France is just 13% of what it is in Germany. Yes, Germans would see a 140% CO2 reduction by using EV’s versus that from an average ICE vehicle, but the French would see a 1,720% CO2 reduction.

A link to the full report is posted in the Subscriber's Area.

For the green movement there is no greater cause celebre than to combat nuclear proliferation. That consideration more than any other fired the resolve of Angele Merkel to wind down Germany’s nuclear industry following the Fukushima disaster even though Germany is not a seismically active area.

A link to the full report is posted in the Subscriber's Area. 

China has overplayed its hand in the rare earth metals sector. Two years ago, it produced 80% of the worlds supply, now it produces 70%. The global economy is now alert to the fact that these metals represent vital components in all manner of new technology products.

With the silver/gold ratio at multi-year lows, coupled with the adage that silver is high beta gold, I’ve been evaluating from a contrarian perspective whether to increase my exposure to silver whilst the market is in the depths of despair and await a possible turnaround. 

The problem is where to venture as the fundamentals of virtually every silver producer are pretty scary, including CDE, which has been mentioned from time to time in your Comment of the Day.

I came across this informative article which analyses in some detail the current state of the market and its various producers, the declining percentage of their production which is silver related, and their prospects of outperformance should the silver price recover. 

I would appreciate your insight into this analysis and which companies, or ETF’s, you feel might be worth considering for investment.

Thank you for this informative article which may be of interest to other subscribers. Here is a section:

Silver mining is as capital-intensive as gold mining, requiring similar large expenses to plan, permit, and construct new mines, mills, and expansions. It needs similar fleets of heavy excavators and haul trucks to dig and move the silver-bearing ore. Similar levels of employees are necessary to run silver mines. But silver generates much-lower cash flows than gold due its lower price. Silver miners have been forced to adapt.

This is readily evident in the top SIL miners’ production in Q1’19. SIL’s largest component in mid-May as this latest earnings season ended was the Russian-founded but UK-listed Polymetal. Its silver production fell 15.0% YoY in Q1, but its gold output surged 41.1%! Just 17.5% of its Q1 revenues came from silver, making it overwhelmingly a primary gold miner. Its newest mine ramping up is another sizable gold one.

SIL’s second-largest component is Wheaton Precious Metals. It used to be a pure silver-streaming play known as Silver Wheaton. Silver streamers make big upfront payments to miners to pre-purchase some of their future silver production at far-below-market unit prices. This is beneficial to miners because they use the large initial capital infusions to help finance mine builds, which banks often charge usurious rates for.

Bond traders’ conviction that the Federal Reserve will cut interest rates within months in response to a weakening growth outlook and escalating trade tensions firmed after a batch of weaker-than-expected U.S. jobs data.

Fed funds futures show a quarter-point cut almost fully priced in for July, and indicate about 70 basis points of easing by the end of 2019. The two-year Treasury yield fell as much as 11 basis points to 1.77%, close to the 2019 low reached Wednesday, and it was on course for its fifth weekly decline.

The last time that happened was back in July 2016, when the U.S. central bank’s target range was 2 percentage points lower than right now.

Lead indicators for future problems are flashing orange. If the Fed were to persist in its policy of continuing to raise rates and reducing the size of the balance sheet it would contribute to recession risk. If it steps on the monetary accelerator once more it risks further inflating a bubble, not least in the nonbank lending and private equity sectors.

“As long as Street forecasts fail to properly reflect BYND’s remarkable potential, we remain overweight.” Notes that “eventually this stock’s hefty valuation will more than offset the fast-growing fundamentals.”

Notes the importance of CEO Ethan Brown calling the forecast “very conservative” and telling investors that the company doesn’t include foodservice customers in guidance until they are past the testing stage.

JPMorgan has a $233 million 2019 sales target -- vs the company forecast of $210 million -- and the analyst says his estimate may be conservative. “It is conceivable that Tim Hortons alone (a current customer with nearly 5,000 locations that is not yet in guidance) could account for most of that
gap.” Rates overweight, price target to $120 from $97

Meat alternative providers like Beyond Meat and Impossible Burger have a clear benefit in that they are providing a new product which is fashionable. The trendiness of vegan food products that are considered both healthy and taste good represents a significant market phenomenon which has been growing in importance at local eateries around Los Angeles for the last couple of years. The primary benefit of these products for fast food chains like McDonalds, Burger King or Jack in the Box is they attract a new demographic that normally avoid such establishments.

A link to the full report is posted in the Subscriber's Area. 

The Gold/Silver ratio is at rather extreme but not the most extreme levels seen historically. David long described silver as high-beta gold and poor man’s gold. The less liquid nature of silver trading and the various use cases for the metal contribute to it being more volatile than gold.

Within China, all forms of debt have risen, reflecting a shift in the dynamics of its economy. Before the crisis, China had largely managed to finance its growth without recourse to much debt. The inflows from exports had done the job. The population, fast reaching middle-class living standards, still tended to fund itself conservatively. But household debt has almost tripled from 18.8% of China’s GDP before the crisis to 51.2%. All this debt has successively less impact in stimulating economic growth.

There are reasons why China’s debt is not creating greater fears. If countries want to avoid crisis, issuing a greater share of debt in their own currency is key. This avoids the risk that a devaluation can force them into default, and it leaves them with the option—not necessarily a good one—of printing money to escape difficulties.

China does more than 90% of its borrowing in local currency, which limits the risks somewhat. Meanwhile, almost all large emerging markets now do more than half of their borrowing in their own currency. But not all emerging markets have made uniform progress in converting to local market debt. The two biggest exceptions are Argentina and Turkey—and it is no coincidence that these two countries both slipped into crisis during 2018 as a strong dollar put pressure on their currencies.

Where the burden of debt resides in an economy gives us a clue as to where the greatest effect will be felt from a problem. When the credit crisis struck it was mortgage debt in the USA which led the market downwards and it was consumers who felt the brunt of the decline with the foreclosure crisis and erasing of savings. Today, debt resides on company balance sheets and in China’s regional banking sector in particular.

Successive attempts to wring leverage out of the regional banking sector have finally had the desired effect of ending shadow banking. However, without resource to government capital, Dollar loans or private lending clubs, the regional banks are in serious peril. This is a difficult sector to monitor because only a handful are listed on the stock market.

Africa, largely ignored in a U.S.-China trade war that could roil economies worldwide, is quietly piecing together the world’s largest free-trade zone.

The African Continental Free Trade Area comes into force on paper on Thursday after the required 22 countries ratified the deal a month ago. Once it’s passed by all 55 nations recognized as part of the African Union, it would cover a market of 1.2 billion people, with a combined gross domestic product of $2.5 trillion. The potential benefits are obvious, if the usual hurdles of nationalism and protectionism don’t yet stand in the way.

The deal would help the continent move away from mainly exporting commodities to build manufacturing capacity and industrialize, said Jakkie Cilliers, head of African Futures and Innovation at the Pretoria-based Institute for Security Studies. Boosting intra-regional trade would spur the construction of roads and railways, reducing the infrastructure gap in Africa, he said.

Africa is the global centre for population growth and represents an important demographic growth engine for the global economy over coming decades. The creation of a free trade area to promote transnational trade right across the continent is a positive development that will help spur growth for many economies.Building up trade that is not exclusively reliant on resource extraction is a major objective for just about every commodity producer but it is especially important in high population growth markets because people need jobs if their productive capacity is to be realised. That’s a long-term objective.

“LNG is now so cheap it’s competing with coal almost,” said Caroline Bain, chief commodities economist at Capital Economics Ltd., who sees slowing demand for coal. “It’s not actually falling off a cliff. We think it’s going to be a long slow death rather than tomorrow.”

The price slump is one sign of Europe’s determination to phase out coal as it seeks to slash climate warming emissions without holding back the economy. Renewables are also in the fight for market share, with onshore wind and solar power “fast becoming cheaper than average power prices in Europe’s largest markets,” according to a research by BloombergNEF.

Front-month Dutch gas prices, a benchmark for Europe, plunged 50% this year as record volumes of LNG landed in northwest Europe. Coal for next year has dropped 30% after a mild winter left inventories at European ports unusually high.

“There’s too much coal,” said Hans Gunnar Navik, a senior analyst at StormGeo AS. As “natural gas out-competes coal,” renewable generation is replacing both of them, he said.

In the pricing of commodities supply is much more volatile than demand. Generally, bull markets don’t end because the market runs out of buyers but because new sources of supply appear to satiate demand. That is why we define secular bull markets in commodities in terms of a step up in the marginal cost of production.

The People’s Daily, a flagship newspaper of the ruling Communist Party, said in a commentary that the U.S. shouldn’t underestimate China’s ability to fight the trade war. The country is “seriously” considering restricting rare earth exports to the U.S., the editor-in-chief of the Global Times, a newspaper affiliated with the Communist Party, said in a tweet. An official at the National Development & Reform Commission told CCTV that people in the country won’t be happy to see products made with exported rare earths being used to suppress China’s development.

 

The U.S. relies on China for about 80% of its imports of rare earths, the group of materials that are used in everything from electric cars to high-tech military equipment. Rare earths, which include elements such as cerium and dysprosium, are relatively abundant in the Earth’s crust but mine-able concentrations are less common than other ores.

China produces about 70% of the world’s mined rare earths and its industry is dominated by a handful of producers including China Northern Rare Earth, China Minmetals Rare Earth Co., Xiamen Tungsten and Chinalco Rare Earth & Metals Co. Some of the country’s listed rare earths stocks are small caps, making them easy targets of speculation.

The country has taken a proactive approach to managing the global market, Bank of America Merrill Lynch said in a report, citing steady exports in the 1990s that depressed prices and a 40% reduction in its export quota in 2010 that led to a spike.

The last time rare earths were a political football in 2010, it was because China cut off exports to Japan in an effort to force high-end manufacturing to migrate. That set off a massive run-up in rare earth metal prices, investment in new mining facilities and a drive towards substitution. Faced with the threat of losing it dominant position China relented and began exporting again. Prices collapsed, most of the new miners went bust and some semblance of normality returned. How is this occasion different?

Trust is the basic value of interpersonal cooperation and the cement of our social order. The erosion of our “trust capital” can be observed in many areas of society.

The breakdown of trust in the international monetary order is manifesting itself in the highest gold purchases by central banks since 1971 and the ongoing trend to repatriate gold reserves.  

Gold reaffirmed its portfolio position as a good diversifier as trust in the “Everything Bubble” was tested in Q4/2018. While equity markets suffered doubledigit percentage losses, gold gained 8.1% and gold mining stocks 13.7%.

The normalization of monetary policy was abruptly halted by the stock market slump in Q4/2018. The “monetary U-turn” that we already forecasted last year has begun. 

Recession risks are significantly higher than discounted by the market. In the event of a downturn, negative interest rates, a new round of QE, and the implementation of even more extreme monetary policy ideas (e.g. MMT) are to be expected. 

When it comes to trust in investments, our vote is clear. Trust looks to the future, forms itself in the present, and feeds itself from the past. Gold can look back on a successful five-thousand-year history as sound money.

A link to the full report is posted in the Subcsriber's Area.

Gold is a monetary metal and therefore is best valued like a currency rather than as a metal, stock or bond. Of course, currencies are generally income producing but if the last decade has taught us anything that is not always the case. One of the clearest arguments for owning gold in the aftermath of the credit crisis were the negative interest rates that prevailed which made gold alluring by comparison. With similar conditions arising now, the big question many people are asking is why gold hasn’t done better?

Claims known as prevented plant pay out when farmers are unable to sow crops at all. With unceasing rain keeping farmers out of fields, growers are increasingly weighing how best to get paid and ease the impact from the bad weather and an escalating U.S.-China trade war.

“You hate to farm for insurance, but in a year like this, you keep that in the back of your mind,” Nelson, whose farm is near the east-central town of Paola, said by phone. Storms across the Midwest and Great Plains have resulted in the wettest 12-month stretch on record in the U.S., with the deluge closing refineries and snarling Mississippi River traffic. Crucially for agriculture markets, it’s also hampered crop planting. Worries over tighter supplies due to the soggy weather drove Chicago corn futures to surge as much as 3.9% on Friday, topping $4 a bushel and rising to the highest level in almost a year.

The wet weather’s showing no signs of easing. Severe weather that broke out late Sunday across the Central U.S. and into the Midwest is expected to continue to cause havoc. The insurance deadline for sowing has already passed for some farmers in southwestern Missouri, southeastern Kansas and western Tennessee. They now have to decide whether to plant with less coverage, or make prevented-plant claims.

The cyclicality of grain prices, where old crop prices rise heading into the harvest of winter planting and fall thereafter is predicated on the assumption that there is a winter crop to harvest. There is likely to be significant volatility because hard red wheat crops are expected to be OK, but a significant rally appears to be getting underway in old crop contracts. The true test of the health of the new crop will come when it the front month July contract rolls.  

With an equities rally wavering, trade relations between world’s two largest economies deteriorating and U.S. borrowing costs slipping, the commodity often seen as a haven in times of turbulence is encountering troubles of its own. Gold prices are headed for a fourth straight monthly drop, and have seesawed between weekly gains and losses since late April.

Bullion, which hasn’t posted more than three straight daily gains since March, has been stuck in a fits-and-starts pattern as signs of resilient growth and a rising dollar counter concern that the world economy is set to slow. Even increased wagers that the Federal Reserve will ease monetary policy this year haven’t been enough to sustain rallies in bullion, which can benefit from low rates because it doesn’t pay interest.

“Prices are kind of range bound, nobody is making any money, so on the margin, people are just disinterested,’’ said John Laforge, the head of real asset strategy at Wells Fargo Investment Institute, which oversees 1.9 trillion. “You really need something fearful out there, which is the scary part. You really need something that rattles markets for gold to take off.’’

I like to see these kinds of articles because they give us some perspective on what sentiment towards an asset class is like. As you can see from the above passage the broad feeling is this “market has no legs” and “can’t sustain a rally”. That tells us the majority of people are not in the market.

Overnight swap markets are currently pricing in two RBA cuts by November. Westpac Banking Corp. economist Bill Evans on Tuesday brought forward his forecast for the first reduction in the cash rate to June, with a second to follow in August. Commonwealth Bank of Australia and Royal Bank of Canada expect the same.

JPMorgan Chase & Co. though says two cuts may not be enough. “From where we are today, this is still not sufficient to fully neutralize risks to the RBA staff’s current forecasts, suggesting risks to a sub-1% cash rate,” economist Ben Jarman wrote in a note.

Franklin Templeton’s Canobi expects the RBA to lower borrowing costs three to four times over the next nine to 12 months as tepid inflation weighs. “We never felt that inflation has really had a grip since the RBA started easing in 2016, and it still looks pretty weak,” he said.

Australian mortgages are full recourse and floating rate. The Australian consumer is carrying some of the highest leverage ratios in the world, second only to Canadians in the G7. That’s fine as long as the property market is rising but when it starts to contract pressure starts to build on leverage at even a slight down turn in the ability of consumers to service their debts.

From now, Huawei will be able to use only the public version of Android and won’t have access to proprietary apps and services from Google, according to a person familiar with the matter. Though existing phones are expected to keep functioning largely as usual for now, users could lose some app functions, including some artificial-intelligence and photography features, the person said.

In a separate move, German chip maker Infineon Technologies AG said it was terminating the delivery to Huawei of some components originating in the U.S., in a sign that even non-U.S. suppliers to Huawei are being swept up in the U.S. trade restrictions. Infineon didn’t specify which components were affected by the action but said the “great majority” of products it sells to Huawei aren’t subject to trade restrictions.

Separately, Qualcomm Inc., San Diego, has suspended shipments to Huawei of its chips, and some employees have been told not to communicate with the Huawei side, according to a separate person familiar with the matter. Qualcomm chipsets are used in certain Huawei smartphone models. Huawei also designs a large number of its own chips for higher-end phones.

Huawei is a Chinese national champion, so the Chinese government looks on the efforts to excise it from competing internationally as a direct afront to the Made in China 2025 program which is one of Xi Jinping’s central policy objectives. There is no Chinese company with an operating system capable of replacing Android. Until now they never needed one but we can be sure this sequence of events is going to further accelerate the drive towards Chinese technological independence, however long that takes.

This has become a pattern where you get a big aggressive statement from the administration that might impact trade and then the market reacts aggressively as it did on Monday and then it seems to back off,” Chicago-based Susan Schmidt, head of U.S. equities at Aviva Investors, said in an interview. “Business is still doing well. I think if the market can stay focused on the facts and the data, then I think the market will hold.”

Strong economic data and earnings, along with hints from the Trump administration that it may be willing to compromise on trade has helped stocks rebound from the battering they took when the tariff battle with China flared. But the headlines have come fast and furiously, most recently President Donald Trump signed an order that’s expected to restrict Chinese telecommunications firms from selling in the U.S.

China’s dependence on global trade is far greater than the USA’s and the market has been voting with its feet by both supporting the Dollar, the bond market and the stock market since the trade war began.

The rate on the January fed funds futures contract implies that the central bank’s benchmark will fall to 2.075% by the end of 2019. This is more than 25 basis points below where the effective fed funds rate stood Friday, showing traders are fully pricing in a quarter-point reduction. The implied rate on the contract ended last week at 2.15%.

This is happening as China threatens retaliatory tariffs on some American imports, an escalation in the trade war with U.S. President Donald Trump. The clash is fueling concern about economic growth, prompting a key part of the U.S. yield curve to invert again -- a sign to many that the risk of a recession has increased.

While “China/U.S. trade ripple effects certainly affect the Fed’s outlook, I think this is more of a macro move,” said Todd Colvin, senior vice president at futures and options broker Ambrosino Brothers in Chicago. “It’s not about whether or not the Fed sees policy shifts, that is, as much as it’s looking at
global growth woes, or increased market volatility.”

Jay Powell probably didn’t bargain for the environment he has been presented with since taking the helm of the Federal Reserve. Reducing the size of the balance sheet was supposed to be part of the re-arming of monetary policy to provide for the next crisis. It turned out to be the primary cause of the volatility last year and offered graphic evidence of just how addicted to liquidity the market is.

Uncertainty over how the dispute would be resolved in the one-month deadline set by Washington will reinvigorate a hunt for haven assets in a world already hampered by slowing growth.

An easy bet will be to short the expected losers: risk-sensitive currencies from Asia to South America, they say. “To be honest, I thought the dollar would be rising at a much faster pace than this -- markets were pricing in a Goldilocks environment and they were clearly wrong,” said Stephen Miller, an adviser at asset manager GSFM and a former head of fixed income at BlackRock Inc.’s Australian business.

“Right now I’d be long U.S. dollar versus EM currencies, the likes of Argentina and Turkey.” There’s a 60% chance that China and U.S. won’t reach a deal in the coming weeks, according to analysts at Australia and New Zealand Banking Group Ltd., after last week’s talks laid bare divisions including the removal of existing tariffs and a breakdown in trust. While both nations plan to continue negotiations, traders are waiting for Beijing’s retaliation measures after Washington slapped more duties.

The Chinese renminbi has long been used as policy tool and tariffs being imposed on a wider range of goods, there is a clear argument for having a weaker currency. The country is obviously going to experience some difficulties from tariffs imposed on exports to one its largest trading partners but the potential for domestic inflation to spike on the back of a weaker currency is likely to limit the scale of devaluation.

But the mood on both sides going into the talks appears to be hardening with Lighthizer calling members of Congress ahead of the discussions to warn that a deal this week is unlikely, according to people familiar with the conversations. While Trump on Wednesday insisted that Liu was coming to make a deal and dubbed him a "good man," he later told a rally of supporters that China "broke the deal" by backsliding on prior commitments, leading him to order higher tariffs.

China has disputed Trump’s characterization that the country reneged. But it has also sent its own signals that a deal could take time.

Unlike in some of his previous visits to Washington, Liu is not traveling with the designation "special envoy" of Xi Jinping, according to people briefed on his trip. Chinese officials’ public statements have also hardened in recent days with Beijing vowing to retaliate against Trump’s tariff increase and rejecting the idea that it has reneged on any commitments made during the months of tough negotiations that have led to this week’s showdown.

“China is credible and honors its word and that has never changed,” Commerce Ministry Spokesman Gao Feng told reporters on Thursday.

The Ministry of Commerce also announced it would soon publish details of new retaliatory tariffs.

Haggling is a part of Chinese culture and nothing is agreed until everything is agreed is a common tactic. Fawning over one item to distract attention from the real intent of the negotiation, only to introduce that object later in a backhanded manner, in order to get a better price is also common. Why would trade negotiations be any different. Reintroducing points already considered settled appears to be a central tactic in Chinese negotiating style but that is normal in all Chinese dealings rather than being an individual tactic to the trade negotiations. 

“The U.S.-China deal sentiment is being unwound,” Joe Davis, director of commodities at Futures International LLC, said in a message. “There’s a zero percent chance of a deal by tomorrow -- it was almost a 100 percent chance last week.”

Soybeans have become something of a poster child of the trade dispute. China, the world’s biggest consumer, has mostly shunned imports from farms in rural American communities that voted for Donald Trump in 2016. Meanwhile, supplies from the 2018 harvest piled up in silos, bins and bags across the U.S. Midwest.

On Thursday, July soy futures in Chicago fell as much as 2.5 percent to $8.065 a bushel, the lowest since the contract debuted in late 2015.

China has been slow rolling or banning purchases of US grains has had a material effect on the price of these commodities and on the welfare of farmers dependent on selling them. With trade tensions still high these commodities came under renewed pressure today.

In recent years, their challenges have increased. Climate change stretches the dry season, or makes rainfall erratic. Last year some farms went up to 45 days without rain. The farmers watched their maize and bean plants wilt and die. Then they reaped only more debt from their meager coffee harvest.

In normal circumstances when the price of a commodity drops below economic production levels supply dwindles. That eventually contributes to recovery.

A link to the full report is posted in the Subcsriber's Area. 

Miners of all hues are in the extraction business and that comes at a cost which varies based on both internal and external factors. When the commodity price is low, they have no choice but to mine the richest ore bodies available because to do otherwise would likely lead to insolvency. When prices rise, they engage in M&A activity because they have to replace that ore because grades have deteriorated.

Gold, coming off three straight monthly losses, got a lift as the wage data reassured investors that signs of moderate inflation will continue to stay the Fed’s hand on rates. Low rates are a boon to gold, which doesn’t pay interest. Fed policy makers reiterated their patient stance this week as Chairman Jerome Powell noted “very strong job creation’’ and said low inflation may be transitory.

“There was disappointing data on the wage-inflation side, and just puts a hint of doubt into the idea that low inflation is transitory,” Ryan McKay, a strategist at TD Securities in Toronto, said by phone. “Gold has been under a lot of pressure since the Fed comments this week, and this helps ease some of that.”

The market was disappointed the Fed did not bring forward the end of quantitative tightening from September to June but one way or the other the process will be complete by the end of the summer. With the Fed on pause it is unlikely they are going to raise rates without a good reason and quantitative tightening’s end is being priced in. The volatility on the Dollar this week, suggests indecision among investors as to its ability to continue to rally.  

In contrast to current trends, the Faster Transition Scenario sets out a vision for an extremely ambitious transformation of the energy sector. Energy-related emissions peak around 2020 and drop 75% to around 10 gigatonnes of CO2 (GtCO2) per year by 2050. The carbon intensity of the power sector falls by more than 90% and the end-use sectors see a 65% drop, thanks to energy efficiency, uptake of renewable energy technologies and shifts to low-carbon electricity.

Electrification plays a major role in the transition, combined with clean power generation. Electricity’s share in final energy reaches about 35% by 2050, compared to less than 20% today. That growth is mainly due to adoption of heat pumps in buildings and industry, as well as a swift evolution in transport. Efficiency improvements keep electricity demand for other end uses, such as lighting and cooling, relatively stable, while access to electricity improves worldwide.

One of the biggest challenges facing the environment is the emotionality of the debate. It is almost impossible to discuss objective facts versus subjective opinion. Until this century there was no record of a hurricane in the South Atlantic, but now there have been three. Baobab trees that stood for thousands of years in Africa are dying and coral bleaching is taking over an increasingly large percentage of the world’s reefs. These are facts that point toward a changing climate.

I posted an article on April 9^th discussing how the Bureau of Labor Statistics is adjusting how apparel price data is being collected with the result that prices will be shaved and the end figure will be lower.

While climate-change activists make a lot of fuss about the US, where emission of greenhouse gases has been in decline, they aren’t demonstrating loudly about China -- which attacks developed countries for not doing enough, while itself doing most to worsen it,

The New York Times reports that China, the world’s leading emitter of greenhouse gases from coal, now admits it’s burning up to 17 per cent more coal than its government previously claimed when it signed up for the Paris accord.

And it’s making things worse. Across China the government is building a fleet of new coal-fired stations with 259 gigawatts of capacity, while outside the country it’s financing even more new coal plants, providing $36 billion for 399 gigawatts.

“Chinese bankers and project planners like coal-backed projects because they are cheap,” says the energy consultancy IEEFA. “While they are restricted by Chinese pollution and emissions targets at home, they are free to fund coal-backed projects abroad.”

The standard of living attained by China’s middle class has resulted in a clear call for cleaner air and the government is intent on showing progress. However, there is no getting around the fact that coal fired power stations are cheap to build and run and are very reliable. Moreover, China has plenty of experience building them and there is a ready market for coal in emerging markets, not least in India and increasingly Africa.

Glencore Plc’s Democratic Republic of Congo unit will restart some cobalt exports after it halted sales last year due to low levels of radioactivity.

About 23 percent -- or 930 tons -- of the cobalt produced at Katanga Mining Ltd.’s Kamoto mine since January complies with regulations on uranium content, the company said in a statement. Katanga is controlled by Glencore and owns 75 percent of Kamoto.

The unit halted sales of cobalt in November after detecting radiation and said that a plant to remove the contamination would be ready this year. The suspension of sales came after prices for the metal used in rechargeable batteries collapsed on growing concerns about oversupply.

Glencore said at the time that it planned to stockpile cobalt supplies until the middle of this year. Kamoto is Glencore’s second-biggest source of the metal in Africa, producing about 11,100 tons last year.

Glencore has a long history of trimming mine supply to match demand, and has criticized rivals for producing too much and depressing prices. The Swiss commodity giant curtailed zinc output at mines in Australia, Peru and Kazakhstan in 2015 when prices languished at six-year lows.

Cobalt plummeted in value last year as substitution concerns, slowing Chinese car demand and a peaceful transition of power in Congo sapped the bubbly enthusiasm that had prevailed ahead of the peak. The relative strength of copper and nickel are additional considerations since cobalt is a by-product of mining those metals.

The robust rate of credit expansion this year doesn’t rule out continued monetary easing. We think that’s still needed to help the economy find a solid footing, though the focus should increasingly shift to targeted measures.

Broad-based easing is still needed to provide liquidity to the banking sector so it can sustain the expansion in credit. The need is higher in 1H and we continue to see the possibility of reductions in the reserve requirement ratio, with the first potentially coming as early as in April.

There’s less of a necessity for an interest rate cut, in our view.

Targeted measures are important for channeling funding to sectors in greater need of funding -- small, private firms -- to lower their effective borrowing costs.

The result of the People’s Congress was to declare victory in the containment of the shadow banking sector and to signal a clear willingness to boost credit growth to reinvigorate speculative activity. That has resulted in the stock market popping on the upside, reversing the pattern of deterioration that prevailed for all of 2018.

Most measures of the PPI are a bit stronger than expected, as well as jobless claims,” Tai Wong, head of base and precious metals derivatives trading at BMO Capital Markets, says in phone interview  With the “surprise positive economic data, especially the PPI, if you are thinking that the Fed’s next move is going to be a rate cut, this moves that further away” “It will probably keep the Fed neutral for longer”

The current economic environment represents the sweet spot between when the central banks of the world pause in raising rates and when economic activity continues to expand. Those are exactly the kinds of conditions in which we see cyclical sectors leveraged to the growth of the global economy turn to outperformance. So why were commodities weak today on the back of stronger economic news?