Thursday's Commentary 04/04/2013

Morning News

1. Fed President John Williams spoke yesterday (Wed).  He commented that current monetary easing measures could begin to slow this summer.
2. Jobless claims were announced this morning - summary -- bad news, but don't worry, stock markets around the world are up.  Well the US market actually fell just a bit, but rebounded after hitting the close of yesterday.
3. The DOW and the S&P 500 seem to be masking broader weakness in the markets.  There are whole sectors that are getting absolutely crushed over the last 2 weeks.
4. There is a lot of traffic on twitter (measured by Bloomberg, Shaffer and Briefing dot Com) that has turned overwhelmingly bearish.  A contrarily oriented trader might think the market would go up, as the big funds take advantage of the pessimism.  I however would like to follow the trend, and look at the intermediate term position the commercials are taking.  I always remember, in trading whatever position I take (if long for example), there is someone out there who thinks the opposite (sold it to me in the example).  That is true one hundred percent of the time - no exceptions.  That is why the Commitment of Traders report, free from the Government is so important.  The commercials set the trend.  The large traders (funds) drive the trend.  The retail traders are usually wrong at the top and the bottom as they did not scale-in, but invested all at once.  
5. US Dollar is surging before trading starts in NY.  
6. Gold is still tanking, as well as silver.
7. Oil is down just a bit.
8. Remember when I told you there was opportunity in Japan and how to position yourself for an intermediate term gain?  Japanese stocks extended their rally, bolstered by aggressive monetary easing.  Yesterday, the Bank of Japan announced plans to double its government bond holding within two years.  The inflation target is 2%.  The opposite side of Japan is South Korea.  South Korea Kospi fell 1.2%

Overall, as we near the opening, the stock market is giving no clear signals. It is up slightly after a major move down yesterday.  The US $ may be indicating the stock market will move up a bit.  There are a few lip flappers from the Fed that will speak today.  Nothing major expected.  All the market moving news (unemployment report) were announced already.  So what will NY traders do today?

Precious Metals

11:50 AM PDT - Are we having fun yet?   

• Just in from Bloomberg -- http://www.bloomberg.com/news/2013-04-04/gold-approaches-bear-market-as-holdings-drop-to-seven-month-low.html
• Jist of this article Gold dropped to its lowest level since May.  Palladium fell even if there was a report out that Russia was hiding the fact that Pallidum inventory is nil. We'll have to stay tuned to the truth of that report.  
• In my opinion, gold and silver are in a holding pattern much like the US stock market.  Silver volatility is particularly low, while Gold has increased in volatility.  
• Do you know how to tell when a commodity breaks out to the upside?  I've shown you the Gold Miners Bullish Index chart to understand where a breakout (and turn around) in minors may occur.  Gold has an index $GOLD.
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source Stockcharts.com

Unlike the Gold Miners, this index is purely on price.  What the P&F chart shows is where an upside break out will occur.  Of course if you were a P&F Pro Chart reader, you would recognize it is when the "X" column exceeds the downtrend line.  However, unless the "O" column exceeds 1530 (now you know why I've been talking about 1527), the likely breakout to the upside will come at 1620.00; or in other words, when a column of "X" exceed 1620, then Gold has a good potential to move higher on the intermediate term.    By the way, according to the random walk theory, momentum should not exist.  OK, that should be worth the time to read this blog.  However, some of you are going to say: "Those P&F charts are so outdated; so bland; so ugly."  However, they remove the "time confusion", and I can tell you a regular price chart does not look like (or feel like) the above chart.

Are Precious Metals about to collapse?  Who knows?  I would caution anyone who listens that Gold is not a good long term investment no matter what profits of doom on inflation you read.  There are excellent opportunities in Gold when there is FUD  (fear uncertainty and doubt) in the viability of the USA or hint of war with the USA (like in Korea and the South China seas).

For German and Canadian readers, please remember the USA economy is the largest in the world.  Yes, China is trying to destroy the faith in the US dollar, and someday they will succeed I suppose.  In the meantime, it is still true that when the USA grows, there is a trickle down effect to other economies; specifically the Euro and the Canadian.

At this moment in time, China is buying up all the physical gold it can in order to establish the Yuan as a currency backed by Gold.  (Or at least that is what my German friends in Stuttgart tell me.) And with that semi-fact (because I cannot confirm), why is not gold soaring?

Oil

I've been researching Oil this morning, and I will share with you a layman's view of OIL and GASOLINE prices in the USA.

One of the major commodities that has a huge effect on inflation is Oil.  Looking at the following chart, Oil is in an uptrend.  USO (United States Oil Fund) is an ETF that tracks Oil.  The red line is West Texas Intermediate Crude Oil and the candle stick chart is USO.  They track exactly.  

As an investor, do we know any facts that might explain why Oil prices have remained high? Let's see:

1. 1.     Technology for tapping into Crude and Natural Gas is increasing rapidly.  This is helping the US tap incredible reserves of oil and natural gas.  Would that not suggest the price of Oil should not be trending up? (I've talked about this before, as International factors play into the price of OIL.  This includes BRENT and West Texas Intermediate.) 
2.       According to the EIA (US Energy Information Administration http://www.eia.gov/) production is up and forecasted to increase substantially.

Source EIA

1.  Interestingly, if the forecast is accurate, the increase (alone) amount of production would supply the entire continent of Africa for a year. 
2. Well, that would certainly look like Oil should be going down.  But it is not.
2. Did you know that it is illegal for any company to export oil from the US?  There were laws passed in the ‘70s during the gas crises that made it illegal, and those laws are still in place.  
   
   
3. Should that not mean that US Oil supply is increasing, driving price down?
4. However, Energy Producers have found a way around that.  They can refine the Oil and the refined products can be exported. 
5. Exports of Finished Goods from Oil (Gasoline, diesel, jet fuel) have almost quadrupled since 2005. 
6. And that brings one back around to Brent Oil (Foreign Oil) and West Texas Intermediate Crude (WTIC).  If we observe that for almost 2 years that Brent has traded at a 20% premium to WTIC, then we can assume that refined products from the USA will be a large discount to refined products.  Folks, we are cheap.  When did you last hear that? 

Look at this chart from the EIA

Yes, production is ramping up, but not nearly as fast as exports.  Therefore, exports are keeping the supply of OIL down, and the consumer is feeling the rising cost of gas at the pumps… (Of course you know that gasoline in the USA is far, far less expensive than Europe or China.)  

I do not know about you, but it looks suspicious that the laws are be circumvented by large global producers.  In the overall sense of the Global Economy (and the one-world order if you are into that stuff), this is good for our trade balance.  OK, it is not so good for USA consumers.

However, the USA tomorrow could enforce those laws if inflation gets out of hand.  Do you agree? disagree? Following currencies and the global economy is enlightening even if I cannot always make sense or know the truth of how much planning is going on - or on the other hand, it is chaotic and it is just happening.

Other:

12:47 PM PDT  

I thought I was through for today, and then Bloomberg strikes again (actually the CEO of Italy's largest bank)  

Federico Ghizzone: "uninsured deposits could be used in future bank failures provided global rulemakers agree on a common approach"  (Translated, we will use the depositor's deposit to cover)

What one  should particularly notice is "GLOBAL RULEMAKERS".   Who is he referring to here?  Well one possibility is Mario Draghi, head of the ECB when Super Mario says "There is no PLAN B."; referring to Cyprus bailout, and Global meaning all Euro Zone banks are the same.  Why would that plan have a problem? Because in the Eurozone not every country uses the EURO, and those that do not use the EURO are not likely to agree to the rules.  

OK, sort of out of context from Bloomberg:  What he actually said as reported in the Financial Daily Europe was "Cutting large deposits in failing banks, along with other liabilities such as bonds, to offset losses is acceptable as long as small savers’ funds remain protected, Ghizzoni told reporters in Vienna late yesterday. The European Union has to introduce identical rules in all of its member states and ideally those rules would be coordinated globally, he said"  

http://www.bloomberg.com/news/2013-04-04/unicredit-s-ghizzoni-favors-using-big-deposits-in-bank-failures.html  Title of this report "UniCredit Says Global Rule Needed to Bail in Big Deposits".  

OH OH, it seems Federico Ghizzoni did not get the memo that the Dutch Finance Minister was out of line saying Cypress was a template for future bailouts.  

Inherent in the European banker's approach is a Global Government.  That is what is really being proposed, because somehow the uber rich find a haven somewhere where they can hide money (or move it in case of problems.)  By the way who are those rich?  Well certainly the Russians have proven that there are some rich people that have their money far away from Russia as possible.  We know the Onassis family, Latsis family,  as well as the Rothchilds.is part of the uber rich dealing with banks;  How many others? I don't know, and I don't care.  

The Uber Rich of the world will find a way to "hide" their money from the tax man, and the politicians will be very happy to receive a few pence (legally or illegally) to keep them (the politician) in power.  

That is the way I see it.  

Look at this scenario going down in Europe.  Who foots the bill?  Oh, the "little guy" did not lose money in Cypress.  That is only on the surface. 

Look at the unemployment in Spain, Cyprus, Portugal, Greece (the worst unemployment so far), and tell me if the "little guy" is not being hurt.  Wow, if the small depositor breathed a sigh of relief (I am happy they did not lose their money), the economies of the PIIGS with a C (does that stand for Capitalists PIIGS C-PIIGS?) are not going to get better by bailing out the banks and making all the businesses operate in austerity mode.  Ha, I'm a believer in Capitalism and the invisible hand. The problem is the government which is turning out to be the Bankers trying to control the invisible hand.  What the Bankers are doing (including our Federal Reserve) is making themselves the planners of all planning, when bankers have never ever shown any inclination toward making a human (or morally right) decision.  

 In every empire in history, the politicos break the back of the family business; those are the real small business.  USA readers know them as the Chinese Restaurant Owner, the Indian Restuarant Owner, the hardware store in small town America where those type of businesses  employ 5 - 20 people on average for each business.  In the Eurozone, Forbes estimates that 75% of businesses are family run and they employ up to 50% of the employed in the Eurozone.  

You Republicans out there... If you have a Republican Congressman have you ascertained what the Republicans mean when the Republican's say they are for small business?  My experience as the CEO of several small business, is there is no (not one) Republican that is small business friendly (with apologies to my excellent Republican Congressperson who seems to think Kinross (gold mining) is a small business), and has never once visited K diamond K ranch that employees 20 FTE people (which is a very large business in our county).  

Do I know the answer? NO I do not, and as I've said in this blog, I sympathize with the people, just as I sympathize with population in this county where the unemployment rate is estimated to be 33%.