EconMatters

Gold’s been on a wild ride.  After reaching a peak of $1,920 an ounce in September 2011, gold has tumbled 28% to the current ~$1,380 level forcing John Paulson to take a 47% loss in his gold fund during the first four months of this year, according to Bloomberg. Unlike John Paulson who maintained his positions in gold, other big players like George Soros and  BlackRock cut their gold ETF holdings, while Goldman Sachs issued a sell recommendation on gold right before the yellow metal plunged 13% through April 15, the biggest drop in three decades.  And by looking at the futures curve (chart below), market does not seem to expect gold to come back roaring any time soon.   QEs Not Hitting the Real Economy   Historically, gold is regarded as a good inflation hedge and store of value, typically thriving in an environment of high inflation, and/or weak U.S. dollar (currency debasement).  With U.S. Federal Reserve’s three rounds of QE, the never-ending debt crisis in the Eurozone, hyperinflation and dollar debasement seem inevitable and supportive of gold for the long run, right? Theoretically, Fed’s QE and near zero fed funds rate is supposed to encourage borrowing and spending
Read More »

Oil Market Manipulation Reaches Absurd Levels By EconMatters Markets & Manipulation: A long History Most markets these days are manipulated to some extent, and this is nothing new if we look back through the history of financial markets. But there are some strange things happening right now in the oil market worth mentioning. Brent-WTI Spread/Scam Another scam in the Oil market is the Brent-WTI spread this has been one of the biggest scams over the years in the Oil market. Just to provide some data to the absurdity which is this much hyped about nonsensical spread Cushing Oklahoma has 49.7 million barrels in storage, it had 45.1 million barrels in storage a year ago.  Cushing had 50 million barrels in storage at the start of the year. Moreover, in June Cushing will be adding additional supplies to storage due to current pipeline capacity going offline. So for all this talk about pipelines finally unlocking all the glut of oil supplies from the Cushing hub, and this being the reason for the impressive reduction in the Brent-WTI spread it is just a bunch of nonsense. Cushing Oklahoma Supply Glut So there is basically more oil trapped in Cushing Oklahoma then there has ever
Read More »

Dow Record in sight We are 200 points from breaking a new high in the Dow Industrials which got me looking back at assets over the last 25 years in relation to the value of the US Dollar Index and the overall money supply.   25 years in Markets Some of the best performing assets are the stock market and gasoline with bonds and housing putting in steady gains. Of course with all assets you get a whole lot more bang for your buck if you happen to time the market correctly. And assets like Stocks, Housing and Gasoline all have crash periods where Dow Jones Industrial Average (Dow Jones Indices:.DJI) components go bankrupt and are replaced, homeowners lose their homes, and in the financial crash any Gasoline investor would have been forced out of the market. Need to be Invested But make no mistake the long-term trend is that you want to be invested in something that appreciates in value, you can get out of it if you need to as in liquid, and is going to be attractive to other investors over the long haul. But you have to be invested to take advantage of the trend of the
Read More »

An Auction with Fake Buyers, that will end well! The reason why is when you have the Federal government in the form of the Federal Reserve injecting 85 Billion worth of artificial capital, i.e., capital that wasn`t earned, or created through increased sales, revenues or increased productivity gains. The problem is that this ‘artificial capital’ is not real, it is temporary and the Fed will discontinue the artificial capital injections, and even remove the liquidity out of the system when they begin tightening. You call it Asset Purchases, I call it a Ponzi Scheme So a Ponzi scheme pays out old investors with the proceeds of the new investors. Well, current retirees right now are benefitting from these ‘artificial injections’ into the stock market at the expense of future retirees who will be left holding the bag on depreciating assets once the fed stops the artificial injections, and asset prices go down. Moreover, when they take the additional step of removing the liquidity from the system, i.e., tightening mode, asset prices will go down even further. Consequently, anybody who takes money out of the stock market while the fed is artificially raising asset prices is benefitting at the expense of
Read More »

  The lumber market has really come off the 2009 bottom of $140 per mbf and closed Friday at $399.80 per mbf on the back of good news out of the housing sector of the economy. You have come a long way baby   The housing sector of the economy led the way in 2012 with record low interest rates, and investors and banks working through the foreclosed inventory, leading to a trending and steady rise in both average home prices and new constructions. Everything related to the housing sector performed well in 2012 from materials to the home improvement and remodeling big box retailers in Home Depot and Lowe`s Companies Incorporated. Lumber prices getting slightly ahead of themselves? But if we examine the history of lumber prices relative to the strength of the housing sector, lumber prices may be getting slightly ahead of themselves from a valuation standpoint. Lumber prices will probably break through the $400 level on trading momentum alone, but if we look at the charts most of the time lumber prices are south of the $400 level. The all-time high for lumber prices established in 1993 was just shy of $500 on a spike, with additional
Read More »

Oil Benchmark  It is a sad state of affairs that the entire world of energy, and consumer energy prices are all based upon a fraud of an energy contract masquerading as the Industry`s Benchmark, setting the price for all other grades. Monthly Rollover Ramp Here is an idea of how manipulated the Brent Oil contract that trades mainly on the ICE exchange is we are at rollover time once again in the Brent oil contract and sure enough as day, the contract is moved up substantially right before expiration. This happens almost every rollover, and is impossible to do in a non-deliverable market without precise market manipulation. Always Positive Rollover Carry The other common feature of the Brent contract is the expiring month is always higher by a dollar, dollar and a half, than the contract for the next month without fail. Again this happens every single rollover without fail, and again very hard to “naturally occur”. It might be reasonable in the old days, or in a market that was partly physical deliverable that you would have times that exhibit Contango features that would account for this price differential. No Physical Delivery  But this happens every time, and the
Read More »

Consumers only focus on Inflation, they ignore deflation areas It seems that to exclusively focus on one side of the equation can be human nature at times, and with regard to inflation concerns humans never see the other side of the equation, i.e., areas where they are actually experiencing deflation in their lives.   The Housing Market Let`s start with housing, the Case-Shiller 20-City Home Price Index shows quite clearly that after years of inflation, consumers are getting a large break on prices due to the deflationary effects in the housing industry over the last five years. Mortgage & Interest Rates  How about interest rates, rates for getting financing either to finance a first purchase or refinance an existing loan have been a real boon to consumers, and rates generally have been coming down for twenty years. I am sure your parents or grandparents can tell stories of 18% mortgages; we are definitely experiencing deflation in financing costs around borrowing money. Copper Prices Next let us look at Copper prices for the last five years down over 2%, and that is after a price spike for the first quarter, wait for the first major selloff in markets and copper will
Read More »

Cocoa Prices & Inflation Everyone is currently worried about inflation with the central banks printing like there is no tomorrow. But the actual inflation numbers are much less than people think inflation is in their everyday lives. For example, Let`s look at Cocoa prices, literally at the bottom of their five year range at 2,227 per ton, well below the 3,800 per ton level established in March of 2011. Rough Rice Prices & Inflation If we take Rough Rice which closed at $16.34 per cwt. it is well below the highs of $22.65 and $19.02 per cwt. established in April 2008 and September 2011 respectively. Sure there is a general trend higher in Rough Rice if we go back to 2003, but how actively traded was the instrument back then from an overall investment standpoint? However, the bigger picture of the last five years shows no real signs of inflation for a major food staple in the world`s diet. Wheat Prices & Inflation If we look at Wheat prices which closed at 756 cents per bushel or $7.56 per bushel these prices are also well below the highs of $13.00 per bushel and $9.65 per bushel established in February 2008
Read More »

19 Months in the Downtrend It has been a rough 19 months in the Coffee Market if you were long, and you had to be real nimble trying to trade the falling knife with some counter-trend trades. Coffee is currently trading around 1.41 per pound, and has been on a prolonged downtrend since peaking in May of 2011 at $3.12 a pound. The Coffee market is not as main-stream as many of the other more commonly traded markets. Accordingly, it is quite volatile, and many traders love it`s trending price action characteristics. The margins are higher to account for this increased volatility, and stops are an essential tool necessary for managing the position and protecting your trading capital. Further Reading - Goldman Sachs Jeff Currie Continues to Botch WTI-Brent Spread Some basic facts about the market, Brazil is the world’s largest coffee producer and exporter, while the U.S. is the world’s largest consumer and importer. No Inflation Here We are finally getting back to the 10 year trading range, for all those inflation hawks, it depends upon when you look at coffee, right now these prices sort of throw a bunch of cold water on the inflation thesis. The chart looks
Read More »

Overall, Gasoline Exports net loss for economic productivity  The gasoline market is well supplied, but if it weren`t for gasoline exports, the united states would have much cheaper gasoline, and the economy would reap the benefits of cheaper inputs which would fuel greater growth in the US. For example, I imagine college students, truck drivers and small business owners would be much more profitable paying a dollar less per gallon for gas over a year`s time. Gulf Coast Refiners The refiners along the gulf coast have a strategic advantage in using the WTI oil input price, making refined products, and then selling them based upon globally benchmarked Brent Oil inputs. So quite the incentive to export as much refined products as possible with these attractive margins. Consumers vs. Corporations As with most transactions there are winners and losers, and US consumers are the big loser while refiners and the corporations that own them are the big winners. In short, the US consumer is subsidizing the refiners’ profit margins. LNG Export Debate It is ironic that another industry the Petrochemical Industry is lobbying heavily against LNG exports, saying that they could contribute to raising natural gas prices, which they use as
Read More »

I guess the SPR Threat was politically motivated When Oil and Gas prices were last at these levels President Obama utilized the threat of releasing the SPRs to put a lid on the rampant speculation in the oil markets. And yes with oil inventories at record levels here in the US, there is rampant speculation in the oil markets once again. The oil market is being pegged right alongside the S&P 500 almost tick for tick, regardless of overflowing supplies at Cushing, or large weekly builds in total US stocks. No more elections to campaign for President Obama and his advisors know this correlation by now, and they have fought this nasty correlation for consumers at the pump, with releasing or the threat to release the SPRs which sends the market in the other direction as oil can drop $20 on any release. At the time of the last threat critics said that the president was politically motivated in utilizing the SPR release to manage oil and gas prices lower before the election so that high gas prices wouldn`t become a central voting issue, and hurt his chances of being re-elected. High Level Politicians only care about Votes Well, given
Read More »