Status Update: The Ark, Gold and a General View of the Markets

After months of uninterrupted, hedonistic elasticity, treasuries are taking a breather. TLT is down for the third consecutive month, all of which have produced no greater one month decline than 2%. The drop, when compared to the volatility of stocks, is laughable. Plainly speaking, TLT is doing what TLT usually does in October: trade lower.

As soon as people get it into their thick skulls that (a) hiking rates will never happen, and (b) even if it did, that should affect short duration bonds, not on the long end, the ark still float, magnanimously adorned atop a choppy sea — albeit filled with grape shot and a bit tattered from the weather. Nonetheless, it floats.

Gold and silver stocks rebounded today — after a month of tumult — which brought many gold traders to their knees. Overall, gold stocks are lower by 15% over a one month period. It’s truly a horrible thing to endure such a drawdown. But, putting the drop into perspective and contrasting it versus the year to date gains of 96% — it was a little more than a blip.

The gold trade, similar to the bond trade, is contingent upon frayed nerves and an overall sense of apathy amongst the investing public. Should those nerves breakdown and people begin to sell in large quantities, both GLD and TLT will be ripping tits to the upside.

It seems to me, the single best place to invest money in 2016, for non-stock pickers (it’s important to make that distinction), has been in defensive sectors and a reflation of the China/energy trade.

Have a look.

Gold +96%

Foreign Utilities +52%

Steel +49%

Trucks +41%

Airlines +37%

Semis +34%

Copper +32%

Major oil +22%

If you believe energy will continue to move higher and the China recovery is for real, stay long copper, oil and buy some steel. If in fact, however, you believe the move higher in energy is not to be trusted and the China experiment in control economics will end up in disaster, fade industries like copper and big industrials.

Contrast the winners of 2016 to the losers and there is a narrative to discuss.

Solar -42%

Tankers -35%

Drug Delivery -29%

Generic Drugs -26%

Biotech -24%

Oil refiners -18%

(1) Why are airlines higher and not solar? (2) If China is doing so well, why are tankers getting crushed? (3) Drugs going lower? I thought America needed them? Refiners trading off? (4) Why are the oil producers doing so well and refiners are getting killed?

I’ll try to answer those questions with brief bullet points.

(1) Solar companies are wholly reliant upon the end user for their revenues. They need government subsidies to exist and Joe Public to earn those subsidies by accepting to place those fucking hideous panels on their homes. Also, much of the solar business is municipal. The problem isn’t on the government side. Obama is very willing to lavish them with free money. The issue is, indelibly, on the demand side. People do not have money to spend on fucking solar panels, especially with oil down so much. Moreover, municipals are hurting too.

(2) Tankers, like solar, are dependent on demand. With global growth slowing, there is less demand for crude than was previously expected. There are too many tankers and not enough customers. As such, carnage.

(3) The revolt against the biotech and big pharma industry is about money. That’s right, people are broke. With Obama care wreaking havoc across the nation, the student loan bubble expanding and investment in American industry at 40 year lows, you shouldn’t be surprised to learn that people aren’t happy with Epipens selling for $600 a pop and other drugs pricing out most Americans who live paycheck to paycheck.

(4) Refiners are wholly dependent on the crack spread to make money. In recent years, they profited from the divergence in price between WTI and Brent. The great oil collapse of 2015 resulted in RECORD production out of the middle east, while much of U.S. production went offline. That’s right, the great oil correction only hurt American industry and the refiners, who depend on cheap WTI to make margins, are suffering as a result.

Notice a theme here?

If you enjoy the content at iBankCoin, please follow us on Twitter