GOLDMAN: A Copper Supply Storm is Coming

For the past several weeks, copper has been a thorn in the side of the bullish narrative. Gains have all but dissipated and the trends are lower.

Fundamentally, the industry is wrought with ballooning stockpiles, with inventories jumping to 10 mo highs.

As a result, asset managers have been placing bearish bets.

“There’s just no stomach for investors to push their longs in copper,” said Bob Minter, a Philadelphia-based investment strategist at Aberdeen Asset Management, which oversees $402 billion. As demand slows, “the second half of the year is traditionally a challenging time for many of the industrial commodities, so seasonality is working against copper at this point too,” he said.

Hedge funds and other large speculators held a net-short position, or bets on price declines, of 4,991 U.S. copper futures and options contracts in the week ended Aug. 23, according to Commodity Futures Trading Commission data released three days later. They switched from a net-long position, or wagers on a rally, of 2,237 a week earlier. Futures traded on the Comex in New York fell 4.3 percent last week to $2.0845 a pound on Friday. Prices are down 2.4 percent this year.

Copper will fall below $2 before the end of the year, Dane Davis, an analyst at Barclays Plc, said in a telephone interview. The market will face a “difficult time” in the second half after China front-loaded its economic stimulus and the efficacy of such measures starts to fade, he said.

SUPPLY STORM LOOMS.

As demand falters, supplies are set to increase. Production from the companies Goldman Sachs tracks, which account for 60 percent of global mine supply, expanded 5 percent in the first half, analysts led by Jeff Currie wrote in a report Aug. 4. Output will rise as much as 15 percent in coming quarters, signaling the copper market is “entering the eye of supply storm,” the analysts said.

My favorite way to play it, naturally, is by shorting over-leveraged piece of offal, FCX.

The stock is down 16% over the past month and heading lower, inexorably.

Indeed it was an interesting summer. As the season winds down, let’s hope for most interesting occasions.

Don’t forget to reserve your seat to iBC’s 3rd quarter boot camp, scheduled to start tomorrow evening.

The Government Pension Investment Fund (GPIF) has a new mandate to keep an astounding 25% of their fund in equities. But since Japanese stocks have done so poorly this year, -14% and counting, their equity allocations are below target. As such, the good folks over at GPIF, in charge of destroying the pension of its citizens, will need to invest another $53 billion in stocks–in order to give them the full flavour of their mandated exposure.

Thus far, this exposure has resulted in losses amounting to $52 billion.

“They have room to buy,” said Hideyuki Suzuki, general manager at SBI Securities Co. in Tokyo. “They’re the type of investor that purchases when shares fall and the value of their assets decline.”

Also, because their bonds have went up so swimmingly, as yields descended into a catastrophically comical territory, they’ll need to sell $56b worth of them.

“The expected buying left from GPIF combined with BOJ annual buying add up to north of 10 trillion yen,” analysts led by Yohei Iwao, executive director of the institutional equities division, wrote in a report on Friday. “This should at least provide some support for equity markets,” but any purchases from the fund probably won’t happen until later this year.

Indeud. It isn’t manipulation if gains are all but guaranteed. Between the BOJ and GPIF, Japanese stocks have nowhere to go but up. If you’re thinking about investing in Japanese equities, just know that profit is all but an assured thing. You could, for example, take out a loan from Deutsche Bank and buy millions of yen worth of index futures.  In anticipation of your splendid cash victory, you might endeavor to purchase automobiles, jewels, and estates– both summer and winter. It’s important that you understand that earnings and passé qualities, such as fundamentals, are meaningless morsels of information in front of what is expected to be buying frenzy for the ages.

Lord O’Donnel, aka Baron Augustine Thomas O’Donnell, is taking media rounds, suggesting the UK could remain in a EU light version, stressing to not rush over getting out so soon, alluding to the great challenges and difficulties in achieving such a mammoth task. Moreover, he thinks England should wait for the people of Germany and France to choose their elected officials first, as that might have a profound effect on the negotiation process, before invoking article 50.

There isn’t a rush and leaving the EU would be arduous. Maybe public opinion will swing around, permitting the country to simply ignore the BREXIT vote and continue with the status quo?

Before his peerage, Sir Gus O’Donnell, as he was then known, was in charge of the Civil Service between 2005 and 2011 under three prime ministers – Tony Blair, Gordon Brown and David Cameron.

The crossbench peer said: “Lots of people will say, ‘We’ve had the referendum, we’ve decided to go out, so that’s it, it’s all over’.

“But it very much depends what happens to public opinion and whether the EU changes before then.”

“It might be that the broader, more loosely aligned group, is something that the UK is happy being a member of.”

Before the referendum, Lord O’Donnell had warned that leaving the EU would be complicated and take “a very long time”.

He told The Times that leaving would mean “a huge administrative and legislative change” because of the vast amount of EU law that had been implemented in the last 40 years.

As a result, he thinks the UK will keep the body of laws in place even if it does officially leave the bloc.

Lord O’Donnell also warned against rushing to trigger Article 50, which starts a two-year countdown to Brexit.

“The key for Government is to have a strategic plan to say ‘what kind of UK do we want? What is our place in the world? What are we trying to achieve in these negotiations’?”he told BBC Radio 4’s Today programme.

“Once you have got those strategic decisions sorted out, then you can go about thinking about ‘so when should we implement Article 50?’ I wouldn’t be in a rush.”

He added that elections in France and Germany next year meant “it is not even clear which leaders our Prime Minister will be negotiating with, so I don’t think there’s any great rush to do it”.

Lord O’Donnell said that it was going to be a “tough ask” for the civil service to take the UK out of the EU because Britain was “very short” of trade negotiators.

He said: “It is a big task, an enormous task that will take up a lot of the time both of the Government and Parliament over the rest of this Parliament.”

I’ve suspected this might happen. The new British PM, Theresa May, was campaigning for Britain to remain in the EU. The markets have shrugged off the BREXIT vote and the pro-BREXIT crowd have regaled in the glory of their paper victory, declaring ‘see, I told you nothing would happen.’ But, maybe, just maybe, the fix is in and markets have been pricing in BREMAIN the whole time, confident that the bureaucrats in the UK wouldn’t adhere to the will of the people.

Food for thought.

This was thoroughly entertaining.

Explain to me how this episode of ‘Bill Ackman takes to CNBC to talk up his book’, via outright lies, wasn’t a pump and dump scheme? If a stock broker were to go on Twitter and publish to his 238 followers that Carl Icahn was selling $HLF, according to his block sale contact at Jefferies, he’s be investigated within 24 hours and tossed into a raping prison inside of 12 mos.

But Billy has clout.

So he went on CNBC this morning and told a tale about Carl Icahn selling HLF, which caused his billion dollar short position to plummet by 7%.

After the close of trade, C. Icahn issued the following press release, calling bullshit on Ackman’s lies and then went on to shit on Billy in a most hilarious manner, calling into question is mental stability and how wrong he’s been, for a very long time.

Over the years many investment bankers, including Jefferies, that specialize in block trades frequently make bids for our large positions. But completely contrary to what Bill Ackman stated on television today, I have never given Jefferies an order to sell any of our Herbalife shares. Last month we publicly disclosed that Herbalife granted us permission to go up to 35%. At the time of the disclosure, Ackman declared that I have no interest in increasing my position in Herbalife. This was obviously another misstatement of the facts by Ackman since today I bought another 2.3 million shares. I continue to believe in Herbalife: it’s a great model that creates a great number of jobs for people. Ackman may be a smart guy but he has clearly succumbed to the same dangerous (and sometimes fatal) malady that afflicts many investors – he’s developed a very bad case of “Herbalife obsession”. Obsessions concerning the value of stocks are the undoing of many investors because they often blind you to the facts, and it becomes impossible to see the forest for the trees. Watching Ackman on television today is a perfect example of this “obsession”. A month ago he declared that I’d never buy more Herbalife stock, which obviously turned out to be completely wrong. Today, he said I’m done with my Herbalife investment and that I’m a seller. Obviously wrong, again. It amazes me that a guy who hasn’t any knowledge of my internal investment thinking believes he is in a position to go on television to tell the world what I AM thinking! Amazing! He has no right to do so, and even worse, I’m sure his unsubstantiated, obsessive comments, especially about Herbalife, have cost investors a great deal of money over the last few years.

Apparently, desperate people do desperate things.

Throughout the trading day, investors sniffed out the bullshit, maybe Carl bought a few more share himself, knowing the rumors were false. In the after hours, the stock erased all losses, adding  4%.

Congratulations!

The stock market was off by 100 earlier today, which caused a great panic amongst the canaille trading in and out of solar stocks. Lo and behold, the 3:30 ramp came and rescued them from the frigid waters and placed them on a floating door, eerily reminiscent of the one that bitch in Titanic presided on, as she watched poor Jack suffer and then eventually drown to death in the arctic waters.

On the investment side of things, I have the least amount of cash in months. Between my FCX short, TLT long and new gold and gold miner positions, my cash position is less than 25%. Details are listed in the blog inside Exodus.

Today’s big news was that yields spiked, especially the 2yr. Now on the surface, unlearned men will take this as a plus for the banks. But it means NOTHING, if the actual curve is tightening. Right now the 2-10yr yield spread is just 77bps, down from 90bps just a short while ago.

Also, the dollar surged v the euro and yen. Stocks, despite the NASDAQ being up, were down, fuck-burger. Market breadth at 39% means 61% of stocks were lower.

Utilities bore the brunt of the sell off, rightly so. Valuations are out of whack and I’ve been saying this for some time now.

The remainder of my cash will be reserved for the next Exodus oversold signal, which is overdue. The last OS signal was on June the 27th, 2016, which turned out to be an exemplary display of harmonious mathematical precision–for the explicit purposes of winship.

Have a great weekend.

The feverish jerking off ahead of the Federal Reserve speech at Jackson’s Hole has resulted in a market brimming with shit. If I had no brain and simply looked at what the market was saying today, I’d surmise it was pricing in a Fed rate hike.

Look at the 2yr notes, through the roof!

These are the highest rates since May, when the Fed was last menacing markets with the specter of rate hikes.

Along this narrative, gold gave back all of their gains, currently flat. The dollar is surging v the euro, higher by 0.66% and up more than 1.1% v the Yen. A tight Fed is likely to lead to FOREX fuckery, a shortage of dollars throughout EM. I don’t really understand why the Fed keeps insisting on talking about raising rates, especially since all of Europe and all of Japan is under QE programs.

All indices are selling off, now down 80.

Over the past 2 weeks, the NASDAQ is down 1%, but up a whole 4.7% year to date. From my vantage point, this is a whole lot of nothing-burger. The real money continues to be made, without pause, in REITs, Utilities, Gold and Treasuries.

Year to date, gold miners are up 143%, water utilities are up 30%, healthcare REITs are up 26% and TLT is up 18%.

Today, we’re getting a push back against these sectors, however, because of the infantile belief in Federal Reserve rate hikes. The ark will be repurposed as a warship (DDG-Fly Class 12631) in the coming storms.

You can’t read too much into this shit. It’s a sloppy Friday. Old sport, junior, is still at the trading turret. His fucking cocaine addled boss isn’t back from Nantucket yet and has given strict instructions to not fuck up. So, give the kids of Wall Street a little rope (extra hanging) when judging a post Yellen speech market reaction.

Earlier, the Dow was up more than a hundred, commodities were ripping higher, yields were crashing, and the dollar was getting donkey punched. All of that has reversed and we’re now seeing a tight environment, one that is construing the Jackson Hole speech as hawkish.

Perhaps by the end of the day, it’ll be viewed as dovish. But for now, profits are being taken and the dollar is crushing the euro to the upside, by 0.4%.

My gold position will not change, since I believe any narrative that paints the Fed as hawkish is delusional. The closer we get to the elections, the less likely they’re to hike, the more bullish it is for gold.

This one was much less milquetoast than the other.

You can tell he is close to snapping. All we need is another interview from Heather Bresch, telling the world how outraged she is over the Epipen price gouging, when in fact she’s the one doing the gouging, and Cramer is gonna turn into Lenin and lose his shit.