Follow up to that commodity theme….which will be key for the Kingdom of Oz…
From UBS:
“In Shakespeare’s Julius Caesar, a wizened soothsayer warns the great emperor to ‘beware the Ides of March’ – for death loomed over him, until this fateful date. Like Caesar’s confidant, the battered and grim UBS commodities & mining team, too, has a warning for its clients (albeit more prosaic): downside risks loom large for metals and miners, as we head into Q2 12.There are three elements to our cautious call on industrial commodities and miners. On all three points, we are more cautious than our global macro and asset allocation colleagues:
- The end of Federal Reserve and European Central Bank (ECB) stimuli will cause an acceleration of capital flows out of emerging markets, hitting commodity demand.
- China is undergoing a difficult transition away from the powerful labour and capital mobilisation of the past 25 years. As the authorities refuse to stimulate private construction and infrastructure in the face of a slowdown, commodity intensity will fall.
- The US may see credit conditions deteriorate, post the ECB’s LTRO2 (longterm refinancing operation 2) and with a cyclical slowdown going into the middle of 2012. This would likely trigger a broader risk-off event and a further acceleration of capital flows out of emerging markets.
Of the three elements of our call, we are seeing gathering evidence that the first two themes are working. However, there is no conclusive evidence of an increase in US credit stress, nor consistent signs of a US slowdown. On our investment clock that leaves us firmly in zone four: The disinflationary boom.”
They then continue by saying that they use HYG (High Yield ETF) as a proxy for US credit conditions and that should it break the 200 DMA, we would move into zone 2, the DEFLATIONARY BUST! Ouch, scary…
Especially when looking at this chart, today we are breaking the 50 DMA and stand 4.2% higher than that 200DMA. Back in those summer days it is 1 or 2 trading sessions…Ouch, definitely scary…
