There has been a major dislocation in the FX markets in recent weeks. Ask our currency expert, Forex Kong.
The result of these disruptions have led to lower stocks in Asia, flat in the US, however. There is a lot of fear, stemming from Thailand to Turkey. Yet, US markets have been blowing marijuana smoke in the faces of prognosticators.
A very interesting trend, that has be in place for more than 2 years now, is the brutal bear in commodities. Jim “the bowed tie” Rogers is completely without penis now, lollygagging like an idiot in the orient–teaching his spoiled brats mandarin.
There isn’t money to be made in corn, even though central banks are printing money ad nauseum. Why is that? Everyone has so much money, shouldn’t they be buying farms?
I don’t know how we got hoodwinked into believing the inflation myth. There isn’t wage inflation, just the asset variety. The money that is being made available by the fed is being used to purchase stocks and real estate, evidenced by the facts.
Coffee is down 60% over the past two years.
Natural gas is down almost 60%.
Coal and uranium are off by more than 45%.
Silver, lithium, nickel, sugar, cotton, copper and cocoa are all down more than 25%.
These aren’t corrections, but annihilations.
The above chart is of the yen. It is the cog that keeps the risk train rolling. Banks borrow yen to buy assets. When the yen goes lower and the asset they’ve purchased rises, they make money. However, if the yen starts to go up while assets are flat to down, forced sales happen. This is a very simple explanation of how the yen carry trade might hurt global markets. It’s real. Be scared of it.
Overall, currencies have been all over the place, with most of the strength found in two risk off currencies: Swiss Francs and Japanese Yen.
In my opinion, the commodity trade isn’t coming back. It can be traded; but forget about CLF hitting all time highs again. US markets will continue to rise, if housing keeps its upward trajectory and the Fed and Bank of Japan keep reflating. We can survive without the Fed and BOJ, but there will be a period of adjustment, which means stocks will trade lower. Eventually, we’ll get off the Fed’s crackpipe, but only after employment has improved.
They told you 6.5% is their mark. Why don’t you believe them?
Buy the dips, unless the yen carry trade unravels. If that happens, buy VXX in size.
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Do you have any lawn ornaments at your new home that I might be able to steal?
Did you take my plastic lawn flamingos?
Yes, I bought the same exact blue and green plastic spheres.
Sold everything today and went half short. Giddyup.
Good timing — SP Futures up 10 this morning
Ragin Cajun
In the Study
With the Candlestick Holder
I think it was that Rob Carl fellow who left the bag of shit on your porch and lit it on fire.
Guilty
Donkey Kong says:
Fly, I don’t understand why is it appears to be so hard for Abe to devalue Yen. In fact, I don’t see why it is hard for any nation to devalue it’s currency if it simply has the will to do so. If Japan’s policy really IS to weaken their currency, why aren’t they getting it done lately? Are they unable to so OR unwilling too?
Yen carry unravel. Plain and simple.
People who borrowed yen to buy assets are selling, causing yen to rise.
Confused Kong says:
So Fly, you believe that Abe can’t devalue the Yen faster than investors/speculators can unravel the ‘carry trade’? If that’s true, why can’t he just (1. print/2.QE/3.pick your euphemism) faster than them?
You can try to control markets. But ultimately, markets win out, as evidenced by the slow motion melt down of 2008-2009.
This may be a bump in the road. I believe it is. But it’s worth monitoring.
Yep. There have been countless attempts to flatline the market, but the markets always win out in the end. Marxism is dead.
If the Japanese are trying to devalue but the dollar meanwhile devalues faster, then suddenly in dollar terms the yen still goes up.
It all floats. The dollar is not gold like it was when Bretton Woods was first formed. Capital floats globally
So the depressed commodity prices reflect a few things:
1) No concern about inflation
2) The devaluation is mostly the removal of speculative money, except for idiots (i.e. like Paulson)
3) The price action we see now in commodities is mostly from industry hedgers and reflects real supply and demand of the underlying commodities: mainly a lot of supply and little demand, due to the current global economic climate in 2013.
4) Monetary stimulus (from here and Japan) has been flowing more so now into equities, US equities benefiting the most.
5) The 800 lb gorilla in the room (besides ForexKong) is the fear that the Fed will decide to scale back easing. The impact of this fear can be seen in the precious metal action the past few months and the destruction of investments tied to low interest rates, which we have only see a small taste of the carnage.
Anyone please correct me where I am wrong, as I am only a student of the markets.
Good analysis.
I will say, however, that commodities might not go much lower from here. They’ve corrected from unsustainable levels.
Along these lines, perhaps Oil will catch a bid when the rest of the commodity complex catches a bid. Seems inventories are rising, but that might not matter.
nothing without oil
I want to point out that the concerns of rate hikes and fed tapering is only the temporary quick or as commonly called “hot money”… I believe though, the fear of such is often more powerful than the action itself.
The only reason you hike rates is because bond holders are shifting into “risk on” and don’t want to tie up money in 3% interest for decades anymore. Fed may need to raise rates and stop bond purchasing because of the increased demand for lending. This is real business activity…
That may not matter if everyone liquidates out of fear.
I think the real 800lb gorilla is European deflating negative growth economy filled with austerity and tax hikes and such. Merkel is holding euro together… But come election time in September there will be a potentially big paradigm shift in the expected future of the euro.
What is going on is global….lots of money shifting around very quickly… Trying to figure out “what’s next” and even “who’s next”
The markets have shifted from a “Can’t lose” situation to a “no-win” situation. Previously, free money and lack of attractive alternatives made stocks the can’t lose investments.
Now, sluggish growth, stunted earnings, and rising interest rates have turned everything on its head. Should economic growth pick up, the punch bowl gets taken away. If economic growth doesn’t pick up, earnings will not grow adequately.
The market may not decline significantly in the near future, but further gains will be difficult to come by. The risk is certainly on the downside at this point.
Strange world we live in when sluggish growth which was once good because it meant more stimulus can now be bad.
And great growth can still be “bad” at the same time for the reason of stimulus.
It’s just not consistent…
Or more likely… Rationalization after the fact and misrepresenting the true reason as to “why” the moves are happening.
If coffee is down so much, how come my box of K-cups costs the same if not more.
The same reason how gmcr got to $75 and SJM $100
Perhaps because supply has grown tremendously… But demand is still there…. So the companies like GMCR/SBUX/SJM/JVA just get better and better margins.
“Big Mac Index” higher yet, cost of live cattle and cattle feeder lower. The companies always make healthy margins and benefit from deflation in commodities or inflation.
Back when they made the Kondratieff wave at was a huge part of economy, then Industrial Age, then service age, then Internet age. Hence, we have been in a Kondratieff winter while stock prices go higher.
The world is being run by idiots.
I’ve not seem mentioned here that there is not unanimous agreement in Japan that Abenomics is the right/best approach. There has yet to be any wage growth, only imported good price inflation as a result of the devaluation. And given the demographics in Japan, how much of the population even gives a shit about wage growth – they are on fixed income in a world of hurt.
Commodities will go higher once low commodity prices and high competition starts to bankrupt several miners and sugar/cotton plantations and such. Particularly those who went really leveraged during the highest prices. Prices remain low but eventually supply is consumed, margins grow, prices increase, new entrepreneurs enter…etc.
How far out is that? No idea. Of course, the market may not wait for that to happen. With all margin liquidation chasing out the speculators and future traders… You could just see a short covering rally, followed by a dip bought by the Jim Rogers of the world.
coffee, corn, gas, wheat, sugar, heating oil, etc .. may be down or flat on the futures markets over the last several years, but they are most certainly up for everyone else
so while coffee is now $1.27 on the futures markets, one will pay anywhere from $4-$20 retail, hence the margin expansion/stock px appreciation for SBUX DNKN GMCR etal .. same for all other commodities
maybe stock px appreciation over the next few years will not have the tailwind of flat or falling commodity prices
Solving the mystery. Potential perfect storm……………
1. Timing wise 7-15 thru 8-10
2. 2nd quarter earnings are all sold cause they suck, little to eh growth, and looking forward nothing great, plus, this currency volatility imho cannot be hedged and many large multi’s will be dinged pretty bad
2. May bond fund statements, down 5%, but who cares ur up 15%, come june all gains most likely gone, and a portion will be dumped, but come july statements, potentially worse
3. emerging markets continue to get worse, and if they accelerate like brazil and Australia
And that is the perfect storm scenario
And that’s when ben will announce it’s not only employment but wages he is now concerned with and QE
IMHO, he fears admitting a recession, a normal course of business because if he does the potential for boomers to cut and run and never come back to equity markets is high enough and at that point he probably thinks, ie, believing in his heart of hearts he has no solution for that one
on a side note IMHO, this is distribution tape action, if you caught the march 09 low, u have massive gains, and we are in a maintenance economy 1.5%-2.0% growth, which means it is what you invest to keep whatever machine, or business running
fwiw, just joking about wage item but who knows, keeping it simple simple, lift off is growth, and it does not seem like it’s in the cards for 13, thus give back gains, and try again in 14, thus in tech terms a busted breakout, and second mouse gets the cheese
Regarding commodities being flat, anyone care to venture opinions on whether palladium holds firm or moves higher since it’s primary use is 70% automotive, and whether it will remain largely uncorrelated to precious metals selloffs?
Palladium is used in autos
In the US, the property ETF is falling again (RWR)
Junk Bonds are falling again ( JNK)
Coal ETF falling further (KOL)
Natural Gas ETF falling (UNG)
Emerging Markets Equities falling (EEM)
Australian Stocks falling ( EWA)
Brazil Stocks falling ( EWZ)
China Stocks falling (FXI)
So ……..currently (right now, short term) — Bond demand falling, Equities demand falling, Energy demand falling, Property demand falling. Cash is (maybe) becoming King.
Sovereiign Yields Rising:
http://i.imgur.com/Mmt9Oqa.gif
Equity markets falling:
http://i.imgur.com/IKBC583.gif