Commodities

Commodities all follow cycles of consolidation, boom, and bust. When looking at them as a whole it can be hard to tell when tops occur. But when you start to break down individual markets you will notice that many of our commodities like Sugar, Wheat, Cotton and the like have already topped out in Feb of this year while others like gold silver and oil are still printing higher highs. This divergence is telling you that the commodity markets are getting tired. More upside may be coming in some of the tardiest sectors but at one point in the future all will start to correct. This is the bust cycle and it is typically strong in commodities. I do not expect it to be any different this time.

Wizard of Oz

In the movie the Wizard of Oz, the travelers go through a precarious round of awkward tasks and scenarios in order to meet the Wizard.  It is shown at the end that the Wizard is just a man behind a machine.   

He was just a figure head. 

Today, the Master Wizard of Monetary Policy, Sir Ben Wizzie himself, spoke to Dorthy and Toto, the Tin Man and the Cowardly Lion.  He did what all Wizards do before they are exposed as frauds-- kept everyone believing in magic.

Bernanke said NOTHING in his meeting today.  He has said NOTHING in the last 10 meetings.

By saying nothing Bernanke may have made some new enemies opposed to friends. 

Wizard Fed-Speak nothing today

“Extended period is conditioned on resource slack, on subdued inflation and on stable inflation expectations,” Bernanke said. “Once those conditions are violated or we move away from those conditions, that’s the time we need to begin to tighten.”

BEN WIZZIE'S NEW ENEMIES???

As for enemies, Ben wizzie now has on his list:

• Every U.S. Consumer that has been told the economy is recovering
• Anyone in the world that has to eat
• Anyone in the world that has to use fuel
• Every central banker in the world that has to try and wrestle the exploding costs of infaltion

This was a green light to continue to cream the dollar, and in essence over-inflate commodity rich companies currencies. 

Fun:  USA 2011:  $5 gas, homes dropping 10% this year, flat job growth and $19 apple-sauce.  RECOVERY!!!   

This was also a big F-U to Austrailia, Canada and other currencies that have exploded with commodity prices.  Who is going to buy your 'stuff' when the US crap is cheaper?  China?  Ha ha. 

The only thing that was definite was that Ben Wizzie said that QE was done in June.

Expect the last MANIA portion of the equity bubble to take off here shortly, but be ready.  No Stimulus shimulus in June = stronger dollar = Equity markets and commodity prices watch out below. 

Bonds should continue to strengthen as well.  When bonds strengthen while equity markets explode higher, don't believe the panelist on Cavuto that tells you 'Stronger Bonds mean we are recovering faster."  It means, there is shit being shot out of a bazooka and it is heading towards the fan at the speed of light.

Ben Wizzie will play his last Ace as QEIII before 2011 is over.  Will it work again?  Maybe he should just send everyone 'live' stimulus checks like Bushie Duex, or pay off our mortgages.

Maybe, just maybe, Ben Wizzie is playing us all into his trap.  He inflates to crash the economy and they unloads TRILLIONS of QE crap to the masses at a premium.

...Maybe he is just a man behind a machine and has no clue what he is doing... 

Probably the second scenario...

Regardless, I'll wait until Christmas 2012 to buy gold-dipped UGGs for everyone-- should be cheap, just like Australian Real Estate at that time...

Quick Post to Share a Thought on Silver

It seems that everyone has an opinion these days about silver. I will share mine very quickly. We have now come with in a hair of $50.36, (the all time top for silver back in Jan of 1980) after the $49.82 print yesterday.
Currently we are trading at $45.19 which is a 9.29% correction. It would seem prudent to me for silver to find a bottom between here and $40 for a final assault to take out $50.36. How much higher I do not know. After this is accomplished I would expect to see a drastic collapse. It would be great if TIME Mag had a front page article about silver over the next month to show us the top. Only if we are so lucky.


There, now you have my thoughts on the matter.

June Bugs

The US Equity rally monkey has been busy this week! 

The idea of a debt downgrade has only strengthened the rally by further crushing the dollar.  Fundamentals are still Charlie Sheen on mushrooms skewed, but this rally is now a combination of marshmallow fluff from the Master Wizard's QEII and the 'unforseen' downgrade from S&P.  The S&P downgrade is just fuel to the fire... The problem now is that it will be much tougher to put this QE fire out. 

On another downgrade note, S&P downgraded FNMA/FHLMC bonds from stable to negative today as well-- just another little slap on the wrist, and again, about 3 years late. Captain Obvious strikes again.  Downgrading FNMA and FREDDIE MAC is the equivalent to picking Micheal Jordan as your 2-on-2 partner when you can pick from anyone in history.  Everyone knows it is coming.  We are moving ever closer to the next major leg down in the US real estate market...  

COMPLACENCY REACHED

Watching the VIX, we are now at absolute complacency in the markets.  This is indeed a sleeping dragon.  The idea that we are in a never ending, no risk associated rising market should be scary to everyone, though that doesn't mean you need to go and sell sell sell. 

Not yet.

It should be noted that the VIX is trading at levels before the big kahuna crash that lead to the great recession. 

It appears to be sunshine and cookies for all. 

DOLLAR KEEPS FALLING.  CAN'T SEE THE BOTTOM

Ugly should be the word to replace today's dollar.  Next time you go to the store try to pay in Uglies. 

How Much is that shirt?

--30 Uglies.

Will you take 22 Uglies and a book of matches signed by Tom Jones I found in my wife's suitcase.

-- 25 Uglies and keep the matches.

There is no bottom in sight for the dollar's collapse.  It appears to be in a free fall at this point.  The only way it rebounds is with some Wizard Juice-- that is right...  FED-speak magic.  The master wizard speaks to the masses in the 1st press conference on April 27th.  Expect nothing but the usual this time around. 

The waning confidence in the US Dollar continues to push the price of oil up.  Gasoline is nearing $4.00.  It is not different this time.  $4.00 gas will indeed cripple to consumer.

PARTY ENDS IN JUNE

We are at a major crossroads right now for the master of monetary policy.  Price increases will crush the consumer, but the weak dollar and rock-bottom low rates are needed to keep the economy skipping along like a school girl with raspberry jam on her face.

The one thing about a party is that it can't last forever.  There are too many forces against the FEDS to roll into a QEIII without a hiatus.  

When the fun ends it will end not only the rally, but also the dollar's crash, the VIX bottom and the free money for all.  It will not be pretty and it will happen fast.  

I say that the party ends in June.  I know this is vague, but I just can't see the market continuing without support from the FEDS.  The marshmallow fluff from Nov 2010 to now can't be duplicated or supported without the easing.  Long bonds are already strengthening in anticipation of a safe haven, as those that don't want to stay on the roller-coaster any longer are getting off before they run out of track.  

This has indeed been a great party and I would say Mr. Bernanke is a hell-a-va host.  I highly doubt we will have to wait very long for his next shin-dig.  I hear it will be a masquerade ball-- trying to hide the QE that tricky devil.  

Just look how great the S&P looks today!!!

Enjoy it now... It doesn't get much better than this. 

A Debt Monger's Worst Nightmare or a Slap on the Wrist

Today's news of S&P downgrading the US debt stung the markets... kinda 

Can you really doubt S&P's logic on this one?

Hey America-- Get your Sh*t together

In 2003-2008, the U.S.’s general (total) government deficit fluctuated between 2% and 5% of GDP. Already noticeably larger than that of most ‘AAA’ rated sovereigns, it ballooned to more than 11% in 2009 and has yet to recover.

By only downgrading the US debt from stable to negative, was this move a debt monger's worst nightmare or just a slap on the wrist?

“Our negative outlook on our rating on the U.S. sovereign signals that we believe there is at least a one-in-three likelihood that we could lower our long-term rating on the U.S. within two years,” Mr. Swann said. “The outlook reflects our view of the increased risk that the political negotiations over when and how to address both the medium- and long-term fiscal challenges will persist until at least after national elections in 2012.”

I say it is a slap on the wrist and also a creative response to Obama's recent debt plan to reduce debt by $4 trillion over 12 years.

Things I 'may' do over the next 12 years

• Buy a boat
• Have more kids
• Run a marathon
• Eat less red meat
• Meet an alien for coffee
• Win the $400 billion lottery
• Learn how to talk with my butt

I hope we are able to reduce the budget by $4 trillion in 12 years-- that would be great, however, who will be calling Obama up on year 11 with a report card?  If Obama wins again, all bets are off.  If he loses, all bets are off.  This is just political dodge ball at this point and should be taken like most Poly-tic talk and FED speak-- in one ear and out the other. 

As for actual cuts to the budget, they will need to be VERY creative.  Health Care and Social Security are creeping closer and closer to 50% of the budget.  These costs will only expand.  Where will the cuts come from?  Transportation and Education?  Been there, done that.  Click on the link below and scroll down for an interactive image for a breakdown of the 2012 budget

white house.gov 2012 budget

I think we will have to do one of 2 things to reach a budget that is achievable and sustainable.  (1) Raise taxes, or (2) Kill 40 million baby boomers.  We could also ask for massive pay cuts for higher levels of government.  Funny how I see a sea of dead boomers before I see that happening.   

S&P rating cuts are NOT about QEII

According to S&P, QEII has nothing to do with this decision, but FNMA and FHLMC are big contributors to the kinda downgrade.  dirty mortgage GSE's are killing everything.

One of the pressures on the credit is analysts' estimate that it could cost the U.S. government up to "3.5% of GDP to appropriately capitalize and relaunch Fannie Mae and Freddie Mac" in addition to the 1% of GDP already invested.

... and in other, yet related news, Home builders sentiment sucked bottom yet again.

The National Association of Home Builders/Wells Fargo sentiment index declined to 16 this month from 17 in March, data from the Washington-based group showed today. A measure of sales expectations for the next six months dropped to the lowest level since October, and a gauge of current purchases also fell. Readings below 50 mean more respondents said conditions were poor.

This is on a gauge of 50+ being good.  A 17 to a 16 is the equivalent of going from 'losing the family dog to bone cancer,' to 'finding spouse in bed with business partner.'  We are still a long way from the bottom in housing and the declines will start to wipe away equity at the rate of light speed at the pace we are going if we dump Fannie and Freddie (ie. mortgage financing as we know it).  No private investment will lend money for 5% for 30 years-- not without 50% down and about 20% upfront in fees.  Many buyers in this imaginary home-buyer pool of unicorns and talking marshmallow men.

Stocks fall and bonds... rise?

In a classic move, equity indexes shrugged off a sure sign of a drop in the market and ended up the day only down about 1%, while bonds... rallied?

You would think this would be bond negative, but if this slap on the wrist becomes a debt monger's worst nightmare, raising short term rates would mean lower equity prices and strength in long bonds.  It's a long shot, but it could happen. 

QEII is ending soon as well, which makes EVERYONE question what will happen next-- the S&P was up 26% since QEII and there are many forces that say these gains are all fluff and once the feds go away from the market, the gains will follow. 

Time to go long TLT?

TLT looks to have bottomed at around 88 in early Feb and has had strong support at 90 other than this one incident.  With QEII ending in about a month and a half, investors look to be dipping back into bonds, and today despite a debt kinda downgrade. 

Of course, wizards can always ruin what should be a 'sure thing.' 

Expect QEIII (it will have a fancy name, but if it sounds like a stimulated duck...) to follow as soon as the S&P retracts 10 percent, maybe less. 

All in all, a busy day, but nothing more than a slap on the wrist with a kinda downgrade. 

Coming next-- government to S&P:  Raise that debt ceiling!  And by the way, S&P, shove your 'rating' system. 

Getting uglier by the day!  

Prelude

prelude

n prelude [ˈpreljuːd]

1 an event etc that goes before, and acts as an introduction to, something

 

China Real Estate

BEIJING (MNI) - Prices of new homes in China's capital plunged 26.7% month-on-month in March, the Beijing News reported Tuesday, citing data from the city's Housing and Urban-Rural Development Commission.

Average prices of newly-built houses in March fell 10.9% over the same month last year to CNY19,679 per square meter, marking the first year-on-year decline since September 2009.

Home purchases fell 50.9% y/y and 41.5% m/m, the newspaper said, citing an unidentified official from the Housing Commission as saying the falls point to the government's crackdown on speculation in the real estate market.

Beijing property prices rose 0.4% m/m in February, 0.8% in January and 0.2% in December, according to National Bureau of Statistics data.

The central government has launched several rounds of measures since last year designed to cool the housing market, though local government reliance on land sales to plug fiscal holes mean enforcement hasn't been uniform.

The NBS is expected to release March house price data on April 18.

And this is the part of the story that begins to tell the actual story...

No one should be surprised by this other than the Chinese government that will NOT like this report being leaked early. 

I suppose it can be considered a prelude to a prelude in that sense.

This is going to be real ugly...

Unsustainable Oil Happening Before Your Eyes

Oil Prices Can Not Be Sustained... There is NO Way

Oil and energy costs are 2nd only to housing bubbles in recession creators.  The current energy environment is no different.  Oil prices at this level can not be sustained... not now, not ever... It doesn't matter what Cramer tells you about the never ending oil boom.

Prices at our current level will cripple the world economy.

It is only a matter of time...  It is NOT different this time.

We have NEVER been in an energy environment like the current one.  In addition to the commodity boom, commodity rich countries are seeing a wealth effect from extra monies due to inflated prices.  This has created dangerous real estate bubbles (and credit bubbles) in Australia, Canada, China, Singapore, South Africa, and Brazil (to name the usual suspects you will hear about on Cavuto in late 2011 and 2012).

Arguments against the impending commodity crash will say that 'world growth' drives prices higher.  That is foolish.  These countries have been growing for decades, not months-- their need for energy is indeed growing, but not anywhere close to the rate that energy costs are rising.  Sustained growth would mean sustained price increases, not massive jumps.

See the housing boom period in the US in the chart below-- this was a wealth effect caused by a credit bubble.  It created unsustainable prince increases in energy costs.  As the rest of the world (minus Europe-- that is another mess completely!) experiences housing bubble crashes Oil prices will follow downward.  

The US economy (like any other economy) can not have healthy organic (no QE Fed based stimulus or housing stimulus shimulus) growth with excessive energy costs.

It is the snake swallowing the house...

This will not end well...

    
History tells us that we are WAY out outside the normal range for energy costs.  Inflation adjusted income is falling but energy costs are soaring.  For real Inflation to stick it NEEDS income/ wage growth to follow or it is just increased cost to the consumer that takes away from Forever 21 sales.  Do you really see wage growth at 8.8% unemployment?

It is only a matter of time before the House of Cards collapses-- June?  July?  Tomorrow?  a few Mondays from now?.

If 2008 is any indicator, MANIA is almost achieved and ...

D O W N
W E 
G O


... It is NOT different this time... Except the higher up we go the harder we fall.