“This was definitely a dovish outcome and even a bit of a surprise,” said Ben Emons, managing director of global macro strategy at Medley Global Advisors in New York. “The Fed took out the entire rate hike scenario for this year.”

Reaction in markets confirmed the dovish interpretation. Stocks pared losses, the dollar turned lower and Treasuries rallied. Traders lifted the odds of the Fed cutting rates. In a separate statement Wednesday, the Fed said it would start slowing the shrinking of its balance sheet in May -- dropping the cap on monthly redemptions of Treasury securities from the current $30 billion to $15 billion -- and halt the drawdown altogether at the end of September. After that, the Fed will likely hold the size of the portfolio “roughly constant for a time,” which will allow reserve balances to gradually decline.

Beginning in October, the Fed will roll its maturing holdings of mortgage-backed securities into Treasuries, using a cap of $20 billion per month. The initial investment in new Treasury maturities will “roughly match the maturity composition of Treasury securities outstanding,” the Fed said. The central bank is still deliberating the longer-run composition of its portfolio and said “limited sales of agency MBS might be warranted in the longer run.”

The Fed has cemented its about turn around with today's statements. That confirms a somewhat bearish tilt in their reasoning since the only way a pause can be justified is if growth figures are downgraded.

If banks own and possess gold bullion, they can use that asset as equity and thus this will enable them to print more money. It may be no coincidence that as March 29th has been approaching banks around the world have been buying huge amounts of physical gold and taking delivery. For the first time in 50 years, central banks bought over 640 tons of gold bars last year, almost twice as much as in 2017 and the highest level raised since 1971, when President Nixon closed the gold window and forced the world onto a floating rate 

And

The only way governments can manage the levels of debt that threaten the financial survival of the Western world is to inflate (debase) their currencies. The ability to count gold as a reserve from which banks can create monetary inflation is not only to allow gold to become a reserve on the balance sheet of banks but to have a much, much higher, gold price to build up equity in line with the massive debt in the system.

The Federal Reserve values the gold certificates it holds from the Treasury at $42 an ounce which is the statutory gold price set in 1973. It is unlikely that any change to the way the Bank of International Settlements treats gold will alter that valuation.  

“We need to create a strong capital market,” Guo Shuqing, the country’s chief financial regulator, said at the National People’s Congress, China’s top legislative session which wrapped up last week. “We could do more work especially in the capital market -- stock market, bond market -- for direct financing.”

China is trying to transform how it funds its economy after decades of relying on state-run banks that benefit from the implicit backing of the nation’s treasury -- but tend to direct most loans to other government-owned companies. The difficulty that small and private firms have in securing funding was one reason for an explosion of shadow-banking, and the rapid increase in debt and risk that came with it.

Spurred to act by a record $34 trillion debt pile, authorities in recent years have cracked down on risky loans, squeezing businesses that relied on such funding. While leaders including Guo have called on the banks to do more to finance private companies, lenders are grappling with their own concerns about loan quality and default rates. Even so, outstanding banks loans in China have increased by about 27 percent since 2016, while capital-market funding rose by around 15 percent.

“We shouldn’t put all the pressure on banks,” Xu Kuijun, an NPC delegate and vice president at Bank of China Ltd. In Shanghai said in an interview at the sidelines of the gathering. “We have to rely more on direct financing, and capital markets should do more.”

There is nothing says “We are done with tightening” quite like the statement “capital markets should do more”. The dominant policy narrative in China for the last three years has been the need to curtail speculation and most particularly in the shadow banking sector.

Buyers in the world’s biggest hog producer and pork consumer struck deals for the meat despite import tariffs of 62 percent imposed by China on U.S. pork as a consequence of the trade war between the two countries.

The duties had slashed China’s imports of U.S. pork from companies such as WH Group Ltd’s Smithfield Foods since last summer.

The sale of 23,846 tonnes of U.S pork in the week ended March 7 comes after a months-long outbreak of African swine fever in China that has spread to 111 confirmed cases in 28 provinces and regions across the country since August 2018.

Pork is one of the most popular proteins in China. Rising living standards have only boosted demand for what many people consider to be a staple and with so many pigs dead from disease there is a shortage.

Miners and bankers give a variety of reasons for why the gold mining merger wave hasn’t come. The poor performance of gold miners’ shares means that sellers want to hold out for better valuations and buyers are reluctant to use shares they believe are undervalued for acquisitions.

The S&P TSX Global Gold Index is down 51% since its 2011. The S&P 500 has doubled in value in that time.

The industry as whole has a poor record in M&A. Miners overspent during the decadelong bubble that ended in 2011. That put off investors and made some executives wary of doing deals.

In 2016, PwC calculated that big miners had written off $200 billion of the value in acquisitions and projects over the previous five years.

Executives may be reluctant for another reason, investors say. They don’t want to put themselves out of a well-paid job by merging or selling their mines.

Ore grades at gold mines have been contracting for years but the massive investment in additional new greenfield sites during the bull market did not result in massive new sources of supply. Nevertheless, mining productivity remains high because production is more efficient today because of technological improvements.

May wheat futures up as much as 4.4% to $4.47 1/2 a bushel in Chicago.
Intraday advance is biggest since Aug. 2
Prices are rebounding from May contract record low reached Monday
NOTE: Winter-wheat conditions in Texas drop, USDA data showed Monday
Texas good/excellent rating lowered to 28% from 36%
Futures also climb amid short covering, Terry Reilly, senior commodity analyst for grain and oilseeds for Futures International in Chicago, says by telephone

There was also news today that Ukraine’s wheat crop is coming in ahead of expectations so there is no global shortage of the commodity. Nevertheless, there is clear evidence of a short-term oversold condition and today’s upward dynamic is the first positive news for wheat in months. Potential for some additional short covering has certainly improved.

Short Positions
Investors in the futures market are becoming more pessimistic, with non-commercial short-rand contracts outweighing longs, CFTC data show. That’s a turnaround from February, when traders were net long-rand for a brief period.

Selling Out
Foreign investors are getting out of South African bonds and stocks. Non-residents have been net sellers of government bonds at an average rate of 115 million rand ($8 million) a day over the past month -- not a huge number, but a turnaround from mid-February, when inflows averaged 434 million rand a day. And offshore investors have been net sellers of South African equities for the past 14 days, the longest streak since October 2017.

What I find particularly interesting about this article is it provides a very good example of a reporter providing details of what people have already done with their money.

Nickel climbed to a fresh six-month high in London as rallying steel markets, falling inventories and rising electric-vehicle sales bolster the outlook for the metal. Industrial commodities increased as markets were soothed by China’s announcement of a major tax cut and optimism that a resolution with the U.S. over trade is in reach. Prices advanced even as the world’s biggest consumer trimmed its growth target for the year. Steel futures are up this year and the outlook appears brighter as China plans to trim the value-added tax rate that covers the manufacturing sector and as the usage of electric-vehicle batteries gains momentum.

China policymakers seek to pull off a gradual deceleration while grappling with a debt legacy Nickel inventories in LME warehouses hit the lowest since 2013Copper inventories fall to 118,600 tons, the lowest since May 2008.

“We’ve seen that metals like nickel, zinc and tin, which feed into the ferrous sector, have all been on a bit of a tear recently,” Robin Bhar, an analyst at Societe Generale, says by phone from London “Nickel could still be the darling of the complex, given the uplift that you have from batteries”“ Chinese stimulus measures are aimed at goosing consumption and helping manufacturing, so the best-positioned metal is probably copper,” Tai Wong, head of base and precious metals derivatives trading at BMO Capital Markets, says by email “I think nickel is a spec play and if the rolling ball of money is back, it can definitely drive it a long way”

8:1:1 battery chemistries in the Tesla Model 3 are going to be deployed in just about all electric cars in the coming years. That represents a significant growth story for nickel but most particularly for nickel sulphide which is a purer form of the metal that falls outside of the delivery parameters set for futures trading at the LME. That suggests there is going to need to be substantial investment in higher grade production of the metal.

A link to the full report is posted in the Subscriber's Area. 

Interest in precious metals has perked up over the last six months as economic figures have deteriorated which increased the scope for monetary and fiscal intervention. The potential for the trade war to ease is weighing on gold because of a perception that a hedge is not as necessary. However, the trend towards fiscal laxity may be boosted by this development rather than restricted so there is a clear reason to think about precious metals as they dip.  

A link to the full report and a section from it are posted in the Subscriber's Area. 

Rio Tinto’s (ASX, LON:RIO) investors will be celebrating Christmas in February, as the miner is giving them a $4 billion special dividend, or $2.43 cent a share, after posting its highest annual underlying earnings since 2014.

The world’s second largest miner reported Wednesday a 2% increase in underlying profit, up to $8.8 billion, beating market forecasts of $8.5 billion on the back of rising revenue of $40.5 billion. The special dividend also came after a string of asset divestments, including Rio’s entire interest in Indonesia’s Grasberg mine for $3.9 billion.

Since Jean-Sébastien Jacques took the helm in July 2016, Rio has focused on cutting costs, generating cash and returning as much of it as possible to investors through dividends and share buybacks.

Last year, the company waved all its coal assets goodbye and is now the only major miner with a fossil-fuel-free portfolio. In total, Rio has sold $12 billion worth of unwanted assets since 2015.

The special dividend got shaved off the share’s price in the last couple of days as it tests the region of the June peak near 4500p. Nevertheless, a sustained move below the trend mean would be required to question medium-term scope for continued upside.

Canada’s Barrick Gold's (TSX:ABX)(NYSE:GOLD) hostile $17.8 billion bid for rival Newmont Mining (NYSE:NEM) could free up a group of assets the combined company would no longer consider key, such as their Kalgoorlie super pit 50/50 joint-venture in Western Australia.

After launching the offer on Monday, Barrick chief executive officer Mark Bristow said he had already been contacted by parties that have expressed interest in the company’s Australian assets.

The divestment goals announced by the Newmont-Goldcorp tie-up and the recent Barrick-Randgold merger provide “a significant opportunity” for ASX-listed names to acquire assets, according to UBS analysts.

“Australian gold producers have stronger balance sheets than their North American peers. We think Evolution and Northern Star are best placed to make accretive acquisitions given their strong track records in this area,” said UBS in a note last month.

Market rumours indicate that one of the potential buyers could be Melbourne-based Newcrest Mining (ASX:NCM), especially after Bristow said there was “a very good chance” of some Australian operators becoming involved.

The pace of M&A activity in the gold mining sector remains brisk. There is a good reason for that. Many miners have all-in sustaining costs in the order of $800-$900 and the price of gold is north of $1300. Considering the share prices of many gold miners are still reasonably close to multi-year lows it makes a lot more sense to buy and established company with production capacity already paid for than to engage in the expensive and risky business of exploration and development of greenfield sites.

While Chinese negotiators offered to stop providing government subsidies that distort prices and put Western rivals at a disadvantage, they haven’t so far produced a list of subsidies they would be willing to eliminate, the people said.

Instead, the Chinese side so far has focused its offer on greater purchases of U.S. agricultural and energy products such as soybeans, crude oil and liquefied natural gas, they said.

Whatever deal is struck, the U.S. is also seeking guarantees it will be enforced and a means to resolve disputes.

“It’s one thing to write something on a piece of paper,” said Secretary of State Mike Pompeo on Fox Business Network on Thursday. “It’s another thing to have enforcement mechanisms. And I know our trade team is hard at work, making sure that the American people get that.”

How likely is it that the USA and China will reach a trade agreement? I think it comes down to two factors. What is it that the USA wants from a deal and what is China willing to give up?

South Africa’s precious-metals mines are among the world’s deepest and most labor intensive and companies are under constant pressure to contain costs. Yet high unemployment and inequality mean labor relations are inevitably fraught.

AMCU’s plans for an industry-wide strike marks a return to escalated conflict between South African mining companies and workers. In 2014, the union held the longest-ever strike in the world’s largest platinum industry. Wage negotiations for producers of the metal are expected this year.

“It is unfathomable that AMCU would willingly call for secondary strikes in an industry that is already in jeopardy,” Minerals Council Chief Executive Officer Roger Baxter said in an emailed statement on Friday. “This would undermine employment and the livelihoods of millions of dependents.”

 

The primary reason there is an uptick in South African worker activism is probably more to do with the impending election in May rather than any other single factor. There is a war going on for the heart of the ANC and Ramaphosa has a clear challenge ahead of him in trying to improve the efficiency of the economy. The mining unions are a significant force politically, but also have a vested interest in securing as good a deal as they can from mining companies before the uncertainty of the election.

Central banks seem to reckon that the yellow metal is a good investment. They’re buying it for their reserves at the highest rate for almost half a century. Last year their net purchases reached $27 billion – 74 per cent more than in 2017.

Russia, Turkey and Kazakhstan were the biggest purchasers as the deteriorating political climate spurred them to convert some of their foreign reserves out of dollars. Hungary increased its bullion holdings tenfold. Even Poland is buying tons of gold.

It’s clear that the down-trend in gold prices since 2011 came to an end last year. The metal’s price has been rising steadily since mid-August. Where is it heading this year?

“The macroeconomic and geopolitical climate is conducive to continued gains in both gold and silver, and the precious metals equities,” says American stockbroker Cantor Fitzgerald, given:

Gold’s recent and historical strong performance in a rising interest-rate environment.

Should inflation expectations rise, this typically is a very bullish leading indicator for gold and silver.

The inflection point where physical gold outflows from ETFs ceases and inflows resumed was reached in the final quarter of last year and inventory holdings have continued to climb.

Uncertainty and volatility in global equity, debt and currency markets draw investors to safe havens. There is considerable upside potential as “precious metals equities are still widely under-owned by sophisticated international investors.”

Gold is one of the most popular and yet misunderstood of all alternative assets. It is commonly perceived as a hedge against inflation but also does well during periods of deflation. It is perhaps better to think of it as a hedge against stealth inflation when negative real interest rates prevail.

I hope we can continue this discussion if we see further money flows into the gold sector. Taking note of Fullerisms " Never pay up for resources", "the need to be invested in case mania/euphoria occurs" and with reference to speculative investments "buy when sold down & sell when towering high above their EMA." As other subscribers will know, gold bull markets have strong drawing power and many of us need a sign on the wall "what the wise man does in the beginning the fool does in the end" from Howard Marks "Mastering the Market Cycle."

Thank you for this summary of adages focusing on the commodities sector. Gold continues to march towards the upper side of its seven-year base formation just below $1400. Investors are understandably getting excited about the prospect of a bull market that persists for more than a few months. That is particularly true because of the hedge gold offers against the potential for governments to blow out the debt markets with deficit spending and the impact that will have on their currencies.

“Indonesia wants exports to be more properly managed, if there’s an excess supply it’s better to set them aside as state reserves,” Jabin Sufianto, secretary-general of the Association of Indonesian Tin Exporters, said in an interview in Jakarta on Monday. “We currently export 100 percent of production, which means that we accept spot prices even if prices are bad.”

Southeast Asia’s largest economy has tried repeatedly in recent years to shore up prices of the metal used in electronics and tins by curbing production and sales, as well as making it mandatory for exporters to trade the commodity on a local exchange before shipment. Exports must also be inspected by government-appointed surveyors to check the quality and origin of ore used.

The plan from the association for a stockpiling program comes at a time of rising prices and predictions for a run of global deficits. It’s also been made just ahead of a presidential election in which resource nationalism is expected to feature as an issue in the campaigns. The trade minister will review the proposal and “there’s still a lot of discussion,” according to Jabin.

 

Producers don’t generally campaign so hard for market controls and supports unless their profitability is in danger. 

Central bank net purchases reached 651.5t in 2018, 74% higher y-o-y. This is the highest level of annual net purchases since the suspension of dollar convertibility into gold in 1971, and the second highest annual total on record.1 These institutions now hold nearly 34,000t of gold.

Heightened geopolitical and economic uncertainty throughout the year increasingly drove central banks to diversify their reserves and re-focus their attention on the principal objective of investing in safe and liquid assets. 

Many investors now pay a great deal of attention to ETF holdings of gold but governments remain significant accumulators of the metal. That is particularly true of Russia and China which are acquiring gold to insulate themselves from the US Dollar as geopolitical tensions bubble up.

A rally in Chinese equities steepened Monday as bumper credit figures for January added to signs of increased stimulus.

The Shanghai Composite Index jumped 2.7 percent by the close, taking its rebound since a Jan. 3 low to 12 percent, as turnover on mainland exchanges reached a 10-month high. The small cap ChiNext index in Shenzhen, typically the most speculative part of the market, soared more than 4 percent. The surge weighed on government bonds, with the 10-year yield climbing the most in two months.

The nation’s equities, which were the world’s worst performing in 2018, are starting to take off as the new securities regulator eases curbs on trading and an economic slowdown spurs monetary easing. In a sign of how broad the rally has been, the relative strength of four major indexes have all climbed above 70 -- a level that signals to some traders an asset may be overheating. The last time that happened was May 2015, when the equity market was in a bubble.

I posted this chart of the impact tightening measures have had on the Chinese shadow banking sector a month ago. It is a clear signal both of the reasons for the slowdown in economic activity and the rationale the authorities now have to declaring the policy a success. It is increasingly likely that the Chinese authorities are now willing to start stimulating the economy again.

Thank you for your efforts in providing this valuable information and analysis of the markets to the collective. With the expectation of increasing M&A activities in the gold miners, what would you look for as candidates for take overs can you provide some suggestions.

Thank you for your kind words and this email which raises a question I have also been pondering. When we think about where the tide of M&A activity is heading in the gold mining sector, we can look at potential acquirers and their motivations for why they are buying. We can then look at what they might be interested in buying and whether there is likely to be competition for that asset.

Newcrest Mining Ltd. could jump aboard the multi-billion dollar, deal-making rush that’s reshaping the top ranks of the gold sector -- but only if it has to.

The No. 3 gold producer by market value has set a deadline for the end of 2020 to increase its exposure to five so-called tier-one assets, meaning that it’s hunting for a project or mine to add to a roster of four mainstay operations and investments in Australia, Papua New Guinea and Ecuador.

Mergers and acquisitions are ranked as a “final pathway” to growth behind exploration work and partnerships with smaller companies on early-stage projects, Chief Executive Officer Sandeep Biswas said Thursday on an earnings call with analysts.

“We don’t need to do M&A, we are in the enviable position of owning two of the world’s premier long-life gold assets.”

New long-life, high grade gold assets are like unicorns. You just don’t see them very often. That is why the major gold miners have been so active in M&A recently. On top of that mines are wasting assets so miners have a proclivity for shopping for replacements. It seems inevitable Newcrest will deal at some stage but if they continue to wait, they will likely end up paying more for attractive assets later.

The yearlong inquiry uncovered a litany of wrongdoing across the industry, from charging dead people fees to advisers pushing customers into bad investments to meet bonus targets. National Australia staff accepted cash bribes to approve fraudulent mortgages and misled the regulator over a fees-for-no-service scandal.

“I acknowledge that the bank has sustained damage as a result of its past practices and comments in the Royal Commission’s final report,” said Thorburn, who will leave Feb. 28. “I recognize there is a desire for change.”

His replacement will have to restore customer trust in the lender and steer it through a tougher landscape of falling earnings, a sinking housing market and rising funding and compliance costs. The nation’s big-four banks also face more muscular regulators intent on punishing wrongdoers in court.

In further fallout from the inquiry, National Australia said it will delay the planned IPO of its MLC wealth management unit as fee income and commissions come under pressure.

David used to say he would not invest in banks on moral grounds. That is a clear reflection on the rather nefarious reputation of the industry to fall victim to its worst impulses to generate profits. Nevertheless, banks are important sources of credit for the economy; in every country. When they are under pressure either from reputational, regulatory or market risk their ability to create credit is inhibited and that represents a challenge for the market. The integral part they play in supplying credit also contributes to their knack of avoiding hefty fines.

Following up to your recent post on Nickel strength, this article highlights the potential for major upcoming demand in the industrial metal and is potential good news for the related Sherritt & Norilsk shares noted in your post. 

Thank you for this email which may be of interest to subscribers. Here is a section from the article:

“This means the supply of lithium, cobalt, nickel and manganese to produce the cathode for these cells, alongside graphite to produce battery anodes, needs to rapidly evolve for the 21st century," Moores testified.

Moores presented a chart based on the assumption that all of these megafactories are built and run at 100% capacity utilization.

"Under this scenario, lithium demand will increase by over eight times, graphite anode by over seven times, nickel by a massive 19 times, and cobalt demand will rise four-fold, which takes into account the industry trend of reducing cobalt usage in a battery," Moores testified.

As Vale’s troubles spread, analysts have said iron ore could keep heading higher and drive up costs for steelmakers. Commonwealth Bank of Australia predicted prices could rise above $100, adding that the move would be temporary if Vale successfully challenged the court order.

“Iron ore prices are likely to continue trending higher, as production is clearly being impacted above and beyond just the roughly 8 million tons per year from the Feijao mine, where the tragedy first occurred,” Jeremy Sussman, an analyst with Clarksons Platou Securities, said in an email.
Shares of other iron ore producers have rallied in response to higher iron ore prices. For example, Rio Tinto Group is on a 10-day streak of gains, with the shares up 15 percent this year.  Ferrexpo Plc has notched a 26 percent advance since the Vale dam breach.
 

The chances are that the damage done to Brazilian supply is temporary in nature and Vale will get back to close to full production at is other mining facilities relatively quickly. The broader point, however, is that the market is relatively tight following a quiet couple of years since the early 2016 rally.

 

Thank you for mentioning MMT in the service

The most of us agree that applied MMT not necessarily leads to more growth (especially because in the reality part of the government spending is wasted in less than transparent submission processes, bureaucracy and corruption, hence it does not flow 100% into the economy process) but to more debt for future generations

However, it gives a useful framework for investors to better understand our modern world of FIAT currencies. A world in which classic economical doctrine and orthodoxy as I (we) learnt at university (pure monetarism, Fisher Theory and Schumpeterist “creative destruction”) fails to explain the modern world and the political influence

As you point out populism gels perfectly with MMT. And as long as populism is on the rise, we should maybe devote more time to understand MMT and try to profit as investors.

Interesting are the aspects related to the effect of interest rate hikes by the FED which MMT claims are inflationary and not disinflationary because hikes add income to the private sector that holds the government securities. In the same way they claim QT add interest bearing securities to the economy (via the banking system) and are also not disinflationary.

Also interesting is the stress on government spending as a source of Aggregate Demand and not just on the Debt with which this demand is financed. So national debt is the “private sector” asset.

I don’t know if I am a correct but from the perspective of an investor MMT is insofar useful as it opens a new perspective and try to explain markets behavior by looking at what is happening.

For example, from an MMT perspective we should continue have a strong economy as long as government spending is on the rise (i.e. the corporate sector profits and equities are a buy), the USD should weaken the more debt is added and the more the FED tries to stem inflation by hiking rates and engaging in QT (latter is counterintuitive) because it adds income to the system. Likewise, Bonds are a sell because of rising inflation while gold and hard assets are a buy.

Actually, if we look at reality and at countries that control their own currency that involve in profligate fiscal policies, they all tend to have depreciating currencies, high interest rates and a rising national debt. To me Turkey, Argentina, Venezuela come to mind first. However even the US under Trump is moving in this direction. Hence the USD bearishness (the US have still a big advantage though i.e. that they are reserve currency)

On the other end countries with a tight fiscal discipline, that apply QE and ZIRP or NIRP tend to have deflationary economies, zero or negative yields and strong currencies. Examples are Switzerland and the EU (where the leading countries impose deflationary austerity and real deflation on the weakest Union members). Indeed, notwithstanding all the problems in some members of the EU, the EUR has been extremely resilient over the years.

What do you think?

Thank you for this wide ranging and thought-provoking email. I agree with most of the points you make although I believe the reason for the Euro’s stability has to do with a lack of supply rather than inherent strength in the domestic Eurozone economy. The biggest issue right now is there is a clear trend towards profligate spending, fiscal stimulus, deficit spending or however you might wish to describe it. Modern Monetary Theory is the academic rationale for this spending which is being latched onto by politicians. In ages past this was referred to as devaluing the currency to point where it causes a rebellion from the bond market. 

Nickel prices rose Friday, extending gains from the best January in more than two decades, amid signs stockpiles would decline further. A robust U.S. jobs report eclipsed weak Chinese economic data to bolster the industrial-metal demand outlook.

Nickel holdings in Shanghai Futures Exchange warehouses fell for a fifth week to the lowest since June 2015, according to data from the bourse. Nickel prices climbed this week amid speculation a fatal dam disaster at one of Vale SA’s Brazilian iron-ore operations could have a ripple effect on other metals supplied by the miner. U.S. stocks climbed Friday morning on the better-than-expected jobs report and signs of progress in trade talks.

Nickel was the best performing industrial metal until the middle of last year when it succumbed to global growth fears and the wider malaise in the industrial metals complex. It subsequently gave up the majority of its advance before finding support in December with the wider stock market.

If I am correct, I suspect we will see many Democrat candidates (perhaps all?) adopt MMT as a tenant of their platform. And here is a crazy thought for you - what if Trump beats them to it?

I have long argued that eventually we will hit a period where governments will spend and Central Banks will facilitate their deficits. MMT provides academic justification of where we all know we are headed anyway.

In one of the interviews I watched with Professor Kelton, she said that the idea of deficits being funded with bond issuance is purely a self-imposed limitation. It’s required by law, but in reality, it doesn’t need to be done. The law can be changed. The government could simply spend $100 while only taking in $90 and directly writing cheques against the Federal Reserve to pay for the $10.

Think about how inflationary this will be! But isn’t that the whole goal?

I have always chuckled at the idea that governments were powerless to create inflation. If they want to create inflation - they can. There just needs to be the political will. And it looks like that will has finally arrived.

Left-wing politicians in the USA are jockeying for who can announce the largest tax on the “super-rich”. Last week the media were discussing an upper band of 70%, today Bernie Sanders is suggesting a 77% tax and the re-imposition of a heavy estate tax on fortunes over $3.5million. Meanwhile more and more politicians are adopting President Trump’s mantra that deficits don’t matter.

With gold sustaining its position above $1300, and also holding its own against the other major currencies, as you have highlighted in recent audios, can you please comment on the UK listed gold miners and their potential for some improvement p.s. the service has its finger on the market pulse, and the written and audio delivery is spot on.

Thank you for your kind words and this email which I believe will be of interest to subscribers. Barrick Gold acquired Randgold Resources recently so that removes one of the more attractive gold miners from the universe of UK listed miners. Of course, the UK is one of the most active markets for resources shares so there are plenty of others to choose from.

Philip Morris’s patent lawsuit against British American Tobacco in Japan, which is seeking a sales injunction of BAT’s Glo heated tobacco product, is still a risk, but BAT has “several methods of defense” and the earnings impact would probably be modest, Piper Jaffray analyst Michael Lavery writes in a note.

Risk on possible U.S. menthol cigarette ban looks priced in and Piper doesn’t see any operational impact “for years and years”

Also notes that consumers can adapt

Piper doesn’t see any risk to dividend growth, allaying concerns from investors; says BAT’s cash flows don’t seem to be at risk in a way that would hurt the dividend

Upgraded to overweight from neutral; PT kept at GBP30

NOTE: BAT shares down 51% in last 12 months vs 19% drop for Imperial Brands, 31% decline for Philip Morris and 35% fall for Altria

The tobacco sector is not for everyone but it is inherently defensive considering they are selling an addictive product and therefore have reliable cashflows. The performance of defensive sectors is something that is important to monitor in the latter stages of a cyclical bull market because they typically tend to be depressed by disinterest when growth stocks are outperforming but turn to outperformance when investors start to value security.

Iron ore investors are attempting to gauge the fallout from the dam burst at one of Vale SA’s mines, amid concerns the disaster will have ramifications beyond the affected operation in Brazil that could tighten the market in the short term and offset weakness from a slowdown in China.

Futures on the Dalian Commodity Exchange extended gains on Tuesday to head for the highest close in more than a year, after the benchmark price for immediate delivery surged to $78.80 a ton on Monday, the highest level since March. Shares of Australia-based miners rallied, with gains for BHP Group, Rio Tinto Group and Fortescue Metals Group Ltd.

In Brazil, “it seems likely that there will be an extensive increase in safety tests over the coming weeks and months,” Capital Economics Ltd. said in a note, raising its end of first quarter forecast to $75 a ton. “These tests may highlight other vulnerabilities in the system that could lead to temporary
cutbacks at one or more mines until the issues are addressed.”

This is not the first time a dam breach has impacted Brazilian supply and led to loss of life. In fact, BHP and Vale have only just reached a settlement with the communities affected by the Samarco accident in 2015. 

A link to the full report and a section from it are posted in the Subscriber's Area. 

There are lots of reasons to own gold but one I think is more relevant than others right now. The governments of the world are getting ready to spend their way out of trouble and historically that has meant debasing their currencies. Gold cannot simply be lent into existence and is therefore a supply inelasticity asset compared to the rapacious appetite for debasement the world’s governments represent.

A link to the full report and a section from its are posted in the Subscriber's Area.

There are very clear logical reasons for why lithium demand should continue to trend higher for the foreseeable future and they were equally relevant six years ago when it was a truly supply constrained market. Since then there has been a great deal of investment in additional lithium recovery projects with the result supply has increased substantially.

Hello Eoin, First of all I would just like to say I have no problem with the way you have organised your video commentaries. I find them very perceptive and thought provoking. I would hazard a guess that 95% of your subscribers are of the same opinion.

On your comments on South Africa, having spent the past 16 years here, I would advise investors not to hold their breath as regards the new president Cyril Ramaphosa instituting much in the way of improved governance here. Corruption in this country is all pervasive and is now penetrating certain personnel in the judiciary. I know this from various contacts I have with regards to the Rhino poaching problem. The Zuma faction still wields huge influence within the ANC. The black economic empowerment policy has led to totally unsuitable and unqualified people being placed in key positions both in government and in the private sector. Given the current state of the world economy, I would indeed be surprised if the ZAR is not the currency to lose most in value among the emerging markets over the next year.

Thank you for this informative email and your on the ground perspective from South Africa.

The simple conclusion reached by investors is Ramaphosa is better than Zuma which is good news. The monumental challenge of tackling corruption is a long-term challenge and if the trend toward deterioration can be allayed that can be considered progress. It is too early to conclude whether the new administration can make progress on that front but I think everyone is aware of just how difficult that could be.

We study a new alternative investment asset - LEGO sets. A huge secondary market for LEGO sets with tens of thousands of transactions per day has developed since the turn of the century. We find that LEGO investments outperform large stocks, bonds, gold and other alternative investments, yielding the average return of at least 11% (8% in real terms) in the sample period 1987-2015. Small and huge sets, as well as seasonal, architectural and movie-based sets, deliver higher returns. LEGO returns are not exposed to market, value, momentum and volatility risk factors, but have a unit exposure to the size factor, suggesting that this asset performs similarly to small stocks. A positive multifactor alpha of 4-5%, a Sharpe ratio of 0.4, a positive return skewness and a low exposure to standard risk factors make the LEGO toy an attractive alternative investment with a good diversification potential.

For the first time in my life, I bought gold because it is a good hedge,” Sam Zell, the founder of Equity Group Investments, said in a Bloomberg TV interview. “Supply is shrinking and that is going to have a positive impact on the price.”

Spending on new mines began to dry up after prices of the metal tumbled from a record in 2011, clouding the outlook for production. With gold still down by almost a third from its peak, the biggest miners are just looking at buying their competitors in a bid to bolster their output pipeline.

“The amount of capital being put into new gold mines is a most nonexistent,” Zell said. “All of the money is being used to buy up rivals.”

Tightening global liquidity and the slowdown in China is restricting the capital available to the mining sector. Additionally, prices for many commodities have been under pressure this year so it is more difficult for miners to make the case to lenders that they should be afforded more leeway. That has led to reduced spending on exploration and development. The fact that when prices are high and liquidity available banks line up to extend credit to miners contributes to the cyclicality of the sector.

Palladium rose as much as 5.4 percent to $1,439.29 an ounce. It traded at $1,394.97 by 1:39 p.m. in New York. At the Comex exchange, palladium for March delivery climbed 2.3 percent.

Investors are shrugging off signs of automotive weakness in key markets, with annual car sales in Europe falling for the first time since 2013. China also declined last year and sales in the U.S. barely rose.

The metal will remain in a supply deficit for an eighth straight year, according to Metals Focus Ltd. Palladium’s status as a byproduct of mines in South Africa and Russia means output levels aren’t adjustable to meet short-term demand, despite the surging price.

“Investors appear to be ignoring the fact that weak sales figures have been reported for all major auto markets in recent days,” Commerzbank analysts including Daniel Briesemann said in a note. “Instead, they are seeing news such as the planned widening of a strike to include the platinum mines of a major South African gold and platinum producer as being a good reason to buy.”

Palladium has been rallying impressively while the other precious metals have been side-lined in terms of investor interest for the last couple of years. The collapse of platinum demand following the diesel scandal made the case for more gasoline vehicles and a demand growth cycle for palladium. However, that is not a sufficient reason for the scale of the move in palladium.

Using the dollar gold price, as most of us do, has disguised what is actually quite a powerful bull market. If my memory serves me right, we saw the same phenomenon - a stealth rally in minor currencies - ahead of the last major gold bull run (in dollars) in the late 1990’s. Arguably this may be a very good leading indicator.

Faulty yardsticks also takes us onto wealth management. Measuring our net worth in local currencies, we might be rather pleased with ourselves - smug even. However we chose to ignore the fact that the yardstick is not a constant … it is shrinking and sometimes really quite fast. It’s the natural corrosive effect of inflation. Knowing this, governments give us a gauge for yardstick shrinkage to use such as RPI or CPI, to reassure you that the shrinkage is minimal… and then lie about it.  

There are alternatives.

In the US, the Chapwood Index is highly regarded as it reflects the true cost-of-living increase. Plainly and simply, the Index shows that incomes can’t keep up with expenses, and it explains why people increasingly have to turn to the government for entitlements to bail them out. The basis of the Index is fully open to scrutiny and if correct suggests Americans have been losing roughly 10% of their wealth each year since 2014. Half of it gone. This compares with the official government figure of 1.9%. Ronald Reagan called inflation “the thief in the night” and it is built for times just as this. It gives the appearance of being wealthy (maintaining high nominal values) while eroding your actual position - which manifests itself in far higher costs on the other side. 

Interestingly, gold has seen an average year-on-year gain of about 10% compounded since 2000 - off-setting those real losses - which reaffirms in our mind that it continues as a reliable yardstick against which to measure costs or indeed wealth. In short, gold has maintained what economists call “purchasing power parity” for millennia. So not only is it an excellent yardstick - its actually quite a useful thing to own - especially if you fear wealth erosion. If you haven’t already read this, you must - see :Jastram’s Golden Constant

Many crises invariably start with stealth inflation and then follows currency weakness - so gold gets expensive and then it blows out significantly higher in your local currency. Then you realise that the lifeboat has sailed … the choo-choo train has left the station. 

Governments’ fetish for fiscal stimulus is once again being engaged on a global basis and that is raising the same old questions about the integrity of their currencies and the loss of purchasing power associated with efforts to inflate the debt away. Gold is not making new highs against all of the currencies mentioned in this article but it is certainly firming against many of them.

Canopy Growth has been granted a license by New York state to process and produce hemp with the help of efforts by Gov. Andrew Cuomo and U.S. Sen. Charles Schumer.

Canopy Growth hopes to establish large-scale production capabilities focused on hemp extraction and product manufacturing within the United States. Depending on board approval of a specific site, Canopy plans to invest between $100 million and $150 million in its New York operations, "capable of producing tons of hemp" on an annual basis.

The company is currently evaluating a number of sites in the Southern Tier of New York, which will become one of its first extraction and processing facilities outside Canada. Management hopes to announce the specific location within 100 days.

The outlook for US Federal legalisation or reclassification of cannabis took a hit with Donald’s Trump’s electoral success, given his antipathy towards the sector. However, Canada went ahead and became the first major economy to legalise cannabis and its companies have a head start on possible US competitors in the event the political climate in the USA changes.

The cost to create the world’s largest gold company: A 17 percent premium for a $10 billion all-shares acquisition that faces some big-time challenges down the line.

Newmont Mining Corp.’s deal for Goldcorp Inc. stands in stark contrast to the recent zero-premium merger between Barrick Gold Corp. and Randgold Resources. The key question: Why? In October, Goldcorp shares fell to their lowest since 2002 after the miner reported lower output and higher costs than expected.

Since then the stock improved only marginally before today. The merged company will have the world’s largest production and reserve base, and the kind of liquidity and diversified assets required to attract institutional investors. At the same time, "Newmont has some difficult times ahead with drastic surgery needed at Goldcorp,” according to John Ing, an analyst at Maison Placements Canada.

"In the short term and medium term, the deal is not good for Newmont," Ing said in an interview with Bloomberg News on Monday.

When the price of both the acquirer and the target fall following an M&A announcement, that is generally a sign investors are not all that happy with the price being paid and/or the prospects for the merged entity. The market’s conclusion therefore is that shareholders are on the hook for the cost of the merger.

A link to the full report and a section from it are posted in the Subscriber's Area. 

The broad global adoption of fiscally stimulative policies is unlikely to be as coordinated as the monetary response to the credit crisis was. The big arbiters of how much liquidity is provided to the global economy and eventually the markets will be in which large countries adopt fiscal stimulus. Germany, China and Brazil are the big additional potential sources of stimulus so it is their political machinations that are most worth watching.

In a speech at his swearing-in ceremony in Brasilia on Wednesday, Guedes promised a sweeping overhaul of the country’s state apparatus and business environment to unleash corporate potential and free future generations from debt.

"Private-sector pirates, corrupt bureaucrats and creatures from the political swamp have conspired against the Brazilian people," he said. "Excessive spending has corrupted Brazil." Bolsonaro has tapped Guedes, a graduate of the University of Chicago, to manage economic policy in a country hamstrung by rising debt, a gaping fiscal deficit and slow growth. Bolsonaro won the October election by a wide margin as part of a popular backlash against crime, corruption and economic malaise.

In his comments Wednesday, Guedes highlighted the urgency of the task ahead. "Our business class is chained down by interest rates, high taxes and labor costs," he said, adding that he believed the ideal tax burden would be around 20 percent of gross domestic product, rather than the current rate of 36
percent.

Earlier in the day, the new energy minister, Bento Albuquerque, said Brazil would deliver on plans to capitalize Eletrobras, prompting shares in the state-run company to jump as much as 9.7 percent. He added that he would seek a lower tax burden and few subsidies in the electricity sector.

Markets tend to reward the efforts of right-wing populists because they promise to streamline bureaucracy, cut regulation and boost economic growth; all of which tend to improve sentiment towards asset prices. Bolsonaro’s decision to appoint a University of Chicago economist as his finance minister is a signal, he has growth and employment as his first set of priorities and that is likely to be appreciated by investors.

Gold is a monetary metal and therefore attracts the most interest when it is appreciating against most currencies. We have added charts for Gold in US Dollar, Euro, British Pounds, Japanese Yen, Australian Dollars, New Zealand Dollars, Swiss Francs, Indian Rupees, Chinese Renminbi, South African Rand, Brazilian Real, Turkish Lira, Swedish Krona, Singapore Dollars. These can be found using the Bloomberg ticker for gold XAU in the search or in the Metals section of the menu.

For all of the previously described reasons, the period that we are now in looks a lot like 1937.

Tightenings never work perfectly, so downturns follow.  They are more difficult to reverse in the late stage of the long-term debt cycle because the abilities of central banks to lower interest rates and buy and push up financial assets are then limited.  When they can’t do that anymore, there is the end of the long-term debt cycle.  The proximity to the end can be measured by a) the proximity of interest rates to zero and b) the amount of remaining capacity of central banks to print money and buy assets and the capacity of these assets to rise in price.  

The limitation in the ability to print money and make purchases typically comes about when a) asset prices rise to levels that lower the expected returns of these assets relative to the expected return of cash, b) central banks have bought such a large percentage of what there was to sell that buying more is difficult, or c) political obstacles stand in the way of buying more.  We call the power of central banks to stimulate money and credit growth in these ways “the amount of fuel in the tank.” Right now, the world’s major central banks have the least fuel in their tanks since the late 1930s so are now in the later stages of the long-term debt cycle.  Because the key turning points in the long-term debt cycle come along so infrequently (once in a lifetime), they are typically not well understood and take people by surprise.  For a more complete explanation of the archetypical long-term debt cycle, see Part 1 of “Principles for Navigating Big Debt Crises” (link).

So, it appears to me that we are in the late stages of both the short-term and long-term debt cycles.  In other words, a) we are in the late-cycle phase of the short-term debt cycle when profit and earnings growth are still strong and the tightening of credit is causing asset prices to decline, and b) we are in the late-cycle phase of the long-term debt cycle when asset prices and economies are sensitive to tightenings and when central banks don’t have much power to ease credit.

Both the Dow Jones Industrials and the S&P500 posted large upside key day reversals yesterday to signal lows of at least near-term significance. Neither followed through on the upside today but they did hold the moves. Considering just how much they fell since early this month there is certainly scope for a rebound but the true test of whether more than near-term support has been found will be in the extent to which they hold their lows.

If you look at outlooks published by the sell-side, I think that 80-85% percent of what I read is looking for a weaker dollar,” said Ed Al-Hussainy, currency strategist at Columbia Threadneedle Investments. “And in my experience, when all the forecasts are looking the same way, the currency generally doesn’t behave the way these forecasts predict it will.”

The narrative for dollar bears is roughly as follows: The U.S. can’t keep up its better-than-everyone-else economic performance. America’s growth rate will get closer to the rest of the world, the Fed will stop or slow interest-rate hikes and the advantage an investor gets from holding dollars will diminish.

However, this story of global growth convergence may sound familiar to those who have seen it trip up forecasters before.

Around this time last year, the prevailing view was bearish on the dollar for similar reasons, and the median forecaster in a Bloomberg survey thought the greenback would slide to $1.21 against the euro from $1.18, the spot price at the time.

Instead, the dollar rallied to $1.14. (For the record, Norddeutsche Landesbank and Sumitomo Mitsui Trust Bank predicted a move to $1.14 late last year.)

The Fed thinks it is going to be able to raise rates twice next year and continue on its balance sheet run off. That is the primary reason to be bullish of the Dollar. The stock and bond markets are signaling investors are unwilling to give much credence to that view.

Here are the Key Takeaways from today's FOMC events:

The FOMC hiked rates a fourth time this year to a decade high, ignoring President Trump’s criticism, and lowered its outlook to two hikes from three next year.

Powell specifically endorsed the dots, citing them in his press conference as a guideline for the committee and a useful tool.

The committee tweaked its guidance to ``some further gradual increases’’ -- a more hawkish development compared with the alternative of dropping the guidance.

Powell said all meetings are live for possible moves next year, but gave no strong hints as to when the Fed would raise next.

There was unanimous support for the hike.

Powell said that Trump's comments had no impact on policy and that the Fed is committed to doing what it thinks is best.

Powell said financial conditions caused a slight downgrade in 2019 forecasts but no real change in the outlook.

Markets took FOMC and Powell as hawkish, with the yield curve flattening and stocks falling.

The dot plots suggest two interest rate hikes next year but Jay Powell basically said they are going to be data dependent next year. The one thing that stood out to me from the press conference was that no one asked questions about the pace of balance sheet run off. That says a lot.

“When the price is good, we have work, but when it isn’t, we have no money to pay the rent, no money for food, no money for the doctor,” said Ms. Poló, 56, standing on the side of the road in Baja California state, where the bus she was riding had broken down about three hours from the border.

Coffee prices have been stuck below the cost of production for the longest stretch since the global financial crisis, leading some producers to abandon crops and some to migrate for new jobs. The shift is being driven by currency fluctuations that are encouraging sales and production in Brazil, the world’s largest coffee producer, spurring a record crop that is driving down prices for other coffee-growing nations.

“We’re now back in real terms to where we were 20 years ago, when farmers abandoned land because they couldn’t make ends meet,” said Paul Rice, president and chief executive of Fair Trade USA, which works with 1 million coffee producers in 42 countries.

A 2017 study by Cornell University for Fair Trade USA placed the average cost of coffee production at $1.40 a pound. Coffee prices have been below that price for 20 straight months, the longest stretch since 2008, according to FactSet data.

When commodity prices fall below the cost of production supply destruction takes place and the lowest cost producer gains market share. For Robusta coffee the question is whether central America can remain competitive with larger producers like Vietnam and Brazil for Arabica.

“Oil has gotten caught up in all the panic you’re seeing,” said Bill O’Grady, chief market strategist at Confluence Investment Management LLC in St. Louis. “This is all about fears of a recession. It’s risk-off everywhere.”

A U.S. government report Monday forecast surging shale-oil production, adding to worries about a glut. In Moscow, Russian Energy Minister Alexander Novak said production is rising, although the country is preparing to implement output curbs to conform with an OPEC+ accord.

Crude’s mired in a bear market amid growing skepticism that cuts by the Organization of Petroleum Exporting Countries and its allies will be deep enough to prevent a surplus in 2019. The group’s efforts to balance the market have been undermined by the relentless growth in U.S. shale, which veteran crude trader Andy Hall said is making it harder to predict global supplies.

It’s all well and good to talk about the relentless growth of US shale but West Texas Intermediate at $46 is uneconomic for a substantial proportion of shale drillers. The response is going to be less drilling as soon as any hedges on supply run off. That is the great strength of unconventional wells. They are more capital intensive to bring online but their supply is elastic because continuous drilling is required to sustain production after initial prolific period. That give companies the ability to more closely match supply to demand than conventional wells.

Korean carmaker Hyundai on Tuesday announced a $6.7 billion program to raise production of fuel cells 200-fold going from 3,000 this year to 700,000 per annum by 2030.

The hydrogen society is probably further into the future than its promoters want you to believe, and detractors are plentiful 

Toyota was the first to back the technology for passenger vehicles, launching its Mirai – "future" in Japanese – back in 2015. Honda is bringing the Clarity back to its line-up and Hyundai’s Nexo SUV is launching in North America next year. Hyundai also inked a collaboration on fuel cells with Volkswagen in June.

The hydrogen society is probably further into the future than its promoters want you to believe, and detractors are plentiful. (Elon Musk was not only talking his book when he called fuel cell cars "extremely silly".)

Alongside Hyundai's announcement, the Korean government also made a commitment to roll out a fuel cell fleet and charging stations. But Canada, for example, got its first and so far only public hydrogen fuelling station only in August and California’s years long backing for fuel cell cars have hardly moved the needle on consumer and business uptake.

Nevertheless, the impact on platinum could be enormous.

There’s a simple reason – today's fuel cell cars need a full ounce of platinum versus a 2 – 4 grams PGM loading for your average gasoline (primarily palladium) or diesel vehicle.

The automotive sector has been investing in fuel cell technology for years so one of the reactions to the collapse of demand for diesel engines has been the acceleration of commercialisation efforts. The other factor in the development of fuel cells is dependent on ready availability of hydrogen. The low natural gas price, particularly in the USA is a major enabler of that evolution.

Struggling French nuclear giant Areva (rebranded as Orano this year) slashed production more than a year ago. In August Paladin put its Langer Heinrich mine in Namibia on care and maintenance, although this week the Sydney-based miner said it's working on a possible restart of operations with vanadium as a byproduct (vanadium is trading at record highs and the only metal outperforming uranium).

In a research note on Kazatomprom, BMO Capital Markets says the production discipline from top miners will break the trend of rising global uranium inventories following the Fukushima nuclear disaster in Japan in 2011 and prompt the first production deficit in more than a decade.

And

China has 42 operating nuclear reactors, 16 reactors under construction and a further 43 planned. At the end of November, the country's national uranium corporation bought control of the Rossing uranium mine in Namibia. China is also behind the only sizeable uranium mine to come into production in the past few years, the Husab mine in Namibia, although ramp there has been slow.

Japan is steadily firing up its shuttered nuclear plants and considering China’s demand for clean energy it is unlikely to be deterred from continuing its construction program. Meanwhile when the world’s major producers find it more cost effective to buy in the spot market than produce the metal themselves then we know prices are depressed.

St. Louis Federal Reserve President James Bullard reportedly said on Friday that the central bank could consider postponing its widely anticipated December rate hike because of an inverted yield curve.

“The current level of the policy rate is about right,” Bullard said in a prepared presentation to the Indiana Banker’s Association, according to Reuters.

Bullard is the first member of the Fed to speak publicly about a delay in December. The Fed president — while not a Federal Open Market Committee voter in 2018 — will be able to participate in rate hike decisions in 2019.

10-year Treasury yields dropped below the trend mean this week and despite a short-term overbought condition on the futures, a meaningful catalyst is now likely required to check the rally.

Palladium jumped for a second day as it tussled with gold for designation as the most valuable metal.
Parity between the two last happened in 2002. Palladium has surged in the past four months on speculation there isn’t sufficient supply to meet increasing demand for the metal used in vehicle pollution-control devices.

Drivers

Holdings of exchange-traded products backed by palladium are at their lowest since February 2009 as investors pull the metal and offer the commodity for lease to users scrambling for supply. The cost to borrow palladium for a month surged to a record 22%, more than seven times higher than the 10-year Treasury yield.

While palladium keeps rising, it’s a different story for platinum. Palladium’s premium to its sister metal is at the biggest since 2001. Platinum is used mostly in autocatalysts for diesel vehicles, where demand has slipped. The outlook for gold remains positive with Goldman Sachs expecting inflows to gold ETFs next year as investors seek an alternative portfolio diversifier.

Prices

Palladium futures for March delivery +1.3% to settle at $1,180.20/oz at 1:01pm on Nymex in N.Y. Spot palladium +2.4% to $1,234.29/oz; earlier climbed as high as $1,240.01/oz, a fresh record. Gold rises as much as 0.9% to $1,241.97/oz, highest price intraday since Oct. 26

Market Commentary

“Palladium continues to steal the show from all other precious metals,” say Commerzbank analysts including Daniel Briesemann“ The high price premium on palladium is not justified in our opinion because car sales have been fairly weak on all key markets of late” Gold prices are supported “as the U.S. dollar index has backed off,” Jim Wyckoff, senior analyst at Kitco Metals, says in note to clients.

Palladium has surged higher since the August low and a short-term overbought condition is now evident. However, a break in the sequence of higher reaction lows, currently near $1100, would be required to question momentum beyond a pause.

For the economic reasons discussed here, the most likely outcome was in the middle of that range: a cease-fire with a pathway to a more decisive de-escalation of tensions – or, to use a recent historical parallel, an agreement similar to the one that followed the White House visit of EU President Jean-Claude Juncker in July. And that is what materialized, with the important addition of a three-month deadline for progress.

At the end of almost three hours of what the White House called “highly successful” discussions, the U.S. agreed to refrain for 90 days from implementing additional tariffs on $200 billion of imports from China. In return, China promised to use the time to make progress in three areas of concern to the U.S. and other countries: relaxing an array of nontariff barriers, including joint-venture requirements, that result in forced transfers of technology, operational models and other proprietary information and business practices; combatting intellectual property theft and other cyber interferences; and reducing the bilateral trade surplus by importing “very substantial” quantities of certain goods from the U.S.

The G-20 ended as expected with smiles all round but with not a great deal to report other than a hiatus in the trade war and commitment to go back to talks. There is a little chance of China making anywhere close to the concessions demanded of the USA so it is quite likely the market will be back on tenterhooks by the time late January comes around.

FullerTreacyMoney has a very varied group of people as subscribers. Some of you like to receive our views in written form, while others prefer the first-person experience of listening to the audio or watching daily videos.

The Big Picture Long-Term video, posted every Friday, is aimed squarely at anyone who does not have the time to read the daily commentary but wishes to gain some perspective on what we think the long-term outlook holds. However, I think it is also important to have a clear written record for where we lie in terms of the long-term themes we have identified, particularly as short-term market machinations influence perceptions.

Let me first set up the background; I believe we are in a secular bull market that will not peak for at least another decade and potentially twice that. However, it also worth considering that secular bull markets are occasionally punctuated by recessions and medium-term corrections which generally represent buying opportunities.

2018 has represented a loss of uptrend consistency for the S&P500 following a particularly impressive and persistent advance in 2016 and 2017. Many people are therefore asking whether this is a medium-term correction or a top. There is perhaps no more important question so let’s just focus on that for the moment.

Glencore plans to stockpile cobalt supplies until the middle of next year, while it builds a special plant to remove radioactivity. Caspar Rawles, an analyst at Benchmark Minerals, described the timing of the announcement as "opportunistic" because Glencore is currently negotiating 2019 supply deals.

Glencore-controlled Katanga Mining Ltd. would have produced about 30,000 tons of cobalt next year, roughly 25 percent of global supply, according to RBC Capital Markets. Holding this off the market should tighten supplies and support Glencore’s other mine in Congo, which also produces cobalt.

“Assuming there are no uranium issues that this uncovers elsewhere, this production will benefit from any positive price impact,” RBC said.

Katanga boasts one of Congo’s biggest reserves of copper and cobalt, but the mine has underperformed for decades. In 2015, Glencore suspended operations to address the problems and upgrade the facilities. Production restarted in December and the mine is scheduled to hit 300,000 tons of copper next year, when it will account for about a fifth of Glencore’s global production.

Cobalt went up in a straight line until its peak in the summer and has since experienced a significant correction. The metal is essential in the designs of all batteries currently in the market but the demand growth argument is predicated on that condition persisting. Considering how insecure global supplies of cobalt are, a race is on to use less of it, substitute it and to develop additional sources of supply from less politically insecure areas.

The feud between the U.S. and China that’s withered sales for American soybeans will probably result in farmers shifting acres to corn, said Chuck Magro, chief executive officer of Nutrien Ltd., the world’s top crop-nutrient supplier. Corn acres require about twice the amount of fertilizer and crop chemicals than soybeans, he said.

“The corn acres are worth more to companies like us,” Magro said in a telephone interview. “This could be actually a short- term win for us. It depends on what actually gets planted next year.”

The last time the U.S. saw a dramatic surge in corn acres was a decade ago after Congress approved the Renewable Fuels Standard, which expanded the mandate to blend ethanol into gasoline. That season, the corn area rose by more than 15 million acres, according to U.S. Department of Agriculture data.

The trade war is having a number of knock-on effects for a whole host of markets from iron-ore demand to copper and fertilisers. Since China is a major consumer of just about all commodities the outlook for its economy has a significant impact on demand. The potential for more corn plantings because reduced soy planting is a potentially an important catalyst for agricultural shares which have until recently been quite depressed.

Mrs H was a fully self-funded retiree, owning a modest home in the outer northern suburbs of a capital city, living off the income from a portfolio of direct shares and some bank deposits. Her assets, other than the home, totalled $650,000, with $50,000 in non-income bearing assets. Of her investments, $500,000 are invested in fully franked dividend paying Australian companies and $100,000 invested in term deposits and cash. Mrs H is ineligible for a part aged pension, since her assets exceed the maximum assets test level (currently $564,000 for a single homeowner).

Mrs H currently has a taxable income of $30,571. The $100,000 in deposits only earns $2,000 in interest, while the share portfolio yielded an average 4% cash dividend providing $20,000. Importantly the dividends were all fully franked, receiving $8,571 in franking credits (these are included in taxable income). With no tax payable due to the Seniors tax offset, Mrs H received a full refund of her franking credits, considerably boosting her cash income from $22,000 to $30,571.

Since Mrs H is not eligible for any pension entitlements, she would no longer receive those franking credits under the ALP proposal. The loss of $8,751 would reduce Mrs H’s income by 28%, reducing her weekly income by $165, from $588 per week to just $423 per week.

This means her income would actually fall below the full aged pension for a single homeowner ($23,889 p.a. or $916.30 per fortnight /$458.15 per week).

Full franking on dividends is the number one topic of conversation that comes up when I have conducted The Chart Seminar in London. It has been one of the primary factors in Australian investors tending to favour their domestic market’s dividend paying stocks. Significant changes to the tax structure for dividends and pension could have a significant knock-on effect for the banks in particular because so many investors own them for income.

Thanks a lot for a very informative comment of the day today. Can you please share your opinions on platinum/gold at your convenience. Thanks in adv. best rgds.

Thank you for this question which is topical considering the recent turn to outperformance by the precious metals sector.

Platinum is trading at a substantial discount to gold which is unprecedented in the last 35 years.

“We’re thinking more broadly that this is another peak in the dollar, and we’re going to see it drifting lower in the next year,” Mark McCormick, head of North America FX strategy at TD, said in an interview. “The market has priced in an excessive amount of global stress.”

The S&P 500’s nearly 7 percent drop in October likely fueled rebalancing flows back into U.S. stocks, which are now reversing, McCormick said.

But yuan strength is also a factor, he said, after China’s leadership signaled more stimulus measures are being planned to shield the economy from repercussions of U.S. trade protectionism. And Brexit developments may lift the euro and the pound, which are undervalued relative to their cyclical drivers, TD says. The dollar, meanwhile, is more than 3 percent rich to the bank’s global factor model.
 

The Euro found support today in the region of its August low and posted its largest rebound in months to check near-term supply dominance. However, a sustained move above $1.18 will be required to question the medium-term downward bias.

Unlike metals like Zinc/Lead and Nickel, there was some copper development during the downtime (e.g. Las Bambas, Constancia etc) but this is not sufficient to replace mines that have exited or reduced production and deal with even conservative forecasts of growth in consumption.

Now that the uptime has arrived (came and went and is coming again) the small to medium projects that are dependent on gold credits (or vice versa) are having a tougher time gaining traction (or even attention as gold’s prospects look so murky). That leaves the larger projects to attempt to fill the gap in the pipeline caused by so many years of the Copper price being in the dumpster. 

It was surprising to recently review a listing of the top twenty western copper mines and see that two date back to the 19th century and more than half of the large producing mines date back to pre-1950s. On the next page we list the major projects that could make a difference to the copper supply situation though with the caveat that most are potentially only replacing existing production that is declining or being shuttered.

The list of upcoming mines of size by its very nature is exclusively composed of projects that are in the multi-billion dollar capex category. This means that they tend to be the hands of majors or will ultimately have to gravitate to majors to ever get off the starting blocks. 

The Chinese copper stockpile has been a significant overhanging concern for the price for most of this year. It was accumulated to preserve the economy from the potential for higher prices. The broader issue is that many investors regard copper as a barometer of the global economy because it is used in every country in the world and is integral to infrastructure and technology build out. The fact that prices have been falling over the last six months has shaded perceptions of the health of the Chinese economy and questions the wisdom of building up a stockpile in the first place.

FullerTreacyMoney has a very varied group of people as subscribers. Some of you like to receive our views in written form, while others prefer the first-person experience of listening to the audio or watching daily videos.

The Big Picture Long-Term video, posted every Friday, is aimed squarely at anyone who does not have the time to read the daily commentary but wishes to gain some perspective on what we think the long-term outlook holds. However, I think it is also important to have a clear written record for where we lie in terms of the long-term themes we have identified, particularly as short-term market machinations influence perceptions.

These Top 10 lowest cost gold mines are all below all-in-sustaining costs (AISC) $550/oz level and will prove profitable – even if the price falls 50%.

Mining Intelligence looked at costs at primary gold mines and found 10 operations that would still make money, even if gold halves in value from today's levels. AISC metrics has been taken as a basis of comparison and ranking.

Since the World Gold Council (WGC) published a Guidance on AISC in June 2013, which introduced a transparent standardised production cost estimation metrics intended to be used commonly by the global gold industry, a majority – yet not all – of the leading publicly-trading gold producing companies successfully adopted WGC’s recommendations and implemented AISC to their official reports.

AISC metrics provide a more comprehensive look at mine economics than the traditional "cash costs" approach that many companies may interpret arbitrarily – and it includes such important expenses as overhead outlays and capital used in ongoing exploration, mine development and production.

All in sustaining costs are certainly a useful metric for addressing the prospects for any mine. However, when we address the list above what we are presented with are the lowest cost of production mines but they are mostly the legacy properties companies started with before they had to spend more money to acquire additional properties which generally do not have the same attractive cost structure.

“The eyes of the world are on Canada and Canadians should feel very proud, because people have been fighting for decades to make this moment a reality,” said Brendan Kennedy, chief executive officer of Tilray Inc., the largest cannabis company by market value.

After running up dramatic gains in the lead-up to legalization, cannabis shares failed to join the party Wednesday. Aurora Cannabis Inc. had slumped as much as 15 percent by 10:17 a.m. in Toronto for the worst drop since February, before paring losses. Canopy Growth Corp. was down 3.4 percent at 1:15 p.m. and Tilray Inc., the world’s largest pot company by market value, fell 6 percent.

Medical marijuana has been legal in Canada since 2001 but it’s only been about four years since the first cannabis companies began to list on Canadian exchanges. In that short time, about 140 pot companies have gone public in Canada, with a combined market value of more than C$60 billion ($48 billion).

I’m reminded of Mark Twain’s quip that reports of his death are greatly exaggerated. There was certainly some evidence of buy the rumour, sell the news today as some people took the day of legalisation as an opportunity to realise profits but the declines seen need to be put in the context of the advances seen over the last couple of months and the broad consistency of the medium-term trends.

I'm a big fan of your service. I would like to buy soft commodities somehow but not sure what good vehicles there are to do so. I think if I buy futures there are high costs involved? Do you have any ideas? I already own water/fertiliser/agricultural equipment companies. All the best

Thank you for this email and I am delighted you are enjoying the service. I agree, investing in futures carries the considerable risk of loss if contangos are not managed; particularly if prices range or trend lower. The ETFS Agriculture ETF is a good example of that phenomenon and has been trending lower since early 2011.

Expanded production comes with downsides, however. Tesla posted on its website Friday that buyers must place their orders by Oct. 15 to get their car by the end of the year and qualify for the expiring U.S. federal tax credit. Tesla was the first company to sell 200,000 electric cars cumulatively in the U.S., which triggers the gradual phase-out of the subsidy. The $7,500 credit will drop by half for Tesla on Jan. 1.

Musk boasted in 2016 that Tesla would make more than 100,000 Model 3s by the end of 2017. It didn’t work out that way. As often happens on Musk time, Tesla arrived late to an impossible goal. But Model 3 production now appears to be cruising—from the first cars off the line in July 2017, it took about 14 months for the company to build the initial 100,000 Model 3s. At the current rate of production, it will build the second 100,000 in less than six months.

This is a good news story for Tesla. Getting production numbers up is essential if the company is going to reach the economies of scale necessary to ever make a profit. The big question which I have seen addressed is what that number is? Musk has stated on more than one occasion that he wants to get the price of a Model 3 down to around $35,000 but how many of them will the company have to make to make a profit at that price?

That matches the big picture portrayed in demand statistics from the World Gold Council, an industry group. Bar and coin investors, industrial users and jewelry buyers purchase the yellow metal year-in and year-out; and central banks have been doing the same thing ever since they gave up their selling spree in 2009. As a result, ETFs and related funds are the key swing factor in the gold market, driving its slump from 2013 through 2015 when they became net sellers, and helping support its modest revival by turning into buyers in the years since.

That relationship seems to have intensified of late. The raw beta when gold is the dependent variable jumped to 1.65 in the past three months, suggesting moves in ETF holdings are now having an even bigger influence on the spot metal than usual. 

In some ways this doesn’t change the old argument for investing in gold, which is that the important beta isn’t related to ETF holdings but to stock-market returns. When fear rises and the value of your equity portfolio falls, the yellow metal still has a mild tendency to climb and offset the losses
elsewhere.

Still, those who look on gold as a refuge from the madness of crowds shouldn’t get ahead of themselves. These days, the crowds are in the driver’s seat.

ETF Holdings of gold peak at 72 million ounces in May and the total fell by 5 million ounces by early October. That represented a 6.86% decline in the total but perhaps more significantly it represented the reversal of what had been a source of demand for the metal.

Gold may have finally snapped out of its inertia.

Prices headed for their biggest gain since March 2017 as of 10:51 a.m. in New York after a slump in global equity markets and data showing slower-than-expected U.S. inflation stoked demand for the metal as a store of value. Futures were set for a third straight gain, the longest rally since Aug. 22.

Bullion, which touched a six-week-high $1,218.60 an ounce on Thursday, has traded near $1,200 since late August as traders weighed geopolitical risks that could boost the metal’s allure as a haven against rising interest rates that dampen its appeal.

The inflation data may spur the Federal Reserve “to pump the brakes on further hikes,” Phil Streible, a senior commodity broker at RJO Futures, said in a telephone interview. The slump in global equities is also luring investors to “safe-haven” assets, he said.

Gold has been trading in an inert manner for more than a month following a persistent decline from this year’s peak near $1350. To pause in such a narrow band is not characteristic for such a volatile instrument, and gold finally broke up and out to new recovery highs today.

Lula, Dilma and the labor party known as Partido Trabalhista PT, ruined Brazil. They robbed state companies and pension funds blind and ruined them. They instituted massive corruption as a means to collect funds in order to stay in power. They used the Development Bank BNDES to finance tin pot dictators in Africa and Latin America so as to be able to siphon off money for the party. PT caused Brazil’s worst recession in history, the highest rate of unemployment ever and a large reduction in GDP per capita. Wide spread corruption in all three branches of government and large scale hiring of public servants for electoral purposes were made a state policy. Public schools and universities were used for ideological purposes. Their quality dropped to astonishing levels, such that students are science ignorant and can neither interpret a text nor think clearly. They are unemployable. Laws were put up for sale. Of 1000 Medidas Provisorias (express approval laws) proposed by PT, 900 correspond to the sale of privileges (exemptions, subsidies, etc) The media was put under control through the tap of state publicity so that PT and sympathizers control TV, newspapers all NGOs and opinion pollsters. PT allied itself with Organized Crime which now controls Rio, is a major threat all over the country and recently tried to murder Bolsonaro. All this has caused a massive revolt, so that the Bolsonaro vote is far more an expression of anti-PT disgust than for the candidate himself. He was the only one to voice matters clearly. By far the least bad choice.

Thank you for this on ground perspective from Sao Paolo. A bull market paves over a lot of cracks in people’s willingness to tolerate declining standards of governance. No one was worried about all of the issues you detail above when commodity prices were surging and there was money for everything. It was only when commodity prices collapsed and funding evaporated that the extent of corruption was revealed. This is about as close to Warren Buffett’s adage “you don’t know who has been swimming naked until the tide goes out”.

Vanadium pentoxide (V2O5) which makes its way into so-called vanadium redox flow batteries used in energy storage systems breached $20 a pound for the first time since 2005 this month. That’s a four-fold increase from the start of 2017.

Simon Moores of Benchmark Mineral Intelligence, a battery materials research and price discovery provider based out of London, says the recent success of lithium ion batteries being deployed in increasing larger systems that are exceeding 1GWh has brought to light the huge potential of the market for all types of battery technologies.

Vanadium flow batteries have lifespans of over 20 years without capacity loss, are non-flammable and can operate at any temperature. Another advantage over lithium ion is that this type of battery can be charged and discharged simultaneously making it highly suitable for large-scale storage from renewable sources such as solar and wind when connected to an electricity grid. Main downside is low energy density which means comparatively large installations needed.

“If a vanadium battery producer steps forward with bold plans to produce vanadium flow at mass scale, giving the industry its Elon Musk or lithium ion moment, the potential for the technology to be the second most deployed ESS battery in the world is there,” says Moores.

“Raw material self-sufficiency is a critical component to this. At least a third of the cost of a vanadium flow battery is vanadium pentoxide which makes up the liquid electrolyte.

“If companies are thinking of creating the Gigafactory of vanadium flow batteries, they will either need to own a mine or implement a new pricing system where the fully recyclable vanadium in the battery is leased."

Battery technology is improving all the time and a race is on to develop models which will be the foundation of an electric vehicle. Concurrently, efforts are underway to develop batteries that can perform at scale for utilities which are increasingly reliant on renewables are inherently intermittent sources of energy. Those are two completely different growth trajectories and given the different priorities it is quite likely there will be a number of potential solutions that eventually make it to market. 

FullerTreacyMoney has a very varied group of people as subscribers. Some of you like to receive our views in written form, while others prefer the first-person experience of listening to the audio or watching daily videos.

The Big Picture Long-Term video, posted every Friday, is aimed squarely at anyone who does not have the time to read the daily commentary but wishes to gain some perspective on what we think the long-term outlook holds. However, I think it is also important to have a clear written record for where we lie in terms of the long-term themes we have identified, particularly as short-term market machinations influence perceptions.

Let me first set up the background; I believe we are in a secular bull market that will not peak for at least another decade and potentially twice that. However, it also worth considering that secular bull markets are occasionally punctuated by recessions and medium-term corrections which generally represent buying opportunities. 

However, experts said that even the lower targets were ambitious because last year’s air pollution levels had already dropped significantly. 

“Both a 3 per cent or 5 per cent reduction from last winter’s PM2.5 levels would be a tough target to reach because levels already fell 25 per cent last winter thanks to very strict policies and very favourable weather conditions,” said Lauri Myllyvirta, a campaigner at Greenpeace, the environmental group. 

The easing may have been prompted by a public outcry. Winter curbs on coal, including on heaters used by many residents in smaller cities and villages, left millions freezing as local governments scrambled to provide gas heating. 

By imposing emissions targets rather than specific production cuts, China shifted responsibility to local rather than central officials which could also weaken enforcement. “Notably, policies and enforcement this year is left largely to local governments, leaving them to choose between the risk of missing pollution targets or disrupting the newest construction splurge,” said Mr Myllyvirta.

Just how committed is China to environmental protection? China does not have the same green lobby we have in the West. Rationing coal without supplying alternatives was a heavy burden for people in Northern China last winter. That makes the point clearly to consumers that if they want clean air it comes with sacrifice. On a day to day basis most people would rather be warm with bad air than freezing.

Brazil’s coffee growers just can’t catch a break.

In May, a national strike by truckers stranded beans on the farm, and prices last month tumbled to a 12-year low amid a global glut. Now, a dearth of container ships at Brazil’s top ports is stalling exports of a bumper coffee crop.

For the world’s top exporter, a shift in the global freight market means container ships arrive at ports less frequently, limiting space for less-appealing commodity cargoes including coffee, and warehouses are bulging with bean inventory.

“Shipments have been postponed for days or weeks,” Nelson Carvalhaes, the president of export group CeCafe in Sao Paulo, said in a telephone interview.

Luiz Alberto Azevedo Levy Jr., the superintendent director at Minas Gerais-based Dinamo, one of the largest warehouse operators, said, “If shipments won’t flow faster, we’ll see storage issues escalating in the next 30 days” at terminals scattered across the country, he said. “The harvest has been finished, but most of the beans are still being dried and prepared,” leaving a “huge volume” heading for depots in the coming months, he said in a phone interview.

 

There is no shortage of coffee but bottlenecks in the supply chain from the rising cost of fuel for truckers to the dearth of ships is contributing to a lack of available supply which is finally beginning to pressure shorts.

Australia’s property slump has reached the one-year mark as the nation’s two major cities have become the biggest drag.

National dwelling values dropped 0.5 percent last month, weighed by declines in Sydney and Melbourne, according to CoreLogic Inc. data released Monday. Prices in the two east coast cities, which make up more than half of the national value of housing, have fallen 6.1 percent and 3.4 percent respectively from a year earlier.

“Sydney and Melbourne are now the primary drag on the national housing market performance,” taking over from regions that were impacted by the mining downturn, CoreLogic’s head of research Tim Lawless said. Values have fallen greatest among the most expensive properties as lenders curb their appetite for high debt to income ratio lending, he said.

The RBA has been reticent to raise interest rates because the Australian mortgage market is dominated by floating rate loans. With prices already elevated and private sector debt as a percentage of GDP among the highest of any developed market the fate of the property market is a major arbiter in how well Australia’s economy can be expected to perform.

Mr Di Maio hailed the agreement as a “historic day”. “We made it!,” he said as he emerged from a balcony at Rome’s Palazzo Chigi, where the meeting took place.

“Today we have changed Italy! . . . For the first time the state is on the side of the citizens,” he said as ministers and members of parliament from his party hugged each other on the square outside.

Matteo Salvini, leader of the hard right League, part of the coalition and deputy prime minister alongside Mr Di Maio, also welcomed the agreement on spending, saying he was “fully satisfied with the objectives achieved”, which would include his party’s pledges for tax cuts and a reversal of unpopular pension reforms dating back to 2011.

Mr Tria, who is not affiliated with either party and was installed only after Italian president Sergio Mattarella rejected the coalition’s first choice for finance minister, had been pressing for a deficit number as low as 1.6 per cent of GDP going into the meeting.

A 2019 deficit of 2.4 per cent of GDP would represent a significant fiscal expansion from the 1.6 per cent target for this year agreed by the last centre-left government, and would be three times the 0.8 per cent number previously planned for next year.

Italy’s debt is BBB, which is still investment grade, but the yield trades like it is rated BB which is not investment grade. The populist administration has stated they are not afraid of the spread but one wonders if they have any conception what a downgrade to junk would do to demand for Italian debt. Large pension funds which have been gobbling up Italian debt to capture the higher yield would be forced to sell in the event of a downgrade. Meanwhile the ECB is winding down its purchase program so there will be a hole in demand for the bonds.

Given the lagged and variable impact of monetary policy on economic conditions -- further complicated in the current cycle by the Fed’s balance-sheet unwind -- policy makers will need to navigate with caution when in the proximity of neutral. Fed Chairman Jerome Powell, in his Jackson Hole speech, sounded dual warnings about this: First, he stressed economists’ inability to estimate the neutral level of interest rates in real-time and cautioned against the “mistake of overemphasizing imprecise estimates of the stars”; second, he invoked the Brainard principle, which advocates moving conservatively on policy when the effects of action are unknown.

If growth is moderating toward trend and inflation appears to be centering around policy makers’ objective as the fed funds rate probes neutral territory, a significant portion of the FOMC should be willing to slow -- if not pause -- the pace of interest-rate increases in order to assess economic conditions. Policy makers may not be able to precisely identify the neutral policy rate in real time, but a continual decline in the terminal fed funds rate over the past several tightening cycles (shown below) serves as a cautionary reminder that, as Powell quipped at Jackson Hole, a “smaller dose” of normalization may prove adequate.

The PCE Core inflation gauge, which is the Fed’s preferred measure currently stands at 2%. Chained PCE inflation is at 2.3%. The Fed’s Funds rate is now 2.25% so it is becoming increasingly clear that after 8 rate hikes policy is moving from accommodative to neutral.

Glencore’s move falls in line with what an increasing number of top miners have been doing lately, that is, handing money back to shareholders. The trend follows a recovery from the commodity rout of 2015-16 and increasing pressure from investors to not buy assets that may never deliver returns.

Less than a week ago, world’s second largest miner Rio Tinto (ASX, LON:RIO) unveiled a $3.2 billion share buyback following an asset-sale spree. Previously, BHP paid out a record dividend and promised it would give its shareholders most of the $10.5 billion it obtained from the sale of its US shale oil and gas assets.

Glencore said it has almost completed its first buyback, acquiring $940 million of its own stock after the shares fell to a 14-month low in September as part of a wider commodity sell off.

The big takeaway from the trend of miners buying back their own shares and increasing dividends is they are spending less on capital investments. That means they are more profitable but also that their ability to rapidly increase supply will be constrained in future should the need arise.

Compared with stocks and other financial assets, gold looks inexpensive. More important, inflation is starting to pick up in the U.S. and in much of the world as central banks shrink their enormous balance sheets. And gold has represented a good defense against inflation eroding the value of a stock or bond portfolio. Over time, it has held its value against the dollar. Gold was $20.67 an ounce 100 years ago and that bought a good men’s suit. At $1,200 an ounce, the same is true today.

“Gold is rare, and it’s hard to rapidly increase the supply of it,” says Keith Trauner, co-portfolio manager of the GoodHaven (ticker: GOODX) mutual fund, which holds Barrick Gold(ABX), a leading mining company. “People have historically viewed it as a hedge against government depreciation of local currency.”

There are an estimated six billion ounces of gold in the world, worth more than $7 trillion, about 30% of the value of the S&P 500. Annual new mined supply adds less than 2% to the global total.

“Virtually every government in the world is trying to promote inflation partly because there is so much sovereign debt,” Trauner says. When there is so much debt, he contends, governments have three choices: default, restructure, or inflate the currency. “Politicians, when given the chance, will choose the latter.”

Naysayers point to higher interest rates as a negative for gold because it increases the allure of holding cash. But gold had one of its best decades during the inflationary 1970s, when rates soared.

Whereto for precious metals? A big decline has taken gold back to the $1200 level from it’s January peak of $1366 and sentiment is torn between those hungry for bargains and those worried about the trajectory of interest rates and the strength of the Dollar.

After a months-long rout, commodities are starting to show signs of life.

The Bloomberg Commodities Index has climbed 2.1 percent this week, on track for the best performance since April. Copper, oil, soybeans and silver are all poised set to end the week higher, helped by a combination of tight supplies, speculation that recent losses are overdone and a weaker dollar.

The gains are small, but it’s clear that the selloff that started in May has dissipated and sentiment is turning bullish. Barclays Plc said in a report today that copper has bottomed. Commodity bull Goldman Sachs Group Inc. predicted gains in raw materials through the end of the year.

“The two main factors behind commodities rising are the end of the dollar strength, with the dollar seeming to have peaked, and risk appetite rising,” said Carsten Fritsch, commodity analyst at Commerzbank AG.

It’s a shift from earlier this year, when the Bloomberg Commodities Index plunged about 10 percent over three months. Copper entered a bear market in August, and assets like arabica coffee and platinum are still near decade-lows.

The Continuous Commodity index has been ranging between 400 and 450 since early 2016. Its failed upside break out in May is a good example of a rule of thumb from The Chart Seminar; when the dynamic of the failure is greater than the dynamic of the breakout, the chances are it will go back down and test the lower side of the range.

A link to the full report is posted in the Subscriber's Area. 

At The Chart Seminar which is next due to be held in London on November 12th and 13th at the Army & Navy Club in London, one of the topics we cover is how to place stops. The Midpoint Danger Line (MDL) stop is appropriate in a staircase step sequence trend and considering how rhythmic the downtrends have been in the precious metals I thought it would be a good time review it.

In a staircase step sequence downtrend, we observe a series of ranges one below another. That rhythmic movement of distributions followed by a fresh breakdown is deleterious to sentiment. The people making money in such an environment are short sellers who are selling into rallies. When they look at the best opportunities to increase their positions they will observe that prices encounter resistance at the lower side of the overhead range so that is the most opportune time to sell.

In a downtrend most people will have stops just above the most recent lower rally high. If that level is surmounted a sharp rally can ensue on short covering. Therefore, the first signal of a change of trend is when a rally pushed back up into the overhead range. That means the strategy which worked best in the downtrend is no longer working. If the price then moves beyond the midway point of the overhead range, a failed downside break is evident.

A rule of thumb from The Chart Seminar is that in a failed downside break, when the dynamic of the failure is greater the dynamic of the breakdown, the price is likely to rally right back up to the upper side of the range. In a downtrend that is where it is reasonable to assume the majority of stops reside.

Platinum has been trending lower in a staircase sequence fashion. It rallied back up into the overhead range today but has not yet crossed in midpoint of the overhead range which is at approximately $825. A sustained move above that level would enhance potential for at least a reversionary rally back up towards the trend mean.

What sets this partnership apart is that both the miner and the techie claim they can produce lithium carbonate or lithium chloride more rapidly and at a lower cost than others. According to Lilac, this is possible because its system eliminates the need for sprawling evaporation ponds, which are expensive to build, slow to ramp up, and vulnerable to weather fluctuations.

“Even for the world's best lithium reserves in the Atacama desert, conventional evaporation ponds take many years to ramp up and remain vulnerable to weather volatility. Lilac's projects will run at full capacity from year one of commissioning and maintain that output regardless of weather or brine chemistry. We have done benchtop testing in other brines and we saw recoveries over 95% in less than 2 hours versus 9-24 months in evaporation ponds,” the company’s CEO, Dave Snydacker, told MINING.com.

Snydacker explained that the reason why the processes run by his company are so fast is that his engineers have developed ion exchange beads that absorb lithium directly from the brine. Once they do that, the beads are then loaded into ion exchange columns and brine is flowed through such columns. As the brine contacts the beads, the beads absorb the lithium out of the brine. Once the beads are saturated with lithium, the alkali metal is recovered from them as a lithium solution, which is later on processed into battery-grade lithium carbonate or lithium hydroxide using streamlined plant designs.

I described the lithium market as an example of supply inelasticity meets rising demand as early as 2013. What is apparent today, following massive investment in additional supply, is that is no longer true. In fact, as demand for the commodity ramps up technological innovation is contributing to the ability suppliers to more than keep pace.

“We have to sell a lot of Treasury bonds, and we as Americans won’t be able to buy all those Treasury bonds,” Dalio said. That means foreign investors will have to step up. And they probably would, as long as the dollar remains strong.

Otherwise, Treasury’s dollar-denominated interest payments to buyers in China, Europe and Japan will be worth less and less.

But, to Dalio, that’s not going to happen. “The Federal Reserve at that point will have to print more money to make up for the deficit, have to monetize more and that’ll cause a depreciation in the value of the dollar,” he said. Pressed by interviewer Erik Schatzker, he said “you easily could have a 30 percent depreciation in the dollar through that period of time.” For context, the Bloomberg Dollar Spot Index fell 8.5 percent in 2017, and that was considered massive.

It all leads up to this critique of how the U.S. has gone on a borrowing binge in recent years. Remember, the $15.3 trillion Treasury market was the $4.9 trillion Treasury market a decade ago.

“We have the privileged position of being able to borrow in our own currency because we have the world's leading reserve currency. We are risking that by our finances — in other words, borrowing too much.”

Unfunded liabilities are not only a US problem but are something that governments right across the OECD will need to eventually address. Ray Dalio’s view that the rise in populism we are seeing today is a symptom of a wider problem gels with my own. Considering we are seeing this disaffection with the status quo during an economic expansion where unemployment is low, it is likely that the jump to the fringes of the political spectrum will only intensify during a recession.  

“There is no question that a lot of the youth use is being driven by Juul,” Gottlieb said.

Produced by San Francisco-based Juul Labs Inc., Juul devices resemble a USB thumb drive and have become popular among students. The company has more than two-thirds of the U.S. e- cigarette market, according to Nielsen data. The FDA is currently developing a survey to determine what percentage of youth vapers are using Juul products, Gottlieb said.

A nationwide sting operation from June through August resulted in more than 1,300 warning letters and fines to retailers who sold Juul products and other e-cigarettes to kids.

It was “the largest coordinated enforcement effort in the FDA’s history,” according to the agency.

Gottlieb recently began to ask whether the use of Juul and other similar products by kids is overshadowing any benefit to adult smokers using the devices to help them quit cigarettes. He said in June tobacco companies “better step up and step up soon” but he didn’t divulge what consequences the industry could face -- until now.

In July 2017, the FDA said it was considering lowering nicotine levels in traditional cigarettes. In addition, the agency pushed back until 2022 a deadline for electronic- cigarette companies to submit applications to the FDA. Gottlieb said at the time he was trying to ease the regulatory pathway for products that are potentially less harmful sources of nicotine than smoking. Critics of pushing back the deadline raised concern that more kids would take up vaping.

Congress gave the FDA the authority to regulate tobacco products in 2009. The agency extended that reach to other tobacco products, including e-cigarettes, in August 2016 and allowed those products that were already on the market to continue sales while preparing an application for FDA clearance.

The FDA is investigating whether some products on the market were introduced after the 2016 date and may need to halt sales, though didn’t name which ones may be violating the law.

I had a discussion with my children about addiction and the cashflow seepage from their savings that would occur were they to take up vaping. We also looked at the cashflow of tobacco companies and talked about how much money they make from addiction. I’ve found it is not much use talking to children about their long-term health because it is no relatable. However, talking to them about not being able to afford a squishy or computer game because of an addiction gets a lot more traction. This conversation resulted from the fact that many of the videos they have encountered on YouTube or iFunny highlight children and young teenagers engaging in vaping.

Cotton, corn and soybean fields along with massive hog and poultry facilities lie in the projected path for Hurricane Florence.

The storm’s U.S. landfall could come Friday between Charleston, South Carolina and Norfolk, Virginia, the Hurricane Center said. As much as 15 inches (38 centimeters) of rain could flood cotton fields in parts of North Carolina, according to AccuWeather Inc. The state is also home to several pork- processing plants from major producer Smithfield Foods Inc.

Florence will likely bring “wind and flood damage” for corn and soybeans in the region, Commodity Weather Group said in a report Monday.

“Cotton is one of the largest commodities that can be affected by Florence,” Terry Reilly, senior commodity analyst for grain and oilseeds at Futures International in Chicago, said in an email. “Too much rain is never a good thing for any crop, unless it’s rice.”

This has been a very quiet hurricane season particularly compared to last year but that is about to change with Hurricane Florence due to make landfall later this week. This article from NOAA raises some important questions from what we might expect from hurricanes in future. Here is a section: 

Our regional model projects that Atlantic hurricane and tropical storms are substantially reduced in number, for the average 21st century climate change projected by current models, but have higher rainfall rates, particularly near the storm center. The average intensity of the storms that do occur increases by a few percent (Figure 6), in general agreement with previous studies using other relatively high resolution models, as well as with hurricane potential intensity theory (Emanuel 1987).

Much of this is a matter of intense debate, but one big problem is that if the world is to invest in a policy of deep decarbonatization by the year 2050, there is a real chance it can only be done at either massive expense or the price of much less electricity being available at higher costs, lower standards of living in both the developed and developing world, and even a shrinking global economy.

To prevent this from happening, the MIT study says that nuclear power with its zero-carbon emissions must play a much larger role in electricity generation on a global scale. Today, the total share of global nuclear power as a primary energy source is a mere five percent, with very little growth in the West and some countries actually abandoning the technology.

If we wish to cut down on carbon emissions then renewables are certainly a way to do it but they do not get around the questions of sustaining base load when the wind does not blow or the sun does not shine. That means we need to have a lot more industrial sized batteries to store energy for the proverbial “rainy day” or we need additional back up conventional generators. Nuclear is carbon neutral but is also prone to massive cost overruns and accidents, however rare, tend to influence public opinion for decades.

While ASF is not a direct threat to human health it is a highly contagious viral disease that can devastate pig populations in regions where it has never before spread, including Asia. 

China has seen six outbreaks of the disease stretching from the first discovered in the country’s northeast at the beginning of August down to the province of Zhejiang, just south of Shanghai. The FAO said officials in China, which produces half the world’s pigs annually, had culled as many as 40,000 pigs so far in an attempt to control the disease.

“It’s critical that this region be ready for the very real possibility that ASF could jump the border into other countries,” said Wantanee Kalpravidh, regional manager in Asia for the FAO Emergency Centre for Transboundary Animal Diseases. “That’s why this emergency meeting has been convened – to assess where we are now – and to determine how we can work together in a coordinated, regional response”.

In an industry the size of China’s 40,000 pigs is not a large number but the virulence of the disease and the geographic spread of cases suggest that this is a situation that has the potential to represent a significant challenge for animal health authorities, particularly if it continues to spread.

The US Dollar is breaking out against the South African Rand and a sustained move below ZAR14 would be required to question potential for additional upside.

Finland’s HEX Index remains in a consistent medium-term uptrend and bounced impressively from the region of the trend mean two weeks ago to test its May peak today. While somewhat overbought in the short-term a sustained move below the trend mean would be required to question medium-term uptrend consistency.

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The US Dollar Index trended lower for most of 2017 and over the course of the last few months has unwound about half that decline. However, the Dollar’s relative strength against some of the most liquid emerging market currencies such as the Turkish Lira, Argentinean Peso, Venezuelan Bolivar, Brazilian Real, Chinese Renminbi is what is animating investors right now. That story is more about the weakness of their respective economies and their exposure to US Dollar denominated debt that the particular strength of the US Dollar.

LG Chem, a major South Korean lithium-ion battery manufacturer, is increasing its cell manufacturing capacity to such an extent that it may surpass the entire LIB market in both output and raw material consumption from just three years ago.

Roskill, industry analysts that ran the numbers on LG Chem's planned output, says that South Korean manufacturer plans to increase capacity to 90GWh in 2020 from a previous forecast of 70GWh.

"Assuming 100% of output was to be NMC532, 90GWh would require around 100kt of cathode, containing 40kt nickel, 22kt cobalt, 16kt manganese and 50kt lithium (carbonate equivalent), and 90kt of anode materials which could be 100% graphite," writes Roskill.

"If producing at capacity, LG Chem’s LIB output and raw material consumption would be greater than the entire LIB market in 2015."

LG Chem, South Korea's largest chemical company, is one of the top five LIB manufacturers. It makes batteries for the Ford Focus, Chevrolet Volt and Renault ZOE.

LG Chem has been making deals to ensure it has raw material. This past spring Zhejiang Huayou Cobalt and LG Chem announced they are planning a cathode material facilities with capacity of 40,000tpy and 100,000tpy capacity planned for future. It also signed deals other raw material deals with Nemaska Lithium and Ganfeng Lithium.

While cobalt and lithium prices are currently falling, Roskills says cell manufacturers are locking in supply and ". . . that activity in the sector continues at a rapid pace."

The auto-manufacturers sector remains under stress because of continued issues with revelations about emissions cheating; most recently in Japan. The cost of meeting current emissions standards not to mention the tightening of regulations slated for the next few years represents a significant cost for just about all conventional car manufacturers. The fact the majority of manufacturers are planning on releasing electric vehicles is as much about responding to Tesla’s success as it is about the challenge of meeting regulations that are now going to be enforced.

A question Do we need to see a clear change of trend in the chart for Total known ETF holdings of gold before we take any uptick in the gold price seriously?

Thank you for this question which may be of interest to other subscribers. ETF holdings of gold are an important source of demand for the sector and had been trending higher for almost 18 months before the recent drawdown. That was indicative of retail investors coming back into the market and the drawdown suggests at least some have left. 

A link to the full report is posted in the Subscriber's Area.

The uranium market is in a unique position such that the world’s largest miner of the metal would rather buy on the spot market than mine itself. That says a lot about the marginal cost of production relative to current prices.

One of the requests subscribers have asked for most over the last few years has been to have an easy way to find what positions I have open at any given time. Therefore, I repost this section on a daily basis and the title will always include the date of my most recent trade.

In order to enjoy the sensation of sweetness, sugar molecules have to land on our sweet-tasting receptors, most of which sit on the tip of the tongue. But sugar is notoriously bad at actually hitting those receptors, so bad that only 20% actually makes it, the rest washing down our gullets and into the digestive system. This is one reason why many foods contain so much sugar. It’s also why a lot of food companies, in spite of their efforts, have found it difficult—even impossible—to reduce the amount of added sugar in their products while also maintaining the tastes people expect.

But a relatively new startup headquartered near Tel Aviv, Israel has developed a super-tiny method that may have cracked what has been an impossible code. In doing so, it sits on the cusp of changing the landscape of food manufacturing by making sugar so efficient that food companies can use 40% less while keeping tastes the same.

If companies can transition to using 40% less sugar that’s good for consumer health and the fight against diabetes but it’s really bad news for the sugar price over the medium term.

This was another highly enjoyable and educative trip to China for the Treacy family. One of the reasons we love visiting Guangzhou is because it is close to the factories Mrs. Treacy deals with but is also the gastronomic capital of China. The city is replete with wonderful dining options and the quality of food on offer is of a high standard. I’ll write a separate review of restaurants on another occasion.

This poster is in just about every public space from railway stations to the tube, to the barriers around building sites in Guangzhou. The first question I asked myself is why it needs to be in English as well as Chinese. Internet searches using English language terms do not return results even if one is using Baidu or other Chinese search engines and the vast majority of the domestic population does not read English. Therefore, the message is meant for a wider audience or the use of English is intended as a form of legitimisation of the ideals expressed.

Summertime, and the gold investing ain’t easy

Wisdom has it that the summer months – June, July and August – are the best time of year to buy precious metals (and their related stocks) with a view to offloading the following winter or in early spring.

It’s one of those trades that seems to work better in the rear-view mirror than it does in real time, however.

If you look back at a chart of gold you can usually find a low sometime in July, and then find a point between the following October and April, where the gold price was 10% or 20% higher, and then declare that the trade worked.

Buying the low and selling the high in real time is a rather trickier proposition. That said, it is do-able.

However, gold itself is currently in freefall. In April, gold was re-testing five-year highs at $1,360-$1,370 per ounce. There was a nice uptrend in place. Each low was higher than the last. Talk of inflation was doing the rounds again, and the solution was shiny, yellow-y metal.

Now it is some $130 lower at $1,227. Each low is lower than the last. Every attempt at a rally is anaemic. The trend is strong and the trend is down. To be buying now and attempting to play the “summer trade” is to try and catch a falling knife. Sometimes it works and the audience applauds – however the risk of self-injury is high.

Tuesday was particularly brutal. Gold’s enemy number one, the chairman of the Federal Reserve Bank, Jerome Powell, said that the economy was growing at a “solid pace”, that the unemployment rate was expected to fall further, that the recent pickup in inflation, toward the Fed’s 2% target, was “encouraging”.

The Fed has already raised interest rates twice this year and Powell pencilled in two more quarter-point moves. Stocks duly rallied (a bit), the dollar rallied – and gold took a $20 wallop in the face, sending it to two-year lows.

 

FullerTreacyMoney has a very varied group of people as subscribers. Some of you like to receive our views in written form, while others prefer the first-person experience of listening to the audio or watching daily videos.

The Big Picture Long-Term video, posted every Friday, is aimed squarely at anyone who does not have the time to read the daily commentary but wishes to gain some perspective on what we think the long-term outlook holds. However, I think it is also important to have a clear written record for where we lie in terms of the long-term themes we have identified, particularly as short-term market machinations influence perceptions.

FullerTreacyMoney has a very varied group of people as subscribers. Some of you like to receive our views in written form, while others prefer the first-person experience of listening to the audio or watching daily videos.

The Big Picture Long-Term video, posted every Friday, is aimed squarely at anyone who does not have the time to read the daily commentary but wishes to gain some perspective on what we think the long-term outlook holds. However, I think it is also important to have a clear written record for where we lie in terms of the long-term themes we have identified, particularly as short-term market machinations influence perceptions.

I realise this summary at 4600 words is getting rather lengthy which is why I decided to right another book to more fully explore the issues represented by the rise of populism and what that means for markets and the global economic order. I’ve agreed an August/September deadline so hopefully it will be available this year.

Relax, says Goldman Sachs -- enough has changed that a replay is unlikely. Bulls should take heart, says David Kostin, the firm’s chief U.S. equity strategist, because whatever euphoria infected markets in the first part of the year has long ago dissipated. Hedge fund clients who were aggressively positioned heading into April are more conservative now, with exposures sitting near the bottom of their 12-month range.

“Going into Q1 earnings season, it was peak optimism,” Jeff Schulze, an investment strategist at ClearBridge Investments in New York, said by phone. “Now you have exactly the opposite situation where that optimism has been converted to pessimism.

As long as companies can hit those estimates, I think the market will reward those, rather than punishing them.”

Fundamentally, the second quarter will look a lot like the first as far as results go. S&P 500 companies are forecast to report 20 percent growth from a year ago and sales are likely to rise 8 percent, mirroring the previous period, which was the best since 2011.

The media’s number one story today has been the tariffs and the prospect of an all-out trade war between China and the USA. At the same time the USA is entering into this situation while engaged in fiscal stimulus while China is tightening to close out speculation in the shadow banking system. That has contributed to very different performance in their respective stock markets.

Some 1,000 vessels are broken up every year and their steel and other metals are melted or simply stacked up and sold to factories. The yards in the Indian subcontinent recycle around 80% of all ships, with the remainder going to China and Turkey, although Beijing has said it will suspend scrapping starting next year.

The average age of VLCCs going to scrap this year is 18.8 years, the youngest since 2013, according to VesselsValue. A ship’s average operational age is around 25 years, but after 15 years in the water, the vessel has to go through an extensive survey to determine if it is seaworthy. “An average survey costs about $2 million, and you have to do it again at 20 years, so a number of owners opt to scrap instead,” Mr. Sharma said.

The oil glut is also sending offshore rigs to scrapyards. It is a relatively new business that has boomed over the past five years, as the cost of drilling at sea is much higher than inland exploration. At least 18 rigs have been broken up so far this year, compared with 46 last year, according to GMS.

The cost of maintaining a fleet of aging ships has risen considerably over the last few years because of the imposition of the long-awaited restrictions on bilge water discharge and environmental restrictions on diesel fuel. That is in addition to the cost of supporting vessels in a hostile maritime environment. These costs are helping to remove excess inventory from the market after a lengthy bear market.  

The average marginal cost of production for gold is currently about USD1,000 per troy ounce. What is it for silver? And its also per troy ounce? Thanks in advance.

Thank you for this question which other subscribers may also have an interest in. This article from AmericanBullion.com may be of interest. Here is a section:

By the 20th century, however, silver mining changed. A relatively small percentage of silver originates from traditional silver mines (approximately 25-33%, depending on the year). Nowadays, most of the world’s new silver comes from mines that focus on other metals. For example, a zinc mine in Mexico may pull out 65% zinc, 25% silver, and 10% lead. Since this mine would categorize as a “zinc mine,” the silver production is referred to as “byproduct metal.” Most new silver is byproduct.