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David Fuller and Eoin Treacy's Comment of the Day
Category - Precious Metals / Commodities

    Copper Rises on China, Trimming Big Quarterly Slump

    This article from Bloomberg news may be of interest. Here is a section:

    Copper climbed as a strong rebound in Chinese manufacturing bolstered the outlook for demand, trimming the industrial metal’s biggest quarterly drop since 2011.

    China’s official purchasing managers’ index rose this month, up from a record low in February, signaling the world’s second-largest economy is restarting. While the outlook remains uncertain as the country faces a growing threat from slumping external demand, production cuts at major mines around the world are shoring up sentiment for copper.

    The metal extended gains after President Donald Trump called on Congress to provide $2 trillion for infrastructure spending in the U.S.

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    James Grant 'Nobody Knows Anything'

    Thanks to a subscriber for the transcript of this interview conducted by Sprott Asset Management which may be of interest. Here is a section:

    JG: Yes, yes. Patience is absolutely in order and also gold is … you know, I confess I’m a gold bug and I blurted it out — gold — before you even asked the question. Yes, but it’s not to the end of emulating Scrooge McDuck. That’s not the point.

    The point is to have liquid wealth available when opportunity presents itself. Gold is many things but it’s not regenerative. And there’s nothing as an investment like a well-priced, successful, profitable well-financed business. So, what you want is gold for opportunities. You also want it, not so much as a hedge against monetary disorder because we have that, you want it as an investment in monetary disorder. That’s a second reason. So, I guess that’s a little bit of Scrooge McDuck reason but I hold it for those two reasons. I think that it’s going to be helpful for both.

    I look forward to liquidating some of my gold bullion, as modest as that stack of coins is. I look forward to, at some point, liquidating that, if I have the nerve and the opportunity to accumulate something that is going to be yielding dividends and cash flow. But the other portion, well I think, I hope, I’ll never sell — that’s the bottom dollar: an investment in the evident tendency of monetary affairs. The arc of monetary evolution points to greater and greater interventions, more radical policy which begets still more radical policy, financial repression and more of that. We got more QE this week than they did under the Bernanke Fed.

    So, to me the arc of this is very clear and you want gold, both for the inevitable spills in the market for financial assets as well as for the seemingly inevitable destruction, or certainly impairment, of the government-issued money. Those are my reasons.

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    U.K. Virus Aid Package Beats Financial Crisis Stimulus

    This article by Alex Morales, Lucy Meakin and Andrew Atkinson for Bloomberg may be of interest to subscribers. Here is a section:

    The coronavirus crisis has transformed the fiscal landscape at a stroke. Britain was on course for a budget deficit of 55 billion pounds in the fiscal year starting April. Now, according to the Institute for Fiscal Studies, borrowing could be as much as 200 billion pounds as an economy on course to shrink at least 5% this year hammers tax revenue and drives up spending on welfare.

    That could leave the deficit just below the 10% reached in the aftermath of the financial crisis and push up already elevated debt levels.

    The chancellor announced his first economic package to deal with the outbreak when delivering the budget on March 11, unveiling 12 billion pounds of measures to mitigate the effects of the outbreak on the economy.

    As evidence mounted that the crisis was snowballing, he followed up with a 350-billion pound stimulus package comprising government-backed loans as well as 20 billion pounds of grants and tax cuts for struggling companies.

    Then, last Friday, he announced 7 billion pounds of extra welfare spending and said the government would pay 80% of salaried employees’ wages up to a maximum of 2,500 pounds a month -- a plan Bloomberg Economics estimates will cost 17.5 billion pounds.

    Announcing further details of the job-retention program today, the Treasury said the government will also cover employers for the National Insurance and minimum auto-enrolment pension contributions of furloughed workers, saving firms 300 pounds a month per employee on average.

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    Enevate's silicon-anode batteries promise ultra-fast EV charging

    This article by Loz Blain for New Atlas may be of interest to subscribers. Here is a section:

    With some US$111 million in investment from major companies, including LG, Samsung, Mitsubishi, Renault and Nissan, Enevate now says its cells are ready for the big time. In an interview with Charged EVs, Park said Enevate is designing packs for the 2024 and 2025 model years to get its cells into consumer products with major manufacturers. There are no announcements around who or what exactly they're making packs for, but the list of companies above may be instructive.

    As far as we're aware, though, the infrastructure to support blast-charging at the kinds of rates we're talking about here simply doesn't yet exist. Tesla's V3 superchargers are currently capable of blast-charging a Model 3 at 250 kilowatts, which would give you around 133 km (83 mi) of range in five minutes.

    These batteries would charge three times faster, at around 0.75 megawatts, which is a huge power draw. An alternative method might involve trickle-charging massive supercapacitors all day at slower rates so they've got enough energy to supply the cars super-quickly when they need it, but we're yet to see anything like that in action, and the size of those supercapacitors might end up being prohibitive.

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    Fed Set to Launch Multitrillion Dollar Helicopter Credit Drop

    This article by Rich Miller for Bloomberg may be of interest to subscribers. Here is a section:

    “The Fed has effectively shifted from lender of last resort for banks to a commercial banker of last resort for the broader economy,” said JPMorgan Chase & Co. chief U.S. economist Michael Feroli.

    The coming rain of credit -- historic in both size and scope -- will be made possible by $454 billion set aside in the aid package for Treasury to backstop lending by the Fed. That’s money the central bank can leverage to provide massive amounts of financing to a broad swathe of U.S. borrowers.

    “Effectively one dollar of loss absorption of backstop from Treasury is enough to support $10 worth of loans.” Fed Chairman Jerome Powell said in in a rare nationally-televised interview early Thursday morning. “When it comes to this lending we’re not going to run out of ammunition.”

    He told NBC’s “Today” show that the Fed was trying to create a bridge over what may well be a substantial decline in the economy in the second quarter, to a resumption of growth sometime in the latter half of the year.

    “It’s very hard to say precisely when that will be,” he said. “It will really depend on the spread of the virus. The virus is going to dictate the timetable here.”

    While the Fed can help by keeping interest rates low and ensuring the flow of credit, “the immediate relief” for Americans will come from the Congressional aid package, Powell said. The bill includes direct payments to lower- and middle-income Americans of $1,200 for each adult and $500 for each child.

    Combined with an unlimited quantitative easing program, the Fed’s souped-up lending facilities are set to push the central bank’s balance sheet up sharply from an already record high $4.7 trillion, with some analyst saying it could peak at $9-to-$10 trillion.

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    Gold Investors Are Betting It Really Is 2008 All Over Again

    This article by Elena Mazneva and Ranjeetha Pakiam for Bloomberg may be of interest to subscribers. Here is a section:

    “If its price trajectory proves similar to 2008, we could see the precious metal’s benefits resurging as market stress continues to assert itself,” said Catherine Doyle, an investment specialist in the real-return team at Newton Investment Management. “We continue to have significant exposure for this very reason.”

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    Precious Metals: Navigating uncertain times

    Thanks to a subscriber for this report from RBC Capital Markets which may be of interest. Here is a section:

    Fed Has Acted Yet Dollar Funding Markets Remain Under Pressure

    This article by Alexandra Harris for Bloomberg may be of interest to subscribers. Here it is in full:

    Over the past week, the Federal Reserve has hit the U.S. dollar funding markets with a barrage of liquidity and tools to ensure they remain lubricated. Yet indicators of funding stress are still showing pressure.

    In an emergency action Sunday, the central bank slashed interest rates to zero, adjusted the parameters of global dollar swap lines, in additional to offering trillions of dollars of liquidity via operations for repurchase agreements. Here’s what some of the key metrics have to say about the level of distress in the financial system:

    Despite the Fed action, the repo market remains volatile. At one point during Monday’s trading session, the rate for overnight general collateral was around 2.50%, according to ICAP, which is well above the central bank’s new target range for the fed funds rate of 0% to 0.25%. While the bid-ask spread is now around 2%/1.25%, the central bank said it plans to conduct another overnight repo offering of up to $500 billion.

    Cross-Currency Basis Swaps
    The Fed on Sunday also lowered the rate on its U.S. dollar liquidity swap lines in coordination with other central banks. As a result, the three-month cross-currency basis for dollar yen -- a proxy for how expensive it is to get the greenback -- briefly spiked to its widest on record Monday in Asian trading before pulling back, according to Bloomberg data since 2011. Strategists at Bank of America believe volatility may persist until the Fed fixes the commercial-paper market and there are “more avenues available to secure USD funding.”

    Libor-OIS
    The gap between the London interbank offered rate and overnight index swaps expanded Monday to the widest level since 2009, led by an increase in Libor’s three-month tenor.

    Widening: QuickTake
    Rates on three-month commercial paper for non-financial companies reached the highest level since the financial crisis relative to OIS. This suggests companies may be having difficulty selling commercial paper, as they tend to do during times of stress. As a result, Wall Street strategists expect the Fed to announce a resurrection of a crisis-era facility for commercial paper.

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    Risk Parity Trade Made Famous by Ray Dalio Is Now Ringing Alarms

    This article by Justina Lee for Bloomberg may be of interest to subscribers. Here is a section:

    Vontobel Asset Management’s risk-parity product has cut its stock position from 140% about a month ago to around 28%, while its bond exposure remains around 260%, says head of multi-asset Daniel Seiler.

    “You reduce your volatility with a negative correlation and if that is not the case anymore, you will obviously need to reduce the volatility with a different measure and this could deleverage your whole portfolio,” he said from Zurich, referring to the link between bonds and shares.

    On a positive note, for both asset classes to fall in tandem for an extended period, “what you would need is an inflationary shock and at the moment I don’t see that at all,” Seiler added.

    With bond yields now so low, there are others on Wall Street who may disagree.

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