Looking for the lifeboats – The Economist 09-19-15

Salient to Investors:

  • Both equities and government bonds are overvalued but are unlikely to fall in tandem. Long-term investors should ignore short-term market declines because over the long-term, asset prices rise – US equities overcame the dotcom bubble and 2008 financial crisis to reach record highs in 2015.
  • However, equities could be in for a long slow decline, a la Japan, the first rich country to fight deflation and zero interest rates. Japanese equities are still down 50% since the end of 1989, while bond yields have remained very low since the late 1990s. At least Japanese investors could have escaped into foreign assets, but that option is narrowing because all the developed world faces deflation, including emerging markets.
  • Robert Shiller at Yale said more investors fear US stocks are overvalued than at any time since 2000. Deutsche Bank says government bonds are the most expensive they have ever been.
  • AQR research found that:
    • In the 10 worst quarters for global equities between 1972 and 2014, equities lost more than 18% on average, bonds gained 4.8%, commodities and gold gained. Corporate bonds lost value, relative to government bonds.
    • In the 8 bad equity quarters since 1990, hedge funds lost and average of 5.2%, excluding trading costs and fees, but a combination of value, momentum, carry, defensive and trend-following strategies would have produced very good returns, excluding trading costs and fees.
    • In the 10 worst quarters for government bonds between 1972 and 2014, bonds lost 3.9% on average, while equities gained 3.5% on average thanks to a big gain in Q2, 2009, gaining in 6 of the 10, and commodities rose.
  • In the 10 worst quarters for government bonds, cash averaged a small gain.
  • Back-testing strategies is unsafe because there is no guarantee that they will be as successful in future.

Read the full article at http://www.economist.com/news/finance-and-economics/21665026-which-investments-work-best-when-markets-decline-looking-lifeboats

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What Happened The Last Time The Mainstream Media Unleashed The Anti-Gold Artillery – Zero Hedge 07-21-15

Salient to Investors:

Tyler Durden writes:

  • Jason Zweig at the Wall Street Journal recently described gold as “like a pet rock” and said owning gold was an act of faith.
  • An article by Floyd Norris in The New York Times in 1999 slamming gold was followed by a 650% rise in the price of gold over the next 12 years and by Greenspan last year calling gold the premier currency, unmatched by any fiat currency, including the dollar.

Read the full article at http://www.zerohedge.com/news/2015-07-20/what-happened-last-time-mainstream-media-slammed-gold

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Urgent Warning: 6 Signs the Great Crash Is Upon Us! – David Stockman’s Contra Corner -7-16-15

Salient to Investors:

Harry Dent writes:

  • All the signs point to the end of the global bubble. The greatest trigger will be the bursting of the massive, unprecedented China bubble. China’s stock market loss of 35% in less than 30 days signals its stock bubble has peaked: a drop of 30% to 40% in short order is a clear sign of the first wave down in a major bust and the greatest sign that the next great global crash is imminent.
  • China’s stock market will bounce in the coming weeks and then crash again, with real estate and its economy to follow.
  • The Greek default proves that endless quantitative easing idiocy has proved unable to create sustainable long-term recoveries in highly indebted developed countries with poor demographic trends. Greece did the wrong thing by again kicking the can a little further down the road.
  • US stocks could be the last major market to make a new high before rolling over.
  • Oil prices will fall, killing the fracking industry, a $1 trillion investment with $600 billion of junk bonds and leveraged loans – much larger than Greece.
  • Emerging markets have led the global slowdown and are about to break to the downside out of a 4-month trading range.
  • Long-term rates for sovereign and Treasury bonds are rising despite governments stimulating and guaranteeing their economies. Rising long-term, risk-free rates hurt stock valuations and real estate even harder due to higher mortgage costs.
  • Gold will continue to fall but will have a minor bounce.

Read the full article at http://davidstockmanscontracorner.com/urgent-warning-6-signs-the-great-crash-is-upon-us/?utm_source=wysija&utm_medium=email&utm_campaign=Mailing+List+Mid+Day+Friday

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China’s gold hoard will slay the mighty dollar – Daily Reckoning 06-27-15

Salient to Investors:

China last reported its gold reserves in 2009 at 1,054.1 tonnes, just 1% of the value of its foreign currency reserves, and less gold reserves than Germany, the IMF, Italy and France, and a fraction of those of the US.

Bloomberg Intelligence believes China’s reserves exceed 3,510 tonnes, which would be second only to the US.  Bloomberg says China may soon want to disclose its gold holdings in order to have the yuan join the IMF’s currency basket of dollar, euro, yen and British Pound.

China has $4 trillion in foreign currency reserves at a time when central banks are doing their utmost to devalue their currencies. China has called for a new currency to replace the US dollar as the global standard, so having assets other than currencies on its balance sheet makes sense.

The IMF estimates 63% of central bank reserves are held in US dollars, so an alternative currency could hugely decrease dollar demand and flood the market with dollars.

Read the full article at http://www.businessinsider.com/why-chinas-gold-hoard-will-slay-the-mighty-dollar-2015-6

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Gold Bulls Return as Wagers on Stimulus Accumulate: Commodities – Bloomberg 12-08-14

Salient to Investors:

  • Speculators boosted bullish gold bets to a 3-month high.
  • Frank Holmes at US Global Investors said gold prices have to rise because of the sheer size of the monetization of global debt – gold is insurance.
  • Jessica Fung at BMO Capital Markets sees very little prospect of a significant gold upside unless there is another financial crisis. Fung said markets have alternatives to gold and other assets which generate decent returns.
  • Michael Underhill at Capital Innovations said producers are holding back inventory and growing the herd, in swine as well as cattle and were able to feed and fatten them up with a bumper crop in corn in 2014.

Read the full article at http://www.bloomberg.com/news/2014-12-07/gold-bulls-return-as-wagers-on-stimulus-accumulate-commodities.html

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Gold Bulls Lured Back for First Time in Two Months: Commodities – Bloomberg 10-20-14

Salient to Investors:

  • Eric Zoldan at JHS Capital Advisors said that over the last two weeks, it is much clearer that while money is flowing out of all asset classes, it is not flowing out of the gold market, and that deteriorating global growth and demand is leading investors back to gold.
  • Bank of America Merrill Lynch lowered its 2015 outlook for gold to $1,225.
  • Rob Haworth at US Bank Wealth Mgmt said gold prices are indicating a short-term shift in market sentiment rather than a change in underlying fundamentals – US fundamentals remain good, while European fundamentals are not horrible, and the economic story is not falling apart.
  • Ashmead Pringle at GreenHaven Commodity Services said corn and soybeans have bottomed here for a while as the big harvest has been discounted, and the harvest still has a good way to go in the major corn areas,
  • American consumer confidence rose is at the highest in 7 years.

Read the full article at http://www.bloomberg.com/news/2014-10-19/gold-bulls-lured-back-for-first-time-in-two-months-commodities.html

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Investors Head for Exit as Commodities Extend Slump – Bloomberg 09-30-14

Salient to Investors:

  • Investors pulled the most money from US ETPs backed by raw materials since April.
  • US corn and soybean crops are the biggest ever, global stockpiles of nickel are at an all-time high, the US is producing the most oil since 1986, while China is headed for its slowest expansion in two decades.
  • The Bloomberg Commodity Index is set for a fourth straight annual loss, the longest slide since data began in 1991.
  • Societe Generale lowered its price forecasts for more than half of the 43 raw materials it tracks, and recommended shorting gold on rising US interest rates and a rising dollar, target below $1,000 over the medium-term.
  • Citigroup pared its outlook on crude oil, gold, corn and wheat.
  • Goldman Sachs still expects losses in copper and gold.
  • In August, Citigroup forecast the Arabica-coffee crop shortfall may leave a global production deficit lasting into 2016. Citigroup is bullish on palladium, copper, nickel, lead, coking and thermal coal, cocoa and coffee.
  • Deutsche Bank forecast commodities will end 2014 in a positive run with nickel, zinc and lead outperforming.
  • Donald Selkin at National Securities said certain markets are bullish because of supply issues, including cattle, nickel and coffee, while the worst may also be over for the big three – gold, crude oil and grains.
  • Jeffrey Currie at Goldman Sachs expects gold to fall to $1,050 by year-end, copper to fall to $6,200 a metric ton over 12 months due to a major increase in stockpiles.
  • The IEA said global oil demand will weaken because of weaker growth in China and Europe, rising exports from Libya, and booming US output, all outweighing potential output disruptions in Iraq.
  • Economists expect China to grow 7% in 2015, the slowest rate since 1990.
  • Quincy Krosby at Prudential Financial said you need growth in China to support a rally in raw-material prices.

Read the full article at  http://www.bloomberg.com/news/2014-09-29/gluts-spur-investor-exit-signaling-prolonged-price-slumps.html

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Gold Bulls Extend 2014 Exit as Slump Erases $6.7 Billion – Bloomberg 09-22-14

Salient to Investors:

  • Gold held in ETPs are the lowest in 5 years, gold’s 60-day volatility is near a 5-yr low, and open interest near the lowest since 2009.
  • Brian Levitt at OppenheimerFunds sees no compelling reasons to be in gold, and said no inflationary pressures and a Fed that will tighten sooner than most of its trading partners portends a strong dollar and weaker gold prices.
  • Aram Shishmanian at the World Gold Council said the expansion of trading hubs in Asia will boost demand in China by 20% in 3 years.
  • George Gero at RBC Capital Markets sees a gradual return of retail buyers, says the gold price is very attractive, and expects more buying out of China and India ahead of the festival and marriage season. Gero cites much political turmoil in 2014, and says people want to hedge the bad things happening in the world.
  • Mayer Cherem at Pacific Alternative Asset Mgmt said everything comes back to fundamentals in the agricultural sector – the global crop situation is very comfortable, and there are expectations of big harvests for most crops – and sees much more downside in soybean prices, and weaker corn prices.

Read the full article at  http://www.bloomberg.com/news/2014-09-21/gold-bulls-extend-2014-exit-as-slump-erases-6-7-billion.html

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Silver ETP Buyers Defy Hedge Fund Exit Amid Price Slump – Bloomberg 09-18-14

Salient to Investors:

  • Silver ETP holdings are near October’s record while money managers reduced bullish wagers by 95% – Coeur Mining has hedged a third of its production through Q1 2015.
  • Retail investors account for 80% of US ETP purchases and expect long-term growth to spur industrial demand from solar panels to electronics.
  • Michael Cuggino at Permanent Portfolio Family of Funds said the rise in the dollar has hammered commodities, including silver, and the funds and several investors are selling, while long-term investors are holding on it as a store of value and as a significant metal to the economy and monetary policy.
  • Peter Jankovskis at OakBrook Investments said, unlike gold, buyers of silver ETFs are not momentum players and will hold it much longer than gold – in 2013 ETF investors did not flee like they did with gold ETFs. Jankovskis does not see many wanting to buy precious metals, and the fundamentals of supply/demand are against silver because supplies are abundant.
  • Silver’s 60-day historical volatility is the lowest since June 2003, while gold’s is the lowest in almost 4 years. Silver’s 30-week correlation coefficient to gold is at 0.82 and to an index of industrial metals is at 0.27.
  • Mark O’Byrne at GoldCore said sentiment remains bad in the silver market, but buyers see silver as undervalued versus gold because they worry about recession but expect industrial demand to stay robust.
  • The median analyst expects silver will averaging $20 in Q4 and $20.40 in 2015.
  • Mike McGlone at ETF Securities said retail buyers are holding silver because they expect increased demand will boost prices.
  • Michael Haynes at American Precious Metals Exchange said silver’s appeal has increased relative to other precious metals. An ounce of gold buys 66 ounces of silver versus the 10-yr average of 57.7 ounces.
  • CPM said industrial demand will rise this year, with the most ever being used in solar panels. 50% of silver goes to industrial items, versus 10% for gold.  CPM said demand will continue to trail supplies for 9 straight years.
  • Randy Smallwood at Silver Wheaton said demand is growing for silver used in high-efficiency electronics and anti-bacteria applications.

Read the full article at http://www.bloomberg.com/news/2014-09-17/silver-etp-buyers-defy-hedge-fund-exit-amid-price-slump.html

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Gold-Price Indicator Fading as ETPs Tumble by $71 Billion – Bloomberg 08-28-14

Salient to Investors:

  • Gold prices and gold ETP holdings have the most-negative correlation since 2004, making the latter less useful as market predictors..  Mark Luschini at Janney Montgomery Scott said the disconnect is because a lot of money has left.
  • Comex open interest fell to a 5-yr low this month and volatility is near a 4-yr low. The CBOE Gold ETF Volatility Index is down 41% in 2014, touching a 15-month low in June.
  • Goldman Sachs said gold will drop to $1,050 in 12 months.
  • Tom Kendall at Credit Suisse said 2014 ETF flows have been much lower than in 2013 as investors focus more on equities, and the perception of systemic financial risk has fallen considerably.
  • Dan Denbow at USAA Precious Metals & Minerals Fund said steady buying of ETFs will translate into supporting prices in the long-term.
  • John Paulson’s SPDR stake has been  unchanged for 4 straight quarters, but still down 68% since 2009. George Soros and Daniel Loeb sold their entire positions in Q2 2013. Barclays forecast a drop of 100 tons from the gold funds in 2014.
  • Sameer Samana at Wells Fargo Advisors said changes in ETF holdings are no longer a factor influencing gold prices. and geopolitical worries are not a permanent concern. Samana said a stronger dollar will push prices down, after which retail investors will start exiting the market again.

Read the full article at http://www.bloomberg.com/news/2014-08-27/gold-price-indicator-fading-as-etps-tumble-by-71-billion.html

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