The Free Market Is Dead – Goldman Says China Is A Buy! – David Stockman’s Contra Corner 07-20-15

Salient to Investors:

Michael Pento at Pento Portfolio Strategies writes:

  • In not allowing participants to sell stocks, China has fallen off the free market wagon. The same China that believes that economies grow by building empty cities.
  • China’s actions are the antithesis of capitalism and free markets so it shocking to see Wall Street applaud the Chinese moves to keep the bubble afloat. Goldman Sachs says that 40 years of statistical data indicates a standard bull market correction and not a bear market and is urging investors to buy. Puzzling is where Goldman got 40 years of honest and consistent data from China, and when before did China expand its debt by $20 trillion dollars in just 8 years.
  • China has now created a market where money can move in but cannot easily move out, if at all, and so all technical and fundamental analysis goes out the door.
  • There are no free markets left in the world, and most on Wall Street prefer it that way. In this new world, stocks never go down, companies never fail, and countries never default on their debt – central banks just print all the problems away. Central bankers do not understand how markets and economies work, just how to print more money.
  • There is no better place to live than in a free market Capitalist economy, and only when one veers from this model, as in the past 7 years, does wealth inequality balloon. People have willingly handed over the markets, economies and the structure of the family to governments, which can only lead to stagflation, economic collapse and chaos – the ultimate fate of the entire developed world.

Read the full article at http://davidstockmanscontracorner.com/the-free-market-is-dead-goldman-says-china-is-a-buy/?utm_source=wysija&utm_medium=email&utm_campaign=Mailing+List+AM+Tuesday

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More Job Losses Coming To U.S. Shale – OilPrice.com 07-16-15

Salient to Investors:

Gaurav Agnihotri writes:

  • The short to medium-term outlook for oil is mostly bearish. The Iran nuclear agreement, Greece, high OPEC production, and China’s market turmoil make an oil price rebound highly unlikely in the near future. Low oil prices will most likely result in more job losses.
  • The US shale sector is already dealing with rising debt and the ever-increasing risk of default. Surprisingly, a recent IHS study revealed that sector has been boosting job creation in addition to supporting around 1.7 million jobs in US. Most US shale industry hedges on production are about to expire.
  • Saudi Arabia is very worried about the coming shale boom in Argentina. George Soros, Warren Buffet, major hedge funds et al are watching as Argentina’s huge undeveloped shale reserves have just opened up to outside oil companies.
  • Goldman Sachs predicts WTI will fall to $45 a barrel by October, making almost a third of US shale oil too expensive to produce, and $50 oil deterring any US drilling recovery this year.

Read the full article at http://oilprice.com/Energy/Energy-General/More-Job-Losses-Coming-to-US-Shale.html

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Goldman: Here’s Why Oil Crashed—and Why Lower Prices Are Here to Stay – Bloomberg 02-11-15

Salient to Investors:

Sven Jari Stehn at Goldman Sachs said:

  • The massive supply shock in half2 2014 accounted for most of the oil price decline, joined by slowing demand in December and January.
  • Since the stock market is a good indicator of economic demand, when stocks move in tandem with oil prices, demand is the driver: when oil prices move in the opposite direction of stocks, supply is the driver.
  • The new equilibrium price of oil will be much lower than over the past decade as a result of the oversupplied global oil market.

Read the full article at http://www.bloomberg.com/news/articles/2015-02-11/goldman-here-s-why-oil-crashed-and-why-lower-prices-are-here-to-stay

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These Experts Know Exactly Where Oil Prices Are Headed – BloombergBusiness 02-06-15

Salient to Investors:

  • Gary Cohn at Goldman Sachs predicts oil will decline to as low as $30.
  • Astenbeck Capital Mgmt said shale oil will soon be needed to make up for global production declines, pushing US prices to as high as $65.
  • Giovanni Staunovo at UBS says oil is yet to bottom.
  • Bill O’Grady at Confluence Investment Mgmt says we are bottoming, with $60 the pivot point in the long run.
  • Miswin Mahesh at Barclays sees oil as low as $30 because supply surpluses will not disappear overnight.
  • Edward Morse at Citigroup sees oil as low as $20 and the recent surge just a head-fake, but expects a rebound to $75 in Q4 2015.
  • A Bloomberg Intelligence survey of 86 investment specialists predict the 2015 average price to range anywhere from $35 to $80.

Read the full article at http://www.bloomberg.com/news/articles/2015-02-06/these-experts-know-exactly-where-oil-prices-are-headed

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Fed’s Two Jobs Collide as Drop in Unemployment Vies With Inflation – Bloomberg 11-18-14

Salient to Investors:

  • The median economist expects the jobless rate by June 2015 to be very near the 5.2%-5.5% range considered full employment, while the Fed’s preferred inflation gauge will not have budged from its current 1.4%.
  • 27 of 50 economists say unemployment at 5.5% or lower would prompt the Fed to tighten policy in mid-2015, while the other 23 say inflation below the Fed’s 2% goal would persuade it to hold off.
  • 53% of economists expect higher energy prices by mid-2015, 10% expect a further drop, and 37% see little change.
  • The personal consumption expenditure price index is projected to increase 1.4% in the year through June 2015.

Neil Dutta at Renaissance Macro Research said:

  • Employment is the dominant consideration in Fed policy, so expect a rate increase in June, perhaps earlier.
  • The drop in oil prices is primarily a function of a supply shock due to increased production from the US and Libya rather than diminishing demand, and is therefore less threatening to the inflation outlook.
  • The average hourly earnings series is not the best measure for labor costs.

Lou Crandall at Wrightson ICAP expects changes in conditions that make a higher inflation forecast plausible by mid-2015, including a pickup in wage growth and the end of falling commodity prices.

Stuart Hoffman at PNC Financial Services expects the Fed to start raising rates in July 2015 because it takes time for a tightening labor market to lead to a pickup in pay and then inflation.

Jan Hatzius at Goldman Sachs said:

  • Fed policy makers will not be quick to dismiss a shortfall in their inflation goal in deciding when to increase rates even as employment gains traction because the risks of a later liftoff have risen because inflation is the one area where the global market turmoil has shifted the outlook.
  • The impact on prices from a reduction in the unemployment rate is less precise and timely than the more direct effect of a drop in commodity prices
  • The Fed will start increasing rates in September 2015.

Sharon Stark at DA Davidson:

  • The first Fed rate increase will come in early 2016 because of mounting concern over too-low inflation.
  • Wage growth in the 3%-3.5% range is needed to give consumer spending and the economy enough of a boost to underpin inflation, and that is unlikely until unemployment falls below 5%.

Doug Handler at IHS Global Insight said:

  • The first Fed rate increase will come in June 2016, as rate volatility pressure will start weighing heavily in Fed decision-making.
  • To show that we can survive the onset of higher interest rates without an economic apocalypse is very important for business confidence.

Read the full article at http://www.bloomberg.com/news/2014-11-18/fed-dual-mandates-collide-as-drop-in-jobless-vies-with-inflation.html

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Hedge Funds Cut Bullish Bets on Crude as Prices Tumble – Bloomberg 10-20-14

Salient to Investors:

  • Hedge funds cut bullish wagers on oil by the most in six weeks, while short positions rose to the highest level.
  • John Kilduff at Again Capital said oil prices reflect speculation that further declines are more likely.
  • IEA said US crude production will climb to the most since 1970.
  • Bank of America and BNP Paribas predict oil prices will hold above $80 a barrel.
  • Jeffrey Currie et al at Goldman Sachs is near-term constructive about prices, saying the drop is excessive because there is no oversupply.
  • Tim Evans at Citi Futures Perspective said we have seen the peaks in downside momentum and the fear factor, though prices may grind lower to test $80 again.
  • Stephen Schork at Schork Group said it is a good time to buy because the market has found support around $80, there are so many people short, and the turnaround season is coming.

Read the full article at http://www.bloomberg.com/news/2014-10-19/hedge-funds-cut-bullish-bets-on-crude-as-prices-tumble.html

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Goldman Sees Global LNG Projects at Risk as Demand Growth Slows – Bloomberg 10-01-14

Salient to Investors:

Mark Wiseman et al at Goldman Sachs said:

  • LNG projects in Africa, Canada and Australia face delays or cancellations as global demand slows, US output increases, nuclear reactors restart in Japan, China’s success in shale-gas E&P, and economic conditions in ASEAN.
  • Global demand will compound at 5% annual by 2020, and 4% annual by 2025.
  • The window for US LNG is limited and the US will not be spared from the pull-back.
  • Papua New Guinea has the lowest risks as it expands LNG production.
  • Overseas, Papua New Guinea and East Africa may be the best placed regions to compete on cost competitiveness, while the industry has renewed its focus on capital discipline.
  • Expect strong demand growth in Asia led by China and ASEAN nations – due to strong economic growth, urbanization, and declining local gas supplies – with modest growth from India, South Korea and Japan.
  • China is driving increased gas use, especially in residential and industrial consumption, and transportation. However, gas-fired power generation capacity is not a high priority in China given the lack of competitively priced supply compared with other feedstock.
  • LNG demand in Thailand, Singapore, Philippines, Indonesia, and Vietnam will continue to grow.
  • Read the full article at http://www.bloomberg.com/news/2014-10-02/goldman-sees-global-lng-projects-at-risk-as-demand-growth-slows.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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Dollar Rally to Gain Fuel as ECB Talks Stimulus, Goldman Says – Bloomberg 09-25-14

Salient to Investors:

Robin Brooks at Goldman Sachs said:

  • The dollar’s rise is small in historical and economic terms as many traders wait/hope for a pull-back which won’t come.
  • Euro-dollar levels are not remotely pricing in the kind of balance sheet expansion that Draghi talked about in September, so future ECB press conferences will trigger more euro-dollar downside – to $1.25 in 6 months and parity by the end of 2017.
  • Factors ranging from monetary-policy divergence to inflation trends indicate the dollar’s rally against its major peers during the past 4 months has room to continue.
  • Recent dollar strength has been an unusual confluence of idiosyncratic trends, and as Fed forward guidance fades, we will see real dollar strength.

Read the full article at  http://www.bloomberg.com/news/2014-09-25/dollar-rally-to-gain-fuel-as-ecb-talks-stimulus-goldman-says.html

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Housing to Top Capital Spending in Next U.S. Growth Leg: Economy – Bloomberg 09-23-14

Salient to Investors:

Jan Hatzius at Goldman Sachs said:

  • Home construction will grow 10% to 15% by 2015-2016, while capital spending will fall to 5%, a reminder of how very different this recovery is.
  • It is unusual for a housing recovery to lag a capital-spending recovery.
  • Gains in business investment have helped better align the stock of equipment and structures with the economy’s potential growth rate
  • Long-term, the potential GDP growth rate is 2 to 2.25%.
  • Goldman Sachs analysts see the demand for new houses reaching 1.5 million to 1.6 million a year, in part because millennials will start families and become more open to home-ownership.

Ellen Zentner at Morgan Stanley said:

  • An upturn in homebuilding brings a more viable expansion with a longer life, while capex is more exposed to the ups and downs of global markets and tepid US demand. Zentner said there is a lot of recovery left in housing.
  • Companies lack the urgency to expand much beyond replacing aging equipment and machinery, while outlays on technology have been fairly resilient since the recession, leaving less room for further gains.
  • Business investment will expand 4% to 5%, and companies feel they are meeting aggregate demand with the proper capital and labor.
  •  65% of cash on US corporate balance sheets is held abroad, and companies are directing more money toward mergers and acquisitions or betting on overseas markets.

Michelle Meyer at Bank of America said:

  • Homebuilding – 3% of GDP versus 12% for capex – matters because of its broader linkages that feed back into the economy to spur household spending, wealth, hiring, and confidence.
  • Expect a bumpy but higher housing recovery, fed by tailwinds from improving employment, credit and historically low mortgage costs – we do not have the housing stock to meet demand so housing has not plateaued here
  • The jury is still out in how quickly capex will accelerate.

Joe Carson at AllianceBernstein expects a powerful cycle for business investment, helping stem the productivity slowdown that has restrained growth. He said companies will find reason to invest in the US in the next decade because the spillover from the domestic energy boom is still nascent, state governments have a growing ability to fix aging infrastructure, and companies have to invest to boost profits.

Guy LeBas at Janney Montgomery Scott said the potential negative impact of Fed tightening could be big, so CFOs do not want to embark on long-term projects now.

Read the full article at http://www.bloomberg.com/news/2014-09-23/housing-to-outrun-capital-spending-in-next-leg-of-u-s-growth.html

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