Commodities Collapsed Just Before The Last Stock Market Crash – So Guess What Is Happening Right Now? – The Economic Collapse 07-22-15

Salient to Investors:

Michael Snyder writes:

  • Global debt is at record highs, too big to fail banks have never been more reckless, and global financial markets have never been more primed for a collapse. Most people lack the patience to wait for long-term trends to play out so if the stock market is not crashing today, they think that everything must be fine.
  • Commodity prices crashed a few months ahead of the financial crisis of 2008, and we are seeing a repeat. The Bloomberg Commodity Index is down 26% over the past 12 months to a 13-year low. Copper, iron ore, aluminum, zinc, nickel, lead, tin and lumber prices are leading indicators and their falling prices are forecasting a global economic meltdown. The FTSE 350 Mining Index dropped to the lowest since 2009 this week. Gold and copper are near the lowest in at least 5 years, and crude oil is down to $50.
  • The Australian and Canadian dollars are at 6-year lows, and the Brazilian real is at a 10-year low all vs. the US dollar – all commodity resource nation currencies. The Indian rupee is at a 17-year low vs. the US dollar because manufacturing is slowing, and if Americans are not buying, the Indians, Chinese, Vietnamese are not making things.
  • The junk bond market collapsed a few months before the last stock market crash and junk bonds are starting to collapse again.

Andy Pfaff at MitonOptimal calls the commodity bear market a train wreck in slow motion.

Marc Faber at The Gloom, Boom & Doom Report sees a stock market decline of easily 20% to 40% and cites the growing number of companies trading below their 200-day moving average, stock declines leading advances, and the high number of new 12-month lows.

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The 2014 Contrarian Investment Tour, From Rupees to Copper – Bloomberg 12-10-13

Salient to Investors:

Lewis Braham writes:

Contrarian funds can be a hedge of sorts, though a potentially volatile one as out-of-favor sectors tend to be cyclical and prone to booms and busts. Shorting is inherently dangerous as markets have been trending higher.

Brian Singer at William Blair Macro Allocation Fund said currencies help diversify portfolios because they behave very differently from stocks and bonds. Singer recently put 19 percent of the fund in the Indian rupee which he says is undervalued by as much as 70 percent and India’s new central bank governor has already taken actions to stabilize it by raising interest rates. Singer uses financial derivatives to earn a 6 percent yield on the equivalent of a bank deposit. Individual investors can buy currency CDs – a 3-month FDIC-insured rupee CD from Everbank yields 7.25 percent. Singer is short the iShares Russell 1000 Growth ETF and long the iShares Russell 1000 Value ETF  and says people believe the US is the only source of growth and stability in the world but will be surprised in 2014 at how volatile growth stocks can be.

Don Hodges at the Hodges Pure Contrarian Fund is betting on coal, iron and copper mining stocks and said a recovery in the sector will begin when the Chinese work off their commodity inventories and begin buying again.

Jason Hsu at Research Affiliates said emerging market stocks are at a tremendous discount to US stocks. Hsu said the Shiller PE ratio for the S&P 500 is 24 versus its 16.5 average, versus 13.5 for emerging markets. Hsu is buying TIPS – TIPS with maturities of more than 20 years are yielding 1.5 percent over inflation, and is betting on a decline in large US stocks as well as on improved prospects for high-yield and emerging market bonds.

The BlackRock Municipal Target Term Trust trades at an 11.5 percent discount to portfolio value and yields 6.73 percent on a tax-free basis.

Rudolph Riad-Younes at RSQ International Equity Fund does not like gold because it trades closer to 20 percent above its cost of production versus 10 percent to 15 percent historically, and that cost will fall in the next 5 years, further driving down gold prices.

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Pesek’s View From Asia – Bloomberg 08-02-13

Salient to Investors:

William Pesek writes:

Former George Soros advisor Takeshi Fujimaki  said Abe delaying increasing Japan’s sales tax would worsen Japan’s debt profile, while Fed tapering would cause a fresh credit crunch that would slam Japan’s bond market.

When Li Ka-Shing, Asia’s richest man, is turning to Europe as Hong Kong property slumps you know things are bad in the greater China region.

Philippine bonds are rallying on speculation Moody’s will be the last of the three major rating companies to elevate the nation to investment grade. Markets are responding to resilient Philippine growth, an improving fiscal profile and a current-account surplus.

India is in a currency crisis. Societe Generale and Macquarie Bank are betting on new lows for the rupee and desperate measures by the central bank to tighten the cash supply. But saving the rupee will slam an economy already expanding at the slowest pace in a decade.

China getting unique help from the World Bank indicates China is keeping an open mind by reaching out to an institution often seen as an extension of the US Treasury Department, and is not just good for markets, but all of humankind.

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Nomura Sees Rates Backfiring on Auction-Flop Costs: India Credit – Bloomberg 07-22-13

Salient to Investors:

Nomura said:

  • The Reserve Bank of India’s surprise policy reversal and the first government debt-sale failures in 10 months risk plans to cut the budget deficit.
  • Vivek Rajpal at Nomura said India is expanding at the slowest pace in a decade and tightening by the RBI will cool growth and strain public finances – tight liquidity and low growth will persist.
  • Cut its growth estimate for India to 5 percent in the current financial year, matching last year’s decade-low.
  • India spends 35 percent of revenue servicing its debt.
  • The Food Securities Bill may boost food subsidies to as much 1.2 percent of GDP annually from 0.8 percent.

Dariusz Kowalczyk at Credit Agricole CIB said the rise in rates is negative in terms of debt-servicing costs and the fiscal outlook, and the price the government is paying for stabilization of the rupee is very severe.

Richard Iley at BNP Paribas said these measures necessarily intensify downside risks facing the economy, and unless they are temporary, they risk backfiring.

Moody’s said the RBI’s steps to bolster the rupee will negatively affect growth if high market rates persist

Radhika Rao at DBS said the finance minister has always wanted a more accommodative monetary policy as opposed to a more cautious RBI.

N.S. Venkatesh at IDBI said Indian bonds offer good value, and the 10-yr sovereign bond offers 5.61% over similar-maturity US Treasuries and may yield 7.90 percent in 10 days.

Sanjay Mathur at RBS said Indian bonds offer good value, and says the likely stabilization of the rupee means the RBI could start lowering the policy rate possibly from September Mathur says bond yields are set to moderate, a slow but rewarding process.

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Goldman Says Real, Lira, Rand Must Weaken to Close Trade Deficit – Bloomberg 06-21-13

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Themistoklis Fiotakis at Goldman Sachs said to curtail widening current account deficits, the Turkish lira, South African rand and Indian rupee would need to depreciate 30 percent on a trade-weighted basis, while the Brazil real and Chile peso need to fall 20 percent.

Fiotakis said the EM bond and FX selloff of the last month is likely to constitute only a small part of a longer trend for EM assets.

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Emerging Market Dominoes to Fall as SocGen Sees Rout – Bloomberg 06-03-13

Salient to Investors:

Tom Levinson at ING said emerging-market currencies are at the beginning of perhaps longer and deeper correction, while this is where the dollar starts to rally potentially for the right reasons because the US business cycle is further developed.

Kit Juckes at SocGen said the bull market is over for developing-nation currencies, with the rand, Mexican peso and Thai baht the first of a series of dominoes to fall, saying past sell-offs triggered by global policy tightening are pretty indiscriminate. Benoit Anne at SocGen said emerging-market currencies will remain under severe pressure for at least 3 months until fundamentals improve and the US Treasury correction to stabilize.

Murat Toprak at HSBC said the market has taken it very badly because how are you going to finance a widening of your trade deficit where investors are exiting local markets.

Bhanu Baweja at UBS said Bernanke is saying that tapering is not going to happen in a rush but at least the debate is beginning which is a very big deal.

The median analyst expects the lira to rise to 1.8 per dollar, the yuan to rise to 6.1 by year-end 2013, and the rupee to rise to 53.36 by year-end 2013.

IMF predicts China will grow 7.75 percent in 2013 and 8.2 percent in 2014.

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India Must Tap Household, Temple Gold to Reduce Imports – Bloomberg 12-12-12

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Bachhraj Bamalwa at All India Gems & Jewellery Trade Federation said Indian households and temples hold 25,000 metric tons of gold – 10 percent would ensure supplies to Indian jewelers for 3 years. Bamalwa said Indians will continue spending on gold on marriages and in festivals, and with no social security, investment in gold is like a social security.

India’s record current-account deficit, is mainly due to its gold and oil imports – gold imports for 80 percent. India’s official gold stockpiles are 557.7 tons versus world reserves of 31,491 tons.

Kishore Narne at Motilal Oswal Commodity Broker said the only way India can reduce its dependence on imports is to tap the gold lying with individuals and temples, since the appetite for gold is never going to diminish. Madan Sabnavis at Credit Analysis & Research said the only way to reduce gold imports is to increase the import tariff and hope.

Nilesh Shah at Axis Bank said lower gold imports would result in a stronger rupee, lower interest rates, higher liquidity, higher investments, higher employment generation, higher growth, higher tax collection, lower trade and fiscal deficit, higher credit rating and lower poverty levels.

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BRICs Biggest Currency Depreciation Since 1998 to Worsen – Bloomberg 06-25-12

Salient to Investors:

For the first time in 13 years, the real, ruble and rupee are weakening the most among developing-nation currencies, while the yuan has depreciated more than in any other period since its 1994 devaluation.

Investors are fleeing the BRICs, after Brazil’s consumer default rate rose to the highest level since 2009, prices for Russian oil exports fell to an 18-month low, India’s budget deficit widened and Chinese home prices slumped.

Lloyd Blankfein said the BRICs are still strong enough to account for 80 percent of growth at Goldman Sachs.

Warren Hyland at Schroder Investment Management is buying ruble bonds of Russian companies, saying weaker currencies will stimulate economic expansion by making exports more competitive.


Stephen Jen at SLJ Macro Partners is bearish, saying a slowing of the global economy and capital flow will expose many problems in the BRICs. He expects BRI currencies to decline at least 15 percent further by end of 2012.

John Taylor at FX Concepts said all the BRICs looked ugly, and predicted the real and ruble will suffer fairly decent declines later this year as a global recession spurs investors to buy dollars as a haven.

Derivatives traders see no sign of a turnaround.

Option traders are the most bearish on the ruble since October and they expect price swings in the rupee to be the biggest in Asia.

Amit Rajpal at Marshall Wace expects a surge in bad loans in Brazil to weaken the real further, and a full-blown credit problem, resembling the collapse of the U.S. subprime mortgage market in 2007.

Eric Fine at Van Eck Global said investors are still too bullish on assets in the BRICs as Europe’s debt crisis weighs on emerging economies.

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