Thursday, November 12, 2015 |
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New Lows are Popping Up Everywhere in Commodities ... Should You Worry?
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By Mike Larson | ||||||||||||||||
Just take a look at this chart of the London Metal Exchange Index. It tracks the performance of six base metals, including all the ones I mentioned earlier as well as tin and lead. You can see that it has weakened significantly since mid-2014 and is rapidly slumping toward the 2009 recession lows.
Then
there’s crude oil, a commodity that markets pay very close attention
to. It broke below $42-a-barrel today. That’s a level we haven’t seen
since three days after the stock market suffered its late-August
mini-crash.
What’s
going on? Start with lousy demand in China when it comes to base
metals. As I mentioned yesterday, industrial production rose only 5.6%
there last month. That was the slowest since 2008 in a country that’s responsible for about 40% of global copper demand, the most of any single nation.
When
it comes to oil, the Organization of Petroleum Exporting Countries
(OPEC) just noted that the world’s developed economies have a whopping
210 million excess barrels of oil on hand. That’s the highest in at
least a decade, and greater than the 180 million barrel surplus they had
in the depths of the Great Recession.
But I believe this is indicative of a
much bigger, much broader issue. We’ve seen trillions of dollars, euros
and yen worth of global QE. We’ve seen negative interest rates in some
countries, and promises of even more action every few months.
Yet
global growth remains anemic, with many countries mired in recession.
And as I just noted, the “stuff” that goes into all the products we use
is getting cheaper and cheaper by the day.
My advice? Same as it’s been for the past six months. Grab profits. Cut losses. Pare down overall exposure. Raise cash. And selectively hedge or target downside profits from vulnerable companies, sectors, and asset classes.
I just made two new moves in my Interest Rate Speculator
service, for instance, even as one of the large European banks I
previously targeted came within a couple of pennies of hitting a fresh,
multi-year low today.
Any additional thoughts on what these moves say (or don’t say) about the global economy? Let me hear about them at the Money and Markets website if you get some time today.
Reader John E. said: “I have a short position which expires 11/13, and these last couple of trading days have been a rough ride with the immense volatility. Shorting the market isn’t for everyone, indeed, there are days I’m one of those people.
“That
said, I’ve got my money on the table and your points are all cogent and
to the point. I believe investors fall into three camps in this market:
Hold on for a bumpy ride … hedge your positions … or sell what
unrealized gains you have and put into a 1 basis point money market. It
beats getting slaughtered if you have a shorter-term investment
horizon.”
Reader Billy
was even gloomier, saying: “The MACD or breadth problem of the market
is yet another in a massive number of canaries in the coal mine that
point directly to a bond, currency, and lastly a stock market crash
right around the corner. Many of us who have been looking at the markets
for literally decades have never seen the conditions as bad as they are
today from a macroeconomic, fundamental, technical, cyclical,
demographic and geo-political standpoint on a worldwide basis.”
But Reader Paul R.
countered by saying: “I’m not so glum as some who are speaking out. My
portfolio is mostly mutual funds that lean toward technology. My horizon
is long term, no day trading. Portfolio performance has been okay, but
not spectacular.
“I believe that the U.S. stock market
will weather the stormy periods as it always seems to, dropping
periodically and eventually coming back and setting new higher records,
stronger than before. I’m staying optimistic; for long-term investment,
there’s no better place than the U.S. stock markets.”
As for the underlying economy, Reader Richard highlighted one of the key challenges out there – slumping trade around the world. His take:
“Going with this trend, Maersk — the
world’s largest shipping company that delivers 15% of world shipping —
just laid off 4,000 workers, or 17% of their workforce. Third-quarter
profits were down 61% and the CEO said their forecast is down for the
coming quarter.”
Here in the U.S., Reader Jim
highlighted the challenges we face domestically by saying: “I have a
small business. The various levels of government are taking half of my
net now. Then I have mounting compliance costs. I am taxed directly and
then indirectly by having the currency debased.
“This cannot continue or there won’t
be any small business. All I hear is that I am selfish and not giving
enough. Where does it end? I don’t need the help of either party. I need
them to leave me alone.”
Thanks
for the different perspectives everyone — on both the markets and the
economy. I’ve made no secret about my concerns on both fronts. I’m also
continuing to highlight what’s going on “behind the scenes” in both
stocks and bonds because they raise very serious questions about the
health of the markets for the rest of 2015 and beyond.
We’ll
see if that approach ultimately proves to be right or wrong. But I
wouldn’t be as vocal as I have been if I didn’t believe there were very
real reasons to do so. In the meantime, you can add more to the
discussion by using this link.
● Sending money to a friend may get easier in the next several months, if Apple (AAPL) has its way. The tech giant is developing a person-to-person money transfer system that would eliminate the need for cash or check payments, and would function over Apple smartphones and iPads.
Several banks already offer similar
services, and they’re gradually gaining in popularity. It’s unclear how
Apple would make money from its offering at this early stage.
● Puerto
Rico is all but broke, and running out of options to cover payments on
its $70 billion in debt. The U.S territory’s government has to come up
with $720 million to make debt payments over the next couple of months,
and it’s also struggling to cover everything from salaries to retirement
benefits. Potential aid packages remain stalled in Congress, and the
clock is clearly ticking.
● Kurds
and Yazidis launched an offensive in northern Iraq to cut off ISIS
forces from their Syrian supply lines. By raiding the town of Sinjar and
taking control of a highway in the region, the U.S.-backed forces hope
to isolate the city of Mosul and the ISIS forces that took it over some
time ago.
● The
European Central Bank keeps hinting it will take more action in
December, but today, the stock market didn’t much care. Both European
and U.S. shares came under pressure anyway.
Some
of that is because the real world keeps intruding on the fantasyland
central bankers live in. The British aircraft engine maker Rolls Royce Holdings PLC (RYCEY) warned of weaker demand, causing its shares to plunge a whopping 19% — the worst one-day drop in 15 years.
But
could it also be because investors realize that cutting interest rates
further into negative territory, or buying European municipal and state
bonds in addition to national debt, will just be another useless step in
a process that obviously hasn’t done anything to boost inflation
or growth? After all, if the previous round of Euro-QE “worked,” why
the heck would the ECB need to do more of it just 18 months later?
Have
you used person-to-person money transfer systems, and if so, what do
you think of them? Will more Euro-QE accomplish something even as
previous rounds haven’t? Do you think the latest assault on ISIS will
push the terrorist group back? Feel free to weigh in on those or other stories online.
Until next time,
Mike Larson
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Mike Larson graduated
from Boston University with a B.S. degree in Journalism and a B.A.
degree in English in 1998, and went to work for Bankrate.com.
There, he learned the mortgage and interest rates markets inside and
out. Mike then joined Weiss Research in 2001. He is the editor of Safe Money Report. He is often quoted by the Washington Post, Reuters, Dow Jones Newswires, Orlando Sentinel, Palm Beach Post and Sun-Sentinel, and he has appeared on CNN, Bloomberg Television and CNBC.
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The investment strategy and opinions expressed in this article are those of the author’s and do not necessarily reflect those of any other editor at Weiss Research or the company as a whole. |
Friday, November 13, 2015
New Lows are Popping Up Everywhere in Commodities ... Should You Worry?
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