"When misguided public opinion honors what is despicable and despises what is honorable, punishes virtue and rewards vice, encourages what is harmful and discourages what is useful, applauds falsehood and smothers truth under indifference or insult, a nation turns its back on progress and can be restored only by the terrible lessons of catastrophe." … Frederic Bastiat

Evil talks about tolerance only when it’s weak. When it gains the upper hand, its vanity always requires the destruction of the good and the innocent, because the example of good and innocent lives is an ongoing witness against it. So it always has been. So it always will be. And America has no special immunity to becoming an enemy of its own founding beliefs about human freedom, human dignity, the limited power of the state, and the sovereignty of God. – Archbishop Chaput


Wednesday, June 4, 2014

Dueling Economic Data

There were two pieces of economic data released this morning, both of them conflicting ( figures!). The first was the ADP private sector jobs data. It came in at 179,000 for May, well below the market expectation near 220K. That sent bond yields falling. Many market players regard the ADP data as a type of proxy for the government's nonfarm payrolls number and tend to extrapolate that report from this one.

Then the ISM ( remember our pals from earlier this week with the double screw up on the manufacturing number?) came out with the Service sector reading for May. They reported the number rose to 56.3 from last month's 55.2. That sent bond yields moving higher along with the US Dollar.

Once again the pattern of mixed economic data continues as it results in traders, particularly trend following hedge funds, getting whipsawed back and forth as the market responds to one set of data only to reverse on another.

There was a story today on the wire feeds detailing how Chinese officials now appear to be getting ready to crack down in earnest on copper-backed loans. That news sent copper prices lower. Authorities there closed down the third largest port in China, Qungdao, in order to dig deeper into possible warehouse fraud involving copper and aluminum.

Traders fear that those same authorities will force the deals involving the metal, which is used as the loan collateral, to be closed out meaning that the copper in storage will be available for sale into the market. That would send an additional supply out driving prices lower. Those traders selling are obviously convinced that this is going to happen.

Here is the most recent Commitment of Traders report for Copper. Do you recall that I posted this chart up a couple of weeks ago noting the huge disparity between the positioning of the largest speculators in the market? Guess what? That disparity has grown even larger. I noted previously that it is rather uncommon to see the LARGE speculative forces so greatly divided and at odds over their bets as to which way the market is going to move. One side or the other in this copper market is going to be proven to be quite wrong. Over the last week of trading, the hedge funds have been wrong while the "Other Large Reportables" category has been dead on target.

Depending on what we get out of the ECB tomorrow and what we get on the payrolls front this Friday, copper could move higher but this development in China is a big deal.

One of the concerns I have when it comes to gold is that the same thing has occurred with the yellow metal. It is often used as collateral for bank loans in China. The last thing that gold needs at this time is an additional supply hitting the market. If the market were to get wind of anything like what is happening to copper is heading towards gold, prices will fall. I have seen some pretty scary estimates as to how much gold is possibly being used as loan collateral in China. So far it is a non-factor but with any potential market moving event, we need to stay attuned to things that might develop on this front.

As far as market price action today goes, traders are not going to get aggressive ahead of that ECB meeting tomorrow. The result has been a narrow range for gold today with little to speak of. From a technical standpoint however, the market continues to hold above support near $1240 but thus far has been unable to gain much, if any, upside traction.

Old crop soybeans continue their roller coaster ride. Wheat finally managed a bounce today as US wheat prices appear to be getting somewhat more competitive. Also, some excessively heavy rains in certain parts of wheat country during the harvest has raised a few concerns that it might be harmful to wheat quality. The result has been a technical bounce higher.

Some of those same rains are working their way across the corn belt and that is improving prospects for a large corn and bean crop. The tightness in the old crop bean carryover however continues to impact the entire soybean market, both old crop and new crop and will probably continue to do so until we get rid of the July contract. I still wonder if we are going to see the commercials squeeze the bears during the July delivery period. They have pulled this stunt regularly this year up to this point. We have had some time however, as the summer nears, for S. American beans to make their way into the country so any squeeze might not be quite as effective as it has been previously. Needless to say, this game is not for small speculators to play. First of all, you run the likely risk of getting assigned. Secondly, if you are wrong, good luck getting out!

The crude oil number got the EIA numbers this AM and they showed a surprising large drop of 3.4 million barrels. That was a big number! The market was looking for a decline nearer 1.4 million. Crude moved higher on the number but, for now, has surrendered those gains. The market is growing increasingly nervous about the SEVEN YEAR HIGH in speculative length in the market and while today's reported drop was friendly, stocks remain near record highs. One thing will be certain about crude - it is going to be quite the roller coaster moving forward. Personally, I hate trading markets that have this much speculative length in them because they tend to become extremely volatile and snap your neck at the rate they move up and down.

I might throw a chart of gold up later on today but methinks it is best to wait until we get the ECB news tomorrow as the mining shares are relatively quiet today as well.

Silver cannot get back above $19. The Euro is hovering near 1.36 with the Dollar just below key chart resistance near 80.70 - 80.80 basis the USDX.

By the way, the yield on the Ten Year continues to rise today and is now above 2.6%. The last reading as these comments get finished up is 2.611.

The VIX remains very low at 12.03, near the low reading for the year. Complacency reigns.


  1. If we sell off violently tomorrow after the Draghi "Pie-Hole" announcement, then I believe that will be the final catalyst to get the Gold Bugs, CIGA's and GATA hanger on types to finally throw in the towel in disgust.

    And of course, JPM and GS will be sitting there waiting in the wings buying the panic lows so they can offload in a few months to the normal and regular Chinese and Middle East buyers.

    Then of course, as they sell the remaining inventory to these guys, they will once again build massive short positions to profit from the next decline.

    Wash, Rinse, Repeat, and easy money to be made.

    Of course, I'm taking the contrarian strategy here, but if I'm wrong I will report it here and apologize for my error.

    1. Wash, Rinse, Repeat try as they might Gold isn't going away the sentiments at the moment couldn't be better for longer term Gold. Use paper hedges to buy your metal at lower prices if presented and keep accumulating Gold will turn before long. Meanwhile pump pump pump before the dump continues in stocks and bonds.

  2. Dan, your remarks about China using gold as collateral sounds like how Ecuador recently used its gold as collateral for loans from Goldman.

    GS could conceivably sell that gold into a skittish gold market sometime to trigger another plunge, then buy back the gold having profited handsomely.

    1. It is only between 14 and 15 tons. hardly an amount to destroy markets. Now there is an.open conspiracy. if you want to talk conspiracy let's talk about the 400 tons that took out all bids on a 50 point drop two aprils ago.

      People think the feds are in there all day long. The feds are in there only at key moments to repaint the chart.

      Are they in there now? No, they don't have to. Gold trades in identifiable patterns. A repaint of the chart and it's back to trading.

      The feds do not like gold. They wish it never existed and they continually conjure up ways.to get us to hate it without drawing attention to it.

      The heck with the.deflation stuff. The usfed and treasury want gold to go to zero. Then a clamp down on ownership. They want gold to be completely irrelevant.

      The 400 tons that were sold in 24 hours could only come from one place. The chart at 1550 was so vulnerable I knew it and had a 150% short at 1553 looking for a 15 scalp, but rode that uncovered short all thw way down to 1350. I wasn't brilliant. I knew official intervention. Now who had that firepower? Who was massively short? Deductive reasoning is very rare, but extremely profitable..

    2. I remember all the nonplussed responses and bewilderment. Everyone, including floor traders denied everything. Why? They were scared witless. The CFTC was as useless as teets on a bull. all those dumb responses from the cftc, banks, govt. Nobody ever found out who did it? The feds made that go down the memory hole..

      I didn't even bother reading the articles at the time. I already knew who did it.

    3. Deductive reasoning is very rare, but extremely profitable..

      being Wise after the Fact truly is a Gift

    4. Yes 14.5 metric tons of gold, which as collateral combined with leverage could control a lot of contracts. No conspiracy theory, just an observation and not a trade.

  3. Question, please...

    Does anyone have any information/source about whether farmland is under/over priced?

    I have read in here about how grains and livestock might have overshot upwards, so I am concerned farmland is overpriced too (assuming farmland correlates with price of agriculture instead of real estate)?


    1. J;

      Back when grain prices were scoring all time highs, hedge funds were actually buying up farm land in the corn belt, paying obscenely high prices for even nominal farm land. I know that prices have come down considerably since the grains peaked in price but I do not know from first hand experience if they are over or underpriced at this time. There were overpriced. My guess is that they are probably more reasonable and may even come down more if grain prices stay subdued this growing season.

    2. Thank you. That was my perception too.

      In this case it's a Singapore-based hedge fund that has just received a mandate with some large institutional money to buy agricultural land, in the southern hemisphere, with the goal of generating some income and long-term capital appreciation.

  4. Perhaps the title of the post should be Hard vs Soft Dueling Economic Data. While the soft economic data tends to show an improving economy, the hard data reflects a decline. The trade deficit numbers today is suggestive of heavy damage to Q2 2014 GDP. In fact Goldman and others have now lowered their Q2 forecasts. Given the consumer liquidity is still heavily impaired and construction spending continues to stagnate...not sure the weather excuse will hold up

  5. ZH is running a piece on the Copper Rehypothecation issue as well right now. (I know, I know...I go there once a day to see what they are shrieking about...) Anyway, they mention the issue in a similar vein to you, Dan, but then they manage to do a 180 for Gold and imply that its going to be a good thing for gold if it is being used the same way as copper.

    I am not experienced enough (or not smart enough) to understand their argument and why it would only apply to Gold. If anyone would care to dumb it down for me that would be great....

    1. It's funny how anyone referencing KWN or ZH here is kind of apologetic about it... I visit both of these sites once or twice a day, and sometimes you find a gem in there. The only problem is that the rest of the stuff is overly repetitive to the point where I feel like listening Jon Bon Jovi's "Steel Horse" over and over again. Enough to make you queasy.

    2. Scott Leith;

      If it looks like a duck, sounds like a duck, quacks like a duck, then it is a rooster.

      That pretty sums up the logic behind that sort of crap from ZH.

      When have you ever seen anything over there that is bearish towards gold?

      Use sound logic Scott and you will arrive at the same impact on gold as copper.

    3. Dan, Zero Hedge is useful since it actually focuses on the underlying numbers and their respective trends and does not wet itself over the headline numbers like the shallow MSM all is well cult and the fluzie trader algos.

  6. You've got to give it to Eric. He often interviews Yamada, and I don't remember the last time she had something good to say about gold. Nevertheless, he keeps posting her stuff with titles like"Two Stunning Charts in Gold" and such.
    Maybe it's the truth trying to come out or something, I don't know.

  7. "Washington thinks nuclear war can be won and is planning for a first strike on Russia, and perhaps China, in order to prevent any challenge to Washington’s world hegemony.

    The plan is far advanced, and the implementation of the plan is underway. "
    - Paul Craig Roberts.

    These are extremely serious accusations, even if the gyy lives in Costa Rica. He is merely stating that US are planning a genocide to exterminate a few hundreds of million lives.
    Can this be serious?? Are there such kind of sociopaths in power now or is he there for always more sensationalism to get his few thousand bucks per quarter "free to give" subscription?


    1. Hubert,
      YES to both questions. Yes, there are sociopaths in power who would not blink to exterminate millions to increase their net worth, and yes, he is looking for more "free to give" subscription through sensationalism. "I will continue writing, as long as you continue donating" type of deal.
      Thanks for this link, Hubert, because it destroyed the little trust I had in this individual and his views. I'm sure there will be plenty of those who will give freely, just to be able to savor the wisdom.

    2. That is a pretty wild accusation for him to make. The arrogance I have seen from our government makes it possible but even Obama can't be that stupid. Or can he?

      Very scary stuff.

    3. Hubert;

      I personally believe Roberts is a very misguided man.

    4. Hubert- The more Roberts opines, the less credibility he has (with me). BTW was impressed with your disciplined strategy on the copper trade mentioned a couple blogs ago...

    5. I guess you are right. Can't possibly imagine the alternative.
      Thanks Trinity, imo most difficult to learn is discipline in trading and quiclky taking losses. I've been lucky to post a few succesful trades, some may just as well have been unsuccessful and activated my stop losses. That's what I'm trying to show and why I post a few trades "live" : that most important is not to guess where the market will decide to go, but to spot a good entry level with affordable risk/reward ratio, put a stop loss, then if it bounces there, quickly take some 1/3 of your profits and move stop loss near or on entry level. Most important is to survive and save your capital. Then only to make a profit. Well that's what I was taught anyway and until now it seems to work all right :)

  8. The US is like a cornered animal anything is possible. Hopefully sanity will prevail, clearly the US financially should default or renegotiate it's unpayable debt this would be better than using nuclear war to cover for financial collapse. Every dog has their day the US will have to get used to China, Russia and soon India taking a larger influence in the world. The US is running out of QE and other people s money to maintain it's status.

    1. This comment has been removed by the author.

  9. Dan, just a suggestion. It seems like the gold trade is finished and hardly worth your time. It wouldn't bother me if you just moved on to more important market issues. Thanks for the blog.

    1. You may have noticed increased coverage of Agg related markets.

  10. " NOW Gold is making an important 2014 bottom to be retested this summer!"
    (Bo Polny's free newsletter).
    So I don't know if he means 1240, but probably.
    Anyhow, 1240 is the 77% fibo retracement of 1180-1435, and therefore imho an important support area (the last line in the sand in terms of Fibos) for bulls. Yes, it happens that we retrace 77% of an upwards move before going back up again (see silver long term chart), so gold can go anywhere...and is waiting for ECB to move. Anyway, it has successfully been capped between 1250 as well.
    I don't really want to bet nor trade just before an important economic news, because it is so easy to get whipsawed just after the news. So, I'm just waiting on the sidelines. I have no bullish / bearish convictions about gold at the moment.

  11. Well, looks like like the ECB decision is out.

    - Stock indexes exploding to new highs.

    - USDX soaring, leaving all other currencies in a burning heap.

    - Gold folding like a cheap suit, along with all other commodities.

    - Jim Sinclair found bent over wretching in a ditch on the side of the road in Connecticut.

    - Peter Schiff found gasping for air in front of his computer monitor looking bug-eyed in disbelief.

    - Sprott caught speeding in his Jaguar rushing to his office getting prepared to deal with a mountain of fund redemptions.

    - Stephen Leeb and John Embry found squealing like stuck pigs at the diner while checking their iPhones and watching the quote screens.

    - Egon Von Greyerz and David Stockman now trapped in the bathroom stall at the Jockey Club puking up blood.

    - Goldman and JPM traders jumping up and down and high fiving, opening up champagne bottles.

    - Draghi now on his way to the Asian Massage Parlor for a happy finish before he starts his press conference.

    - Janet Yellen is ebullient, she ordered boxes of Krispy Kreme to be delivered to the Eccles building.

    - Eric King just got a bill for his web hosting, wondering whether or not to even renew it.


    1. Hilarious as usual, only gold popped up, for now. Oil down a bit but natural goes is expected to be going balistic soon.

    2. - Scarface has a huge pile of cocaine on the table in front of him. Machine gunned bodies lying all around. Business as usual.

  12. Roberts writes books. That is all. So does Harry Dent. Nothing to see here; move along.

  13. om what I can gather most important item out of ECB, preparing for outright QE. Knocked the heck out of the Euro. Currency race to the bottom. Stronger $ will hurt US exports. Next move FOMC. IMHO gold well may have bottomed, especially if we get weak NFP tomorrow.

  14. Euro starting to recover. Will be interesting to see where it ends day.

  15. I'm just happy I closed my small equity short speculation yesterday. Took my tiny loss and went home before ECB.

    I remain long, long, long stocks. No silver, no miners, but with a long term holding in physical gold.

  16. Move over Japan, US, England, you will have a new member of your club. Who will win the race to the bottom. The best thing that could happen would be to give the CB's one thing to do, provide liquidity in case of an emergency, no setting rates, no QE. Let the markets be free again. No manipulation of any markets.

  17. Great quote from Rick Santelli. Comment on the continue interference by central banks. "We continue to see monetary scientists playing with sharp instruments."

  18. The other important decision out of ECB, suspending sterilization. In other words outright purchases of euro bonds.

  19. superior Dan!

    just lookn at the board THUR 10:20ET- it's a 50-dma day!.. TLT might be hammering off the 50MA touch, bonds may have done enough down this leg...RUT.x just above the 50MA touch, if it stays above stocks will be supported with improving small cap sentiment. Dr copper into the 50MA touch as well, joining oil on a down day.

    looks like a bit of spread unwinding long legs CL HG and short legs GC SI could be helping the precious.

    ags have a usda report next week, might be nice for a reversal trade off the usda if they stay low end til then. a famous ag weatherman 'elwyn taylor' from univ of iowa said all 6 indicators for el nino are confirming, so for this summer in corn belt that means great weather for huge crops.


    1. 77; China made the tops in copper and cotton 3 years ago, so why not make it a trifecta with her corn and bean purchases, despite back to back to back staggering crops both down south and here in North America. Even if El Nino does not show and we have basic average weather over the next 90 days we could very well print a $3.50 corn and $9 bean going into the Labor Day-Thanksgiving period. Seems to me that only stocks, meats and cocoa are worth working from the long side; good luck!

  20. No time for chart but Eur USD touched precisely the expected nex Fibonacci level (ok it is at 1.3490 on my chart, so basically 1.35 :) ).
    Love Fibos. I'll post the chart this weekend.
    Have a nice day,

  21. Steve,

    It is obvious that we are clearly living in nirvana, whereby any and all commodity spikes are instantly slammed, reversed, and converted into private bear markets.

    No doubt, new highs for stocks, ultra-cheap interest rates, and zero inflation is proving to be "as good as it gets".

    Stay in the System.

  22. Mark,
    It's hard to take you seriously. But I wll give you this. You have a good sense of humor.


Note: Only a member of this blog may post a comment.