"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


Friday, November 21, 2014

China News, ECB Roil Commodity Markets

I will get more up on this later as I am extremely busy this AM... Overnight news that China was lowering interest rates, (its first in two years) and the ECB is planning on further stimulus measures, has sent massive hot money flows back into the commodity sector.

The grains are seeing big buying, as are silver and copper. Silver loves positive Chinese news as does copper, as does platinum as does palladium, etc.

Gold is also moving as it has recaptured the "12" handle.

When you think of commodities, you think of China, as it is the nation that has the insatiable demand for tangibles. If the lower interest rates spur economic activity, the thinking is more commodities will be consumed. Index funds are now pressing the shorts relentlessly.

The Euro has collapsed sharply lower sending the Dollar soaring. Normally gold has been following the Euro of late but with everyone getting bulled up on account of China, commodities are moving higher nonetheless.

Look at the Aussie - the currency loves anything potentially China positive.

Let's see if this is a flash in the pan, a one day wonder, or the start of something more. Equities will now be unstoppable. I told you silver guys that you had better start rooting for surging stocks and stop trying to find reasons for stocks to go lower. Silver needs inflationary growth, not deflationary collapses if it is to thrive.


  1. Thanks for the update.
    Two years of ECB ABS purchases around $1 TRILLION EUR...


    Is China Building A Mortgage Bomb?


  2. Dan I actually agree although stocks going higher hasn't helped silver much recently. Yes I see your point about if stocks go higher due to inflation expectations then yes good for silver agreed.

    I would say though that there is so much hot money in stocks that if inflation expectations did seriously increase then stocks could still fall if the hot money decided commodities are the place to be.

    If not in nominal terms then in real terms.

    Again it goes back to the point from the other day that bad news can be good news. China is obviously worried about deflation and have therefore acted and reduced their rates. So bad economic numbers could have lead to a central government acting which in turn could spurr interest in commodities again including silver.


  3. I will laugh my butt off if the DXY rallies past 90 toward 100, and gold mega sky rockets toward $1400 in parallel because they think the Chinese economy is going to grow at a 10% clip again. The computer algorithms are truly amazing, as they literally mimic someone who is manic and schizophrenic. Never mind why China is doing what they are doing - because they are in a real estate bubble that is in the process of popping. Very humorous, indeed.

  4. Gold should have been up much more on this news. I think this is ominous. Bailing out of my large JNUG and NUGT for huge profits. Mustn't be greedy. Gold shares may retrace sharply.

  5. Replies
    1. You would think that EURUSD 1.24 being the line of resistance it's been lately that today's ECB news would provide the momentum to break through that floor.
      I'd be a bit surprised if it didn't do so today.

    2. This stuff is super hilarious. If not for the China news, gold likely would be below $1170 right now.

    3. Besides commodities, the slow melt-up is underway. Amazing!

  6. Still early, but risk on is the name of the game once again, as pump priming goes on and on. If the yen stays good it rallies into the new year vs Euro especially, but also vs. $.

  7. Seems to me this is the first time Draghi is actually doing something, and not just talking it to death. But I could be wrong.

    Dan has it right. "Equities will now be unstoppable."

    1. I agree on the melt-up in equities.

      It'll only be a matter of time before the barkers start crowing about their new QE predictions coming true eventhough their predictions were about new US QE because US markets would tank after the taper was complete. That didn't happen.

      It was just 2 weeks ago the newest Japan QE was quickly seen as merely being a US QE in disguise. A desperate assertion.
      And the same will be said of this ECB ABS action anounced today, no doubt.
      How could so many who were so wrong about multiple facets of QE's effects (after it played out much differently then first thought) continue to claim being right when facts bear out they specifically stated one thing but then claim something entirely different as having proven them right.

      Sinclair did it right away after the BOJ launched that fresh QE and claimed it was merely stealth US QE. :-o
      Amazing lack of humility.

  8. Dan

    As a paid up member of contrarian investing club when everyone speaks of deflation in the press/internet websites its probably safe to head in the opposite direction that inflation is almost certainly baked in.
    I know at the moment inflation doesn’t seem possible but neither did it in the early 2000’s when gold when on its manic run from $250/oz to $1900. I revert to
    Mr. Singer of Elliott Management who recently noted in his Q3 letter to investors:

    (The link to this full story can be found here http://www.acting-man.com/?p=34189 )

    “Nobody knows when reality will overtake the rhetoric, lies, phony statistics, wishful thinking, fake prices and tiresome poseurs pretending to be world leaders. The situation is universal, a consequence of terrible leaders and careless (or clueless) citizenry. Global problems are continuing to mount, along with the risk that the consequences of years of bad policies and inept leadership coalesce (as sometimes happens) in a short window of time.”
    “Economics also provides its share of delusions, including the debt-fueled bubbles of both the 1920s stock market and the first dotcom boom. The real estate boom of the 2000s was another one, as excess demand was fueled by the combination of near-free money, the most marginal financial products ever invented, and the frenetic selling of houses to people who could not afford them and did not actually own them in any meaningful sense of the word.
    “These examples are easy, because they were mass beliefs that were unreasonable in the extreme at the time they were held. Of course, at the time not everyone held the same deluded views, but the disbelievers were (and always are) discredited, demoralized and ignored while the delusions were alive. The problem is that while the delusions remain intact there is no proof available to convince the believers of their folly. Simply repeating that a mass belief is crazy does not make it so (nor convince anyone else that it is nuts). Furthermore, the amount of time necessary to reveal the truth is sometimes too long for nonbelievers to bear, so they just stop trying.
    “There is a current set of delusions that is powerful and dangerous: that monetary debasement can be infinitely pursued without consequences; that the financial system is now solid and sound; that the low volatility and high prices of stocks, high-end real estate and bonds are real; that bonds are a safe haven; and that large financial institutions which get into trouble in the future can be unwound in a much safer way than they could be in 2008."

    Paul Singer

    So when might you turn bullish on gold?

  9. Why did gold and silver just sell off during this rally?

  10. I think the dollar will be @ 90 and euro @ 1.20 in no time

  11. like Dan has been saying, wait an hour and things will change!

    USDX up everything else down, crude oil -2% from high o day... uer/usd 1.2387 and falling.


  12. Money flows looking for a parking spot for any kind of return. A recovery anywhere is asking for a bit much, too much debt outstanding.

    At times like these, a debasement of the local currencies is a good thing according to government officials because weaker denominations (ex. Yen) lead to lower overseas product pricing hence more overseas sales. So you have a temporary run to corporate stocks and bonds. Unfortunately, there is no economic engine to drive the markets. China's lowering of expectations is only exceeded by having any growth at all. Projections are yet to be seen.

    Takes a few days or a week for the markets to digest reality then trends continue. For the Euro, the trend is unabated, short term 45 degrees down, long term, a free fall. Euro banks buying stocks is not going to do a damn thing in the long run without production and demand.

    Corporations that set up shop outside the US will do a slow climb as US tax laws stymie profits as dealing in the reserve currency has increasing more and more strings attached.

    Cold weather in the US already shutting down seasonal water shipping lanes. Can't even play a football game because of global warming.

    Silver only needs to see some governments and currencies faltering with no fixes available before it finally puts in a bottom...months from now.


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