"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


Tuesday, May 13, 2014

Copper Succumbs to Disappointing China news

Data out of China today noting that industrial output rose "only" 8.7% against expectations of a 8.9% increase, brought some selling into the red metal. Traders viewed the news as confirmation, in their minds, that China is slowing down.

Copper had put in a nice move higher yesterday finally clearing stubborn chart resistance near 3.13. Today's setback is disappointing to bulls but the dip remains relatively shallow. I am keeping a close eye on the chart of this key metal to gauge how investors/traders are sizing up the overall global economy.

The silver bulls should be hoping that copper remains firm. I will never understand that crowd as they speak out of one side of their mouth trashing any positive economic news and yet, out of the other side, regale us will tales of soaring silver prices. They fail to grasp the utter illogic of their own discombobulated theories. If they want silver higher, then they need to cheer for improving economic news, especially any sort of news that would indicate the Velocity of Money might be starting to pick up. In other words, they should be cheering for growth and inflation that tends to accompany it.

Silver needs inflation and solid economic growth to move higher - Period! It will not thrive if the equity markets crater and traders begin to fear deflation and or slowing growth.

The S&P 500 made another try at the 1900 level but could not manage to clear it ( yet). It did manage to make a new all-time high ( basis the emini futures) but so far cannot extend and change handles. I am observing with some strong interest the fact that long term interest rates are moving lower today. That is odd to say the least.

The biggest news of the day in my view concerns the German Bundesbank. Anyone who has traded currencies for any length of time, but particularly the old-timers who used to trade the Deutschmark, should be more than familiar with the conservative views of this Central Bank. It has a long history of dreading inflation and anything that might contribute to it (call it a lesson going back to the Weimer Republic days). There seems to be a slight shifting of the views of the Bank; at least in the sense that it is no longer as vigorously opposed to some of the "unconventional" approaches to monetary policy. We are of course talking mainly about Quantitative Easing or Bond buying programs. It appears that deflationary concerns have even this Central Bank a bit uneasy.

Dow Jones, referencing a report in the Wall Street Journal noted that the Bundesbank is "open to significant monetary stimulus at the ECB's next interest rate meeting if conditions warrant it".

That sent the Euro cascading lower as traders tied the news article to comments from ECB President Draghi made last week with the idea that Draghi would not have made the comments without at least ascertaining the mind of the Bundesbank on the matter.

The take away from this is that forex traders are baking into the cake some sort of stimulus measure coming out of next month's ECB meeting. If they do not deliver however, and the case is far from certain, watch for the Euro to pop higher. Between now and then, European economic data is going to be closely monitored for clues as to whether or not the ECB will indeed take some sort of action.

With the Euro moving sharply lower, the US Dollar is higher and is back above the 80 level basis the USDX. That seems to be pressuring gold somewhat although it continues to garner buying support from Ukrainian related issues. The yellow metal remains rangebound. Very noteworthy is the fact that once again, GLD, reported yet another drop in holdings. This time it was 2.4 tons. Rallies in gold are being used by investors to exit their GLD holdings with it looking more and more like they are willing to put the money to work in the equity markets where the big gains are to be made. Western-based investors are losing interest in gold unless it is to sell it on rallies.

Soybean traders are back to buying old crop beans again as they continue to bank on strong demand to deplete supplies before this year's crop is harvested. They have managed to push May beans ( which is in its delivery period) back over the $15 mark. In the recent past that level has tended to shut off some demand or at least start getting end users to source from outside of the country. We'll see if that is the case.

Wheat continues lower as traders are focused on the recent rains in the Plains.

That is all for now... will see what happens later on and comment on it if need be and if time permits.