This week was a reasonably good week for the metals. Here’s what the metals sector map looked like – most items are now back above the 9 and 50 MA lines. Gold/euros looks strongest – due to the MA50/MA200 crossing that happened a few months ago.
While this week copper was at the bottom of the list in terms of w/w change, over the past 52 weeks copper has risen an astonishing 42%.
I heard a comment over at King World News that, if the world is truly going to “go green”, then it will need a huge amount of copper. Hmm. Food for thought.
In the gold weekly chart below, the commercial shorts remain at a low level; that’s a reasonably positive sign. While gold is in an uptrend in the daily and weekly timeframes, gold/Euros is in an uptrend in all 3 timeframes. If we factor out currency, gold is looking positive right now.
Silver was at the top of the metals list this week – it is now back above the 50 MA, and in an uptrend in all 3 timeframes. However the commercial shorts are starting to climb, and we are approaching end of month, which is a little bit of a warning sign. The banksters don’t like to deliver silver – they sometimes smash price going into end of month.
In fact, on Friday, silver broke out fairly sharply; it was up almost almost a buck – at least until “someone” decided to pound price lower. This was true for gold as well. As a result, silver’s (daily) candle print on Friday looked a bit unpleasant. Is price preparing to reverse into end of month? My guess is: maybe yes.
The mining shares moved higher this week also – but they too had a difficult day on Friday. While the miners remain in a near-term uptrend, the Friday candle for the miners looks more bearish than the Friday candle for silver.
Crude oil moved higher this week – having risen 7 out of the last 8 weeks. This week marked a new 7-year high – last time we were above 80 was back in 2014. The price of the master resource just continues to grind higher and higher.
So what is President Grandpa’s handlers’ answer to higher oil prices? Groveling! That’s what the Grandpa-Handlers do best! (Unless of course you’re a “former hero” healthcare worker, previously infected with COVID, who doesn’t want an experimental vaccine. Then the Grandpa-Handlers are downright vicious. No jab – no job, former-hero-Plebe. We’ll bring in some foreign workers to replace you.)
It is my belief that President Grandpa’s handlers are actually just fine with high oil prices. Because – well I’d like to say “climate change”, but what I really mean is, the planned destruction of the middle class, and the transfer of wealth to the Oligarchy. That’s what they call “climate change.” Play on your phone, Plebe, and don’t leave your room. And take your bi-annual shot! Because – Climate Change! Or whatever.
So about that oil production chart. How is it doing? WCRFPUS has recovered from the hurricane, but remains roughly 1.75 mbpd below peak. Apparently, this production decline was just enough for OPEC to maximize price. We don’t hear too much about OPEC meetings these days, do we? A small decline in US shale production (about 1.5% of total global oil production) = a dramatic increase in price. Now just imagine if we had a real shortage?
Crude is indeed the master resource.
The buck moved slowly lower this week, dropping -0.185. It looks like a bearish reversal, but no near-term downtrend yet.
The 10-year yield continues to move higher – even with the Fed buying 80 billion per week. If the Fed actually starts to taper, what then? And, what about that $2 trillion in “critical new (deficit) spending”? Adding $2 trillion in debt over one year is $166 billion per month. What do we think that will do to rates?
Seems like easy math – but I suspect we will soon see either a much higher 10-year yield (Fed = taper), or a much lower dollar (Fed = prints more to mop up all the new deficit spending).
And lastly – food & oil. Food prices are almost back up to 2011 levels.
It is always amazing for me to see just how closely food & oil correlate. While food prices are just now approaching the old highs (set back in the “food riot days” of 2011), the price of crude has yet to recover completely. Now just imagine if crude makes a new high. What happens to food prices then?
And did I mention “food riots”? When food is 7% of your budget (US), a 30% increase is one thing. When food is 40% of your budget (Egypt), a 30% increase is quite another thing.
News That Caught My Eye
China Evergrande makes payment before deadline, official media says
Evergrande sent an $83.5 million interest payment to bondholders, China’s Securities Times reported without providing details. The outlet is backed by People’s Daily, the Communist Party’s official newspaper.
Weighed down by more than $300 billion of debt, the property developer has been trying to sell off parts of its vast empire in order to raise enough cash to pay off creditors. This week, one of those deals — largely seen as a last-ditch lifeline — fell through.
Well. Disaster averted – this week anyway. I guess the CCP isn’t quite ready for things to blow up just yet. Maybe they are waiting for an “interesting event” to occur to provide them cover for the reorganization. If there’s a shooting war in the Pacific, nobody will notice that Evergrande isn’t making a bond payment to the Western Oligarchy.
The debt-fueled property & construction bubble that drove its growth turned into a huge explosive mess with an enormous amount of debt.
Here’s the much larger context of the Evergrande default, provided by Wolf Richter.
My analysis: there will be no banking crisis in China. The CCP has a vice-grip on their own banking system. However, the 20-year property bubble pop will still have a massive – and unavoidable – economic impact. My summary of Wolf’s piece below:
- China’s residential property market: total asset value of $62 trillion…compared to $34 trillion for the US property market
- The property sector accounts for about 28% to 30% of GDP
- Homeownership is already over 90% for urban households in China
- The side effect of [the] one-child policy is that the working age population began to shrink in 2012, and has continued to shrink. This means that household formation is shrinking, which means that demand for apartments to actually live in is shrinking.
- By late 2018, 87% of home purchases were by people who already owned at least one home. They were buying to speculate in real estate
- There are 108 million apartments under construction.
- Total sales among China’s 100 largest property developers plunged by 36% in September from a year earlier… Sales by the 10 biggest developers, including Evergrande, collapsed by 44%.
- There was online chatter, according to the Nikkei Asia, that property developers, such as Evergrande, are dumping apartments at half the original price.
The bubble pop is in progress. The actual market for homes is completely maxxed out, with a huge number of apartments under construction, under conditions of declining household formation due to demographics. Most [87%] of the recent apartment construction have been purchased (via borrowed money) for speculation and wealth-storage, not for actual use. The apartments have a negative cost of carry: you can’t rent them out for anything close to what it costs to service your loan.
And given that property construction accounts for 30% of GDP…and the market is totally saturated, and the psychology of the “no lose buy property” trade is in the process of unwinding, that says to me that 30% of China’s GDP is about to evaporate.
Over the past 20 years, the CCP has been able to dictate overall economic growth basically by constructing apartments, and everyone in China played along with this game, funding the whole mess with debt. Only now, the music has stopped.
Did I mention construction is 30% of GDP??!
That game is now over. The hit to GDP will be catastrophic.
I really have no idea what the CCP will do. Definitely they can rescue the banking system – but there’s that GDP shrinkage issue. And each RMB spent on construction almost certainly flows through to other sectors too. So the loss will be greater than 30% of GDP.
Certainly part of a solution might include a massive one-time shot of inflation. Clif High suggests: China could adopt a gold standard – devaluing the RMB by 80% overnight – which would mean a gold price of roughly $10,000. China has a lot of gold.
My analysis: by doing this, all those properties would all be worth a whole lot more, relative to the amount of debt associated with them. This is what FDR did when faced with a similar deflationary impulse in 1933. Holders of cash lose, as does anyone on a pension, as does anyone on a salary. (Salaries never keep up, as we know). But at least it would cushion the bubble pop. But it still would not bring back the debt-funded housing market.
I know – gold revaluation is a long-time goldbug fantasy scenario. But – China is faced with an impending 30% drop in GDP!
I think this is a really big deal. How it plays out – I have no real idea.
And another – perhaps more locally and temporally relevant – piece from Wolf:
The Everything Shortage worms into social media and internet advertising. Facebook and Google better walk that back pronto.
…because all heck is going to break loose if it turns out that the Everything Shortage – which is a shortage of physical goods and labor – is starting to hit revenues of companies that have nothing to do with physical goods, but are making their money off the Internet by tracking consumers and showing them ads.
It turns out where there’s a shortage of products, companies stop advertising – because they don’t need to advertise. Either they don’t have products, or they fly off the shelves.
This will probably affect stock prices for these advertising companies – i.e. Our Tech Oligarchs. And tech is a leading sector. As tech goes, usually, so goes the market. So maybe we get a correction.
I bought some VIX calls at end of day on Friday. I haven’t had much luck with them, but maybe – this time is different?
CDC Director: Definition of ‘Fully Vaccinated’ May Change in the Future
I mean, we all knew this was coming. Two Weeks to Slow the Spread becomes Mandated Gene Therapy every six months – for life! – or else you can’t work. “It’s good to be a Vaccine Stakeholder!”
Speaking of which, here’s an awesome 2-minute video that effectively captures how it started, and how it is going. Something to share with friends. “One tiktok video = 1000 words.”
My title for the video: “Highly Efficacious”
CBP: Border Patrol Agents Face Termination If Not Vaccinated
While CBP is being force-vaccinated, the hundreds of thousands – monthly – of inbound illegal-migrant/workforce-replacement that CBP has been ordered not to arrest have no such requirement. No irony there at all. [Legal immigrants & visitors arriving by air? Of course there’s a vax requirement! And inbound citizens require a COVID test before boarding their flight! Well – duh! Science!!]
This could be a backdoor purge of the “white supremacists” from Federal law enforcement. (Ironic note: Latinos comprise 50% of CBP. But perhaps they are just “The Latino Face of White Supremacy.” Take the shot, “whitey”! And the required bi-annual boosters! Because – Science!!)
More than a third of Chicago police officers defy city vaccine mandate
The cop-vax requirement may be a covert version of last year’s less-than-popular overt “Defund the Police” movement, which appears designed to produce a great deal of local disorder, which then would be addressed by a Federalized police force – which will act a whole lot like the Capitol Police Force – a group that can be much more readily controlled by the central authority.
Note too that if you transfer “Federal” Police from another city, they are not integrated with the local community, and so have much less concern over the orders they follow. “Meh. Not my neighborhood.” A Federalized police force would theoretically be much more willing to – say – confiscate firearms. Especially if you filtered out the pro-firearm cranks (a.k.a. “domestic terrorists”) during the recruitment phase.
This probably also ties in with why George Soros is so eager to fund campaigns of US prosecutors who don’t punish criminals. More disorder = greater demand for the Federalized Police Force.
Lastly – how about those postal workers?
“We are encouraged to get vaccinated, but we do not face a vaccine mandate like the military does,” he volunteered. “But,” he added helpfully, “we do have an indoor mask mandate.”
Lucky postal workers. I’m guessing they vote the right way. Of course. Science!!
The National School Boards Association (NSBA) has apologized to its members on Friday for a letter that was previously sent to the Biden administration in which the school board group compared parents accused of trying to intimidate educators to domestic terrorists.
Looks like the attempted framing of parents who complain about school board policies as “Domestic Terrorists” didn’t go over so well. A rare win for sanity.
Dems see a $1 trillion-plus deal within reach — but not until next week
The horribly irresponsible $3.5 trillion “No Donor Left Behind” bill has been trimmed back to a still-historically-irresponsible and inflationary $1.5-$2.0 trillion monster. This genius move is happening square in the middle of the largest wave of inflation that we’ve seen since the 1970s – which even Powell is now admitting is probably not “transitory.”
Who will help to buy the bonds? “Not I”, said the Goose! The CCP? Hah! The Fed? Supposedly they’re going to taper. Real soon.
Inflation is incredibly unpopular, because it is so destructive to the middle class. The $2 trillion “Donor Thank You” bill just piles on. But … it has been a good 50 years since the 70s, so – heck. Maybe this time will be different.
Then again, if this were a deliberate campaign to economically devastate the middle class of the United States, dropping an extra $2 trillion in deficit spending into an already-inflated Everything Shortage economy, well then, this would be the perfect action to take.
That’s what Building Back Better is all about!
So who are President Grandpa’s handlers, again? Asking for a friend.
Right. So I am left with this final thought: what will the CCP do when faced with a 30% drop in GDP?
I don’t have an answer.