PM Daily Market Commentary - 8/8/2018

davefairtex
By davefairtex on Thu, Aug 9, 2018 - 5:13am

Gold rose +3.07 [+0.25%] to 1222.30 on moderately heavy volume, while silver climbed +0.5 [+0.36%] to 15.44 on moderately light volume. The buck fell -0.18%, dropping for a second day in a row. The metals were mixed on the day; its hard to know from looking at the charts if today improved things or not.

Gold rallied in Asia, plunged to its low before the US market opened at 8:45, and then rallied into the close. The spinning top candle looked a lot like a hammer – and the code felt it was very bullish (at least for group), with a 39% chance of marking a low. The forecaster agreed, jumping +0.21 to +0.18, which is a buy signal for gold. Gold remains in a downtrend in both the weekly and monthly timeframes. GC.EUR will issue a buy signal in both the weekly and monthly timeframes if we close at these levels. That's two positive signs.

COMEX GC open interest rose 4,571 contracts.

Rate rise chances (September 2018) rose to 96%.

Silver pretty much followed gold's track, rallying, then selling off, then bouncing back again. Silver's spinning top was only mildly bullish (25% reversal), and silver's forecaster moved up +0.11 to even, which is right on the edge of a buy signal for silver. The move took silver back above its 9 MA, which is a positive sign. Silver weekly forecaster will issue a buy signal if prices close here at end of week. That's also good news. Silver monthly remains in a downtrend.

COMEX SI open interest fell -1,787 contracts today. That's probably short-covering - a positive sign.

The gold/silver ratio fell -0.06 to 78.86. That's neutral.

Miners made a new low, then rallied, with GDX up +0.48% on moderately light volume, while GDXJ climbed +0.10% on moderately light volume also. XAU looked relatively similar, rising +0.31%; its doji candle was neutral. XAU forecaster moved up +0.08 to -0.28. Its not yet ready for a reversal.

The GDXJ:GDX ratio fell -0.38%, and the GDX:$GOLD ratio rose +0.23%. That's generally neutral.

Platinum rose +0.21%, palladium fell -0.92%, while copper was unchanged on the day. The mix of activity leaves me without any real clues where things go next. Copper looks as though it could be putting in a rough double bottom – which would be quite bullish, if true, while palladium looks as though its heading for a retest of the lows, with platinum somewhere in the middle.

The buck fell -0..17 [-0.18%] to 94.66, retreating from its recent test of 95. The buck tried to rally today but failed. Forecaster remains in an uptrend in all 3 timeframes; the buck also remains above all 3 moving averages.

Armstrong is pretty sure that the Euro is going to blow up spectacularly, since they are trying to impose Greek-type austerity on the Italians, and that's just not going to work. The ECB avoided the EU's sovereign debt crisis by simply buying all of it; he sees them as being unable to stop doing this, but this only becomes a problem if and when Italy decides to rebel.

https://www.armstrongeconomics.com/markets-by-sector/foreign-exchange/usd/understanding-the-dollar-strength/

We also have a potential black swan over in Turkey, which appears to be showing signs of an impending sovereign debt crisis of its own. This is interesting because there are a number of banks in the EU who have reasonably large loan portfolios in Turkey – if Turkey blows up, they could well blow up too. Will Erdogan put up with a Greek-style Troika-led “backdoor bankster bailout” by imposing 40 years of austerity on Turkey? I think that outcome is extremely unlikely. That leaves an EU banking crisis as a possible outcome of a Turkish sovereign debt crisis. And that would be wildly dollar positive – but it might just be gold positive as well. Wolf Richter has the story.  http://https://wolfstreet.com/2018/08/07/turkish-banks-scramble-to-stave-off-debt-crisis-as-lira-plummets/

Crude was hammered, plunging -2.17 [-3.18%] to 66.00 on extremely heavy volume. I'm not sure what the cause of the sell-off was; it started at around 6am, and it plunged without much of a letup until it bottomed out just after noon in New York. The EIA report was mildly bearish (crude: -1.4m, gasoline: +2.9m, distillates: +1.2m) but the market paused for just a few minutes before continuing lower. Candle print was a confirmed bear NR7, which was 64% bearish. Ouch. Forecaster plunged -0.52 to -0.37, which was a sell signal for crude. Crude is in a downtrend on both daily and weekly timeframes, and is on the edge of a sell signal on the monthly. This, after that Goldman report came out a few days ago saying just how tight crude supply is going to be by end of year. I mean, I agree, its probably true, but I'm always suspicious about the timing of these things. If Goldman says buy, and 2 days later crude tanks hard with no real trigger that I saw - nothing from oilprice, etc, you just have to wonder.

SPX inched down -0.75 [-0.03%] to 2857.70. Really, not much happened today in equities. The doji candle was neutral, and SPX remains in an uptrend in all 3 timeframes. Sector map shows tech (+0.27%) and financials (+0.25%) led, while consumer staples did worst (-0.76%). I'm not sure this says anything given the lack of movement.

VIX fell -0.08 to 10.85.

TLT rose +0.10%, inching higher; TY also rallied a bit, up +0.06%. Not much happened in the bond markets either. Long term, rates still appear to be heading higher, although not very rapidly. The 10-year yield fell -0.2 bp to 2.97%. Note that a sovereign debt crisis in Turkey would result in a banking crisis in the EU – which would almost certainly be very bullish for US treasury bonds, well at least initially anyway.

JNK was unchanged today, and remains in a fairly strong uptrend.

CRB fell -0.75%, with only 2 of 5 sectors dropping, led by energy (-2.98%). That's a big drop in the price of the master resource. In the near term, CRB continues to make a series of lower highs and lower lows; the 50 is about to cross the 200, which would be a bearish long term sign if/when that happens.

Yesterday looked a bit bleak, while today looked somewhat better.  Gold in Euros is looking especially positive - and by positive, I mean it appears to be putting in a low after a multi-month decline.  If this continues, it should insulate gold somewhat from a dollar rally, which still concerns me.  Here's what that looks like on the weekly - you can see that the pace of the decline has stopped over past few weeks.  Copper is also looking stronger too.  Is that signaling some sort of resolution to the Chinese tariff situation?  From the news, it doesn't look like that's the case.  Prices look a bit more positive.

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5 Comments

Doug's picture
Doug
Status: Diamond Member (Offline)
Joined: Oct 1 2008
Posts: 3176
Bankers' perspective

I would like to hear what the financial brains here think of this idea about coming collapses. My son is a young up and coming banker working for a regional bank that operates in rural and small town areas. It maintains very conservative lending practices. (It came through the 2008 crash without noticeable effort or damage)

They recently had a conference for my son's division at which the CEO gave his traditional prognosis for the nation's economy. He acknowledged housing, automobile and student loan bubbles, but warned that the next big bust would be in private equity. Now, I have only a superficial notion of what that even means. So, could those of you who better understanding such things clarify a bit? Thanx

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5461
buck up, PM holding

So the Euro is down -0.45%, while gold and silver are both holding.  This says gold is rallying in Euros.  That's a good sign.  Maybe it's just time - or maybe the Turkish Lira crisis is starting to become more of a thing.

As for Private Equity - I am not sure exactly what your banker is talking about.  I know that VCs in the the valley are considered private equity.  They put in money into startups of various types, with the hope they get liquid on an IPO or a buyout by a larger firm.  In a larger sense, private equity firms buy stock in companies for which there is no public market.  This means they can't bail out if things go south, unless they can get someone else to buy them out.

Those VC firms always have problems during downturns, since they've sunk money into risky startups that all tend to die off during recessions, since none of them can really be funded in a down market.  (One startup I was involved in died in 2009...or was it 2010...after failing to get funding for its C round). 

Not sure why this time would be any different.  Unless they've taken on a bunch of debt.  And the VC firms themselves just raise money from others.

Certainly companies who have done LBOs will lose lots of money - but I think its the bondholders who will end up paying rather than the PE firms.

Mostly, I think junk bond holders will get hurt really badly.  The hunt for yield has pushed most of them way over the tips of their skis.  And that's a really illiquid investment during a recession...

I'd have to ask the guy which sort of private equity he really means.  Maybe he's talking about highly leveraged hedge funds.  Those guys will have big trouble I suspect.

Doug's picture
Doug
Status: Diamond Member (Offline)
Joined: Oct 1 2008
Posts: 3176
Yeh, I'm not sure

My first thought was hedge funds, but a banker friend immediately went to venture capitalists.  If the sources from whom the vcs raise cash go heavily in debt to raise that cash, is the vc insulated from their possible insolvency?

The banker friend also said that an interest rate inversion is expected by 2021 at the latest.  I could see where that could be devastating for bond holders, but is that considered private equity?

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5461
VCs

From what I understand, VCs raise money from investors in a sort of pool, and they then go out and deploy that money into the companies that come to them trying to raise money, taking a percentage of the ownership of the investment.  So if the portfolio companies blow up, definitely the VCs lose their equity, but I suspect it is the investors who lose the most since they actually lost cash.

Somehow I think of the VCs as "the house" - they probably have things structured so they don't die if there is a calamity.  I mean, they all know about dotcom, and 2008.

I'd guess pension funds and rich people are the source of funds for VC firms.  But I don't really know.  I tried to get money from them, not give money to them.  :)

My gut tells me the VCs will come out of it just fine.

Doug's picture
Doug
Status: Diamond Member (Offline)
Joined: Oct 1 2008
Posts: 3176
Private equity vs vc

 

https://www.investopedia.com/terms/v/venturecapital.asp

Quote:

BREAKING DOWN 'Venture Capital'

In a venture capital deal, large ownership chunks of a company are created and sold to a few investors through independent limited partnerships that are established by venture capital firms. Sometimes these partnerships consist of a pool of several similar enterprises. One important difference between venture capital and other private equity deals, however, is that venture capital tends to focus on emerging companies seeking substantial funds for the first time , while private equity tends to fund larger, more established companies that are seeking an equity infusion or a chance for company founders to transfer some of their ownership stake.

Interesting distinctions.  VC is actually a subset of private equity that takes ownership interests in start ups, whereas other private equity firms act more as funding sources for more established companies.  Does that make sense?

 

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