PM Daily Market Commentary - 2/2/2015

davefairtex
By davefairtex on Tue, Feb 3, 2015 - 3:48am

Gold dropped -9.30 to 1274.40 on moderately light volume; silver fell only -0.05 to 17.21 also on moderately light volume.  PM sold off during the London session, rallied nicely in NY but then sold off again prior to the close.  I believe this drop was associated with positive newsflow out of Europe - Greek PM Tsipras was making noises as though he would agree to full debt repayment, and so gold promptly sold off and the equity market rallied.

Gold has not yet confirmed Friday's rebound.

The USD dropped slightly, closing down -0.14 to 94.82.  For its part, the Euro is trying to rally: today it was up +0.47% to 113.40, edging closer to its falling EMA-9.  The Greek SYRIZA team, after a few days of throwing bombs, is now making nice comforting noises saying that they will of course repay the Greek debt.  The question we have to ask is - under what terms, and over what timeframe?  The devil is in the details, and I believe the details have yet to completely emerge.  Once they have their coalition in place, then we'll get to see it all laid out.

My sense is, its all a deliberate strategy, to rally support of indebted southern Europe for a plan to bury a percentage of the Euro debt on the balance sheet of the ECB for the next 100 years - or so, only to be repaid during years when the indebted nations happen to have economic growth.  In fact, inflation will do the vast majority of the debt paydown.  The ECB does not mark its bonds to market, so if the reorganized debt has no payoff date and only a conditional interest payment, then default is unlikely and so no loss will be realized.  Everyone will be happy - free lunches for all.

French Finance Minister Michel Sapin said after meeting Varoufakis that Athens could not expect a straight debt write-off, but left the door open to other options that include giving Athens more time for repayment.

If 100 years could be considered "more time for repayment" why then we have a deal!  President Obama put in his two cents, suggesting that Europe figure out a way to stop squeezing Greece.  Of course I'm making up the "100 year" number, but the concept remains - don't pay for a very long time, let inflation eat away the principal, only pay interest when GDP growth is present.

Mining shares did well, rising +0.72% on moderate volume, while the junior miners underperformed: GDXJ dropped -0.68% on moderate volume.  Senior miners have risen right up to their 200 MA, and have had a consistent bid underneath them for the past three days.  Juniors continue to do poorly, with the GDXJ:GDX ratio making another new low today.  The underperformance of the junior miners is a bearish sign.

SPX sold off relatively hard during the morning in NY at one point hitting a low of 1980.90 (which is below its recent trading range), only to rally off the lows mid-morning and then rally even more strongly into the close.  SPX closed up +25.86 to 2020.85, closing back within its recent trading range.  To me, the morning sell-off seemed to be aligned with a hour-long -0.50 downdraft in the dollar, which stopped at the same time SPX started its mid-morning rally.  Based on this, my guess is, if the buck corrects, so will equities.  VIX dropped -1.54 to 19.43.

Long bond ETF TLT dropped -0.38%, but remains quite close to its highs, and in a strong uptrend.  JNK has been consolidating just above its EMA-9 for the past week, which is generally bullish.

For the second day in a row, overall commodity index ($CRB) rose, gaining +0.73% and closing once again above its EMA-9.  Signs of life in commodities - what's next, responsible behavior from politicians?

WTIC continued its rally, climbing +1.98 to 49.83 on very heavy volume.  Its EMA-9 is starting to curve higher.  There is a huge short position in oil that is now being liquidated.  Do I think this marks the low in oil?  Possibly - although I recently reviewed what happened back in 2008-2009: oil bounced 3 times off the 34 lows before it decided to rally.  And that process took 4 months.  I would not be surprised to see a retest of the lows once the short-covering rally has run its course.

Still, silver seems to be doing a bit better now that the commodity index is showing a bit of life, and the senior miners seem to have a bid under them.

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4 Comments

Denny Johnson's picture
Denny Johnson
Status: Gold Member (Offline)
Joined: Aug 13 2008
Posts: 348
thanks

Thanks Dave....appreciate the Greek commentary as much as the PM.

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5418
recent moves in oil

The recent rally in oil is attributed to the plummet in the total drilling rig rounts in the US (thoughtfully provided by oil services company BHI, updated weekly), which have started to drop precipitously in the last month or so.  Here's a chart, with the red line being the rig counts.  Last week's drop of 90 is the most ever in one week.

Pet Peeve: I see articles about this sort of thing all the time in MSM news, but do they provide charts?  No they do not.  I call it, "context-free news."  Sheesh.

Oil is up again today prior to market open, +1.50 to 51.07.

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5418
Greek Debt Plan Arrives

FinMin Varoufakis sketches out his debt relief plan after a meeting with Osborne, the UK FinMin.

http://www.cnbc.com/id/102390148

Replacing the EFSF rescue loans, are bonds indexed to nominal GDP.

Replacing the ECB-owned bonds, are "perpetual bonds".

Private-sector bonds are to be left alone.

He said his proposal for a debt swap would be a form of "smart debt engineering" that would avoid the need to use a term such as a debt "haircut", politically unacceptable in Germany and other creditor countries because it sounds to taxpayers like an outright loss.

So, immediately after taking office, demand a debt writedown, announce you aren't interested in meeting with the Troika, re-hire the old ladies protesting outside parliament, take down the riot barriers, announce a raise in the minimum wage, and proclaim that austerity is dead.

Once everyone is good and shocked, announce your real plan: bonds indexed to GDP, and bonds with no final payoff date, resulting in a drastically reduced interest burden on the Greek state.  And then tell the press (which delightedly reported those deliberately shocking statements) that they "misunderstood."

Doesn't "smart debt engineering" sound good?  It sure sounds good to me.  Better than a nasty old haircut.

Also, he's targeted the public sector for the haircuts (oops, I mean smart engineering) leaving the powerful banking sector alone - which gets banker mouthpieces bloomberg and friends on his side.

Chief Market Analyst at CMC Markets, Michael Hewson, said the prospect of some form of debt swap had, "soothed fears that the new Greek government was intent on provoking a confrontation with its European partners, with a view to exiting the euro." [Yay, no haircuts for bankers!]

Only the taxpayers are left swinging in the breeze.  And for the politicians, a fig-leaf is provided: the face value of the debt is left unchanged.  If we just focus on the fact "the money will be paid back", hopefully nobody will notice that they'll be repaid many, many years later in dramatically inflated Euros.

Once the Greeks get this deal and it passes through all the hurdles, you can bet the other indebted nations will be lining up for the same sort of treatment.  ECB-held debt will turn into perpetual bonds, and any ESFS loans will turn into GDP-indexed bonds.

That's some smart debt engineering all right.

Rumor has it that if you let the camel put his nose under the edge of your tent, pretty soon the whole camel will follow...

Likely this will be gold negative and euro positive, right up until the next country asks for the same treatment.

KugsCheese's picture
KugsCheese
Status: Diamond Member (Offline)
Joined: Jan 2 2010
Posts: 1447
Re: Greek Debt Plan Arrives

Start the global money printing!!!   Global Hyperinflation, never happened before but will.   Will the human world survive to write down what happened or will it become Planet of the Apes???

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