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PM Weekly Market Commentary – 03/20/2020

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  • Sat, Mar 21, 2020 - 10:18am

    #1

    davefairtex

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    PM Weekly Market Commentary – 03/20/2020

On Friday, gold shot up +28.42 [+1.93%] to 1503.92 on moderately light volume, and silver screamed higher +0.48 [+3.95%] to 12.63 on moderately light volume. The buck was mostly unchanged [-0.11%], SPX dropped [-4.34%] along with crude [-6.01%], while bonds rallied hard [10-Year yield fell -25.0 bp].

The weekly metals sector map has silver leading gold lower, but the miners are leading the metals higher, with the junior gold miners doing best. Platinum and copper were both crushed, as was silver. Gold/euros rallied nicely, while gold/USD fell; this is all because of a massive rally in the buck. All items – except gold/Euros – are below all 3 moving averages. Overall this is a bearish look for the metals.
<table border=”1px”>
<tbody>
<tr>
<td>Name</td>
<td>Chart</td>
<td>Chg (W)</td>
<td>52w ch</td>
<td>MA9</td>
<td>MA50</td>
<td>MA200</td>
<td>50/200</td>
<td>Last Crossing</td>
<td>last</td>
</tr>
<tr>
<td>Silver Miners</td>
<td>SIL</td>
<td align=”right”>13.16%</td>
<td align=”right”><span style=”color: #ff0000;”>-22.83%</span></td>
<td bgcolor=”#ff0000″><span style=”color: black;”>falling</span></td>
<td bgcolor=”#ff0000″><span style=”color: black;”>falling</span></td>
<td bgcolor=”#ff0000″><span style=”color: black;”>falling</span></td>
<td bgcolor=”#ffd700″><span style=”color: black;”>falling</span></td>
<td><span style=”color: #ff0000;”>ma200 on 2020-03-09</span></td>
<td>2020-03-20</td>
</tr>
<tr>
<td>Junior Miners</td>
<td>GDXJ</td>
<td align=”right”>11.23%</td>
<td align=”right”><span style=”color: #ff0000;”>-25.52%</span></td>
<td bgcolor=”#ff0000″><span style=”color: black;”>falling</span></td>
<td bgcolor=”#ff0000″><span style=”color: black;”>falling</span></td>
<td bgcolor=”#ff0000″><span style=”color: black;”>falling</span></td>
<td bgcolor=”#ffd700″><span style=”color: black;”>falling</span></td>
<td><span style=”color: #ff0000;”>ema9 on 2020-03-18</span></td>
<td>2020-03-20</td>
</tr>
<tr>
<td>Senior Miners</td>
<td>GDX</td>
<td align=”right”>8.16%</td>
<td align=”right”><span style=”color: #ff0000;”>-9.67%</span></td>
<td bgcolor=”#ff0000″><span style=”color: black;”>falling</span></td>
<td bgcolor=”#ff0000″><span style=”color: black;”>falling</span></td>
<td bgcolor=”#ff0000″><span style=”color: black;”>falling</span></td>
<td bgcolor=”#ffd700″><span style=”color: black;”>falling</span></td>
<td><span style=”color: #ff0000;”>ema9 on 2020-03-18</span></td>
<td>2020-03-20</td>
</tr>
<tr>
<td>Gold/Euro</td>
<td>$GOLD:$XEU</td>
<td align=”right”>1.87%</td>
<td align=”right”>21.81%</td>
<td bgcolor=”#2e8b57″><span style=”color: black;”>falling</span></td>
<td bgcolor=”#ff0000″><span style=”color: black;”>rising</span></td>
<td bgcolor=”#2e8b57″><span style=”color: black;”>rising</span></td>
<td bgcolor=”#ffd700″><span style=”color: black;”>falling</span></td>
<td><span style=”color: #2e8b57;”>ema9 on 2020-03-20</span></td>
<td>2020-03-20</td>
</tr>
<tr>
<td>Gold</td>
<td>$GOLD</td>
<td align=”right”><span style=”color: #ff0000;”>-1.77%</span></td>
<td align=”right”>14.41%</td>
<td bgcolor=”#ff0000″><span style=”color: black;”>falling</span></td>
<td bgcolor=”#ff0000″><span style=”color: black;”>falling</span></td>
<td bgcolor=”#ff0000″><span style=”color: black;”>rising</span></td>
<td bgcolor=”#ffd700″><span style=”color: black;”>falling</span></td>
<td><span style=”color: #ff0000;”>ma200 on 2020-03-18</span></td>
<td>2020-03-20</td>
</tr>
<tr>
<td>Palladium</td>
<td>$PALL</td>
<td align=”right”><span style=”color: #ff0000;”>-8.44%</span></td>
<td align=”right”><span style=”color: #ff0000;”>-3.02%</span></td>
<td bgcolor=”#ff0000″><span style=”color: black;”>falling</span></td>
<td bgcolor=”#ff0000″><span style=”color: black;”>falling</span></td>
<td bgcolor=”#ff0000″><span style=”color: black;”>rising</span></td>
<td bgcolor=”#ffd700″><span style=”color: black;”>falling</span></td>
<td><span style=”color: #ff0000;”>ma200 on 2020-03-12</span></td>
<td>2020-03-20</td>
</tr>
<tr>
<td>Copper</td>
<td>$COPPER</td>
<td align=”right”><span style=”color: #ff0000;”>-13.66%</span></td>
<td align=”right”><span style=”color: #ff0000;”>-26.01%</span></td>
<td bgcolor=”#ff0000″><span style=”color: black;”>falling</span></td>
<td bgcolor=”#ff0000″><span style=”color: black;”>falling</span></td>
<td bgcolor=”#ff0000″><span style=”color: black;”>falling</span></td>
<td bgcolor=”#a9a9a9″><span style=”color: black;”>falling</span></td>
<td><span style=”color: #ff0000;”>ema9 on 2020-03-05</span></td>
<td>2020-03-20</td>
</tr>
<tr>
<td>Silver</td>
<td>$SILVER</td>
<td align=”right”><span style=”color: #ff0000;”>-13.96%</span></td>
<td align=”right”><span style=”color: #ff0000;”>-18.35%</span></td>
<td bgcolor=”#ff0000″><span style=”color: black;”>falling</span></td>
<td bgcolor=”#ff0000″><span style=”color: black;”>falling</span></td>
<td bgcolor=”#ff0000″><span style=”color: black;”>falling</span></td>
<td bgcolor=”#ffd700″><span style=”color: black;”>falling</span></td>
<td><span style=”color: #ff0000;”>ma200 on 2020-03-09</span></td>
<td>2020-03-20</td>
</tr>
<tr>
<td>Platinum</td>
<td>$PLAT</td>
<td align=”right”><span style=”color: #ff0000;”>-19.87%</span></td>
<td align=”right”><span style=”color: #ff0000;”>-29.10%</span></td>
<td bgcolor=”#ff0000″><span style=”color: black;”>falling</span></td>
<td bgcolor=”#ff0000″><span style=”color: black;”>falling</span></td>
<td bgcolor=”#ff0000″><span style=”color: black;”>falling</span></td>
<td bgcolor=”#ffd700″><span style=”color: black;”>falling</span></td>
<td><span style=”color: #ff0000;”>ema9 on 2020-03-09</span></td>
<td>2020-03-20</td>
</tr>
</tbody>
</table>
For the week, gold fell -27.03 [-1.77%] to 1503.92 on moderately light volume. The swing high candle was a likely bearish reversal (72%), forecaster dropped, moving deeper into its downtrend.

On the daily chart on Friday, gold printed a bullish engulfing pattern which was a probable bullish reversal (50%), and forecaster climbed, rising into an uptrend.

Gold ended the week in an uptrend in the daily and monthly timeframes.

This week, gold/euros rose +25.94 [+1.87%] to 1409.41 on moderately light volume. The doji candle was a probable bullish reversal (53%), forecaster climbed, but remains in a downtrend. Gold/euros is in a downtrend in both the weekly and monthly timeframes. The stark difference between gold/USD and gold/Euros was all about the huge dollar rally this week.

COMEX GC open interest rose +1.4K contracts on Friday, and plunged -42K contracts this week. That was -14 days of global annual production in paper removed from the market. Current open interest for GC: 51% of global annual production, down -3.88% this week. We are perhaps 70% of the way to a long term low in gold, based on the OI.

Gold commercial net rose +27K contracts, which was -55K fewer shorts and -28K fewer longs. Gold managed money net fell -56K contracts, which was +443 new shorts, and -56K fewer longs. A large number of longs were rinsed out; we are about halfway to a low, from the COT perspective.

Once the leverage is wrung out (all those managed money longs get rinsed out) of the COMEX GC contract – shown daily in the OI report, and weekly with the COT report – the panic selling we are seeing intraday should come to an end. That is roughly 2 weeks in the future, at the current rate. My best guess.

This week, silver plunged -2.09 [-14.20%] to 12.63 on moderately light volume. The opening black marubozu candle was a bearish continuation, forecaster dropped, moving deeper into its downtrend. Silver is in a downtrend in all three timeframes.

COMEX SI open interest fell -1.4K contracts on Friday, and fell -22K contracts this week. That was -47 days of global annual production in paper removed from the market, a massive plunge in OI. Current open interest for SI: 91% of global annual production, down -12.93% this week. We should be at or near a low based on the OI level on Friday.

Silver commercial net rose +5.7K contracts, which was -11K fewer shorts and -5.3K fewer longs. Silver managed money net fell -4.8K contracts, which was -11K fewer shorts, and -16K fewer longs. Managed money fled silver SI contracts this week; there are not many managed money longs left to rinse. We should be at or near a low based on the COT for silver.

The gold/silver ratio climbed +15.07 to 119.08. That’s very bearish and a new weekly record, but down from the new all time high of 124.42, set on Wednesday.

GDX rallied +8.16% on moderately light volume, and GDXJ jumped +11.23% on moderate volume. XAU fell -0.20%, the long white candle was a reasonably strong bullish reversal (45%), and forecaster climbed, but remains in a downtrend. XAU is in a downtrend in all three timeframes.

No reversal for the miners.

The GDX:gold ratio climbed +9.17%, and the GDXJ:GDX ratio climbed +2.76%. That’s bullish.

Something I haven’t been tracking: both GDX and GDXJ have had wild swings, moving in and out of discount to NAV. On Wednesday, for instance, GDX was trading at a -8.82% to NAV, and last Friday, GDXJ closed at a -13.87% discount! I missed out!

https://www.vaneck.com/etf/equity/gdx/overview/
https://www.vaneck.com/etf/equity/gdxj/overview/

Platinum fell an incredible -151.60 [-24.80%], and palladium dropped -151.86 [-10.07%]. Platinum hit a new multi-decade low this week; the gold/platinum ratio hit a new all time high of 2.49 this week. Platinum is ridiculously cheap, but during a downtrend like this, cheap can always get cheaper, as traders on leverage are forced to sell even at what they suspect may well be the lows. Meanwhile palladium appears to have put in a daily-chart low at (roughly) 1500.

Copper plunged -0.36 [-14.23%] to 2.15 on moderate volume. The strong line2 candle was a probable bearish reversal (50%), forecaster dropped, moving deeper into its downtrend. Copper is in a downtrend in all three timeframes. On Thursday, copper momentarily hit 1.99, but then bounced back, printing a strong doji candle which looked like a reversal to me. That doji has yet to be confirmed. Copper needs a close above 2.20 to do this.

The buck screamed higher +4.60 [+4.65%] to 103.50 on moderately light volume. The swing low candle was a likely bullish reversal (73%), forecaster climbed, rising into an uptrend. The buck is in an uptrend in all three timeframes.

Major currency moves included: CAD [-3.44%], EUR [-3.37%], GBP [-4.96%], JPY [-2.55%], AUD [-6.20%]. Currency moves this week were massive; new multi decade lows in GBP, AUD, and a new 3-year low for EUR.

The implications of these massive moves in the buck are widespread, mostly applying to companies and people in foreign countries who have borrowed in USD (because of lower interest rates), but receive income in that foreign currency. When the buck rallies this strongly, the loan (in foreign currency terms) is now harder to pay back. Effectively, the outstanding balance and the monthly payment have increased by the size of the USD move.

This happens right at a time when the world is dropping into recession. Armstrong has talked about this for years; how the buck racing higher in a time of crisis will drive a large number of companies into bankruptcy. The first phase of this is happening right now.

Crude plunged -8.67 [-25.96%] to 24.73 on moderately heavy volume. The long black candle was a bearish continuation, and forecaster dropped, moving deeper into its downtrend. Crude is in a downtrend in all three timeframes. This week marked a new multi-decade low for crude – the low for the week was 21.10, a level last seen back in 2002.

SPX plunged -406.10 [-14.98%] to 2304.92 on heavy volume. The long black candle was a bearish continuation, forecaster dropped, moving deeper into its downtrend. SPX is in a downtrend in all three timeframes.

SPX closed below the Dec 2018 low this week – another support level gone. SPX is now down 33% from the highs.

REITs [-30.01%] led the market lower, along with energy [-24.48%], while staples [-12.32%] and materials [-14.33%] did best. This was a neutral sector map.
<table border=”1px”>
<tbody>
<tr>
<td>Name</td>
<td>Chart</td>
<td>Chg (W)</td>
<td>52w ch</td>
<td>MA9</td>
<td>MA50</td>
<td>MA200</td>
<td>50/200</td>
<td>Last Crossing</td>
<td>last</td>
</tr>
<tr>
<td>Gold Miners</td>
<td>GDX</td>
<td align=”right”>8.16%</td>
<td align=”right”><span style=”color: #ff0000;”>-9.67%</span></td>
<td bgcolor=”#ff0000″><span style=”color: black;”>falling</span></td>
<td bgcolor=”#ff0000″><span style=”color: black;”>falling</span></td>
<td bgcolor=”#ff0000″><span style=”color: black;”>falling</span></td>
<td bgcolor=”#ffd700″><span style=”color: black;”>falling</span></td>
<td><span style=”color: #ff0000;”>ema9 on 2020-03-18</span></td>
<td>2020-03-20</td>
</tr>
<tr>
<td>Telecom</td>
<td>XTL</td>
<td align=”right”><span style=”color: #ff0000;”>-8.54%</span></td>
<td align=”right”><span style=”color: #ff0000;”>-26.59%</span></td>
<td bgcolor=”#ff0000″><span style=”color: black;”>falling</span></td>
<td bgcolor=”#ff0000″><span style=”color: black;”>falling</span></td>
<td bgcolor=”#ff0000″><span style=”color: black;”>falling</span></td>
<td bgcolor=”#a9a9a9″><span style=”color: black;”>falling</span></td>
<td><span style=”color: #ff0000;”>ema9 on 2020-03-05</span></td>
<td>2020-03-20</td>
</tr>
<tr>
<td>Cons Staples</td>
<td>XLP</td>
<td align=”right”><span style=”color: #ff0000;”>-10.97%</span></td>
<td align=”right”><span style=”color: #ff0000;”>-8.61%</span></td>
<td bgcolor=”#ff0000″><span style=”color: black;”>falling</span></td>
<td bgcolor=”#ff0000″><span style=”color: black;”>falling</span></td>
<td bgcolor=”#ff0000″><span style=”color: black;”>falling</span></td>
<td bgcolor=”#ffd700″><span style=”color: black;”>falling</span></td>
<td><span style=”color: #ff0000;”>ema9 on 2020-03-11</span></td>
<td>2020-03-20</td>
</tr>
<tr>
<td>Materials</td>
<td>XLB</td>
<td align=”right”><span style=”color: #ff0000;”>-12.53%</span></td>
<td align=”right”><span style=”color: #ff0000;”>-27.36%</span></td>
<td bgcolor=”#ff0000″><span style=”color: black;”>falling</span></td>
<td bgcolor=”#ff0000″><span style=”color: black;”>falling</span></td>
<td bgcolor=”#ff0000″><span style=”color: black;”>falling</span></td>
<td bgcolor=”#a9a9a9″><span style=”color: black;”>falling</span></td>
<td><span style=”color: #ff0000;”>ema9 on 2020-03-05</span></td>
<td>2020-03-20</td>
</tr>
<tr>
<td>Healthcare</td>
<td>XLV</td>
<td align=”right”><span style=”color: #ff0000;”>-12.76%</span></td>
<td align=”right”><span style=”color: #ff0000;”>-13.75%</span></td>
<td bgcolor=”#ff0000″><span style=”color: black;”>falling</span></td>
<td bgcolor=”#ff0000″><span style=”color: black;”>falling</span></td>
<td bgcolor=”#ff0000″><span style=”color: black;”>falling</span></td>
<td bgcolor=”#ffd700″><span style=”color: black;”>falling</span></td>
<td><span style=”color: #ff0000;”>ma200 on 2020-03-11</span></td>
<td>2020-03-20</td>
</tr>
<tr>
<td>Cons Discretionary</td>
<td>XLY</td>
<td align=”right”><span style=”color: #ff0000;”>-14.16%</span></td>
<td align=”right”><span style=”color: #ff0000;”>-22.93%</span></td>
<td bgcolor=”#ff0000″><span style=”color: black;”>falling</span></td>
<td bgcolor=”#ff0000″><span style=”color: black;”>falling</span></td>
<td bgcolor=”#ff0000″><span style=”color: black;”>falling</span></td>
<td bgcolor=”#a9a9a9″><span style=”color: black;”>falling</span></td>
<td><span style=”color: #ff0000;”>ma200 on 2020-02-27</span></td>
<td>2020-03-20</td>
</tr>
<tr>
<td>Technology</td>
<td>XLK</td>
<td align=”right”><span style=”color: #ff0000;”>-15.17%</span></td>
<td align=”right”><span style=”color: #ff0000;”>-4.89%</span></td>
<td bgcolor=”#ff0000″><span style=”color: black;”>falling</span></td>
<td bgcolor=”#ff0000″><span style=”color: black;”>falling</span></td>
<td bgcolor=”#ff0000″><span style=”color: black;”>falling</span></td>
<td bgcolor=”#ffd700″><span style=”color: black;”>falling</span></td>
<td><span style=”color: #ff0000;”>ma200 on 2020-03-11</span></td>
<td>2020-03-20</td>
</tr>
<tr>
<td>Utilities</td>
<td>XLU</td>
<td align=”right”><span style=”color: #ff0000;”>-17.08%</span></td>
<td align=”right”><span style=”color: #ff0000;”>-17.65%</span></td>
<td bgcolor=”#ff0000″><span style=”color: black;”>falling</span></td>
<td bgcolor=”#ff0000″><span style=”color: black;”>falling</span></td>
<td bgcolor=”#ff0000″><span style=”color: black;”>falling</span></td>
<td bgcolor=”#ffd700″><span style=”color: black;”>falling</span></td>
<td><span style=”color: #ff0000;”>ma200 on 2020-03-11</span></td>
<td>2020-03-20</td>
</tr>
<tr>
<td>Financials</td>
<td>XLF</td>
<td align=”right”><span style=”color: #ff0000;”>-17.96%</span></td>
<td align=”right”><span style=”color: #ff0000;”>-27.44%</span></td>
<td bgcolor=”#ff0000″><span style=”color: black;”>falling</span></td>
<td bgcolor=”#ff0000″><span style=”color: black;”>falling</span></td>
<td bgcolor=”#ff0000″><span style=”color: black;”>falling</span></td>
<td bgcolor=”#a9a9a9″><span style=”color: black;”>falling</span></td>
<td><span style=”color: #ff0000;”>ma200 on 2020-02-26</span></td>
<td>2020-03-20</td>
</tr>
<tr>
<td>Industrials</td>
<td>XLI</td>
<td align=”right”><span style=”color: #ff0000;”>-18.33%</span></td>
<td align=”right”><span style=”color: #ff0000;”>-31.14%</span></td>
<td bgcolor=”#ff0000″><span style=”color: black;”>falling</span></td>
<td bgcolor=”#ff0000″><span style=”color: black;”>falling</span></td>
<td bgcolor=”#ff0000″><span style=”color: black;”>falling</span></td>
<td bgcolor=”#a9a9a9″><span style=”color: black;”>falling</span></td>
<td><span style=”color: #ff0000;”>ma200 on 2020-02-25</span></td>
<td>2020-03-20</td>
</tr>
<tr>
<td>Energy</td>
<td>XLE</td>
<td align=”right”><span style=”color: #ff0000;”>-19.66%</span></td>
<td align=”right”><span style=”color: #ff0000;”>-60.42%</span></td>
<td bgcolor=”#ff0000″><span style=”color: black;”>falling</span></td>
<td bgcolor=”#ff0000″><span style=”color: black;”>falling</span></td>
<td bgcolor=”#ff0000″><span style=”color: black;”>falling</span></td>
<td bgcolor=”#a9a9a9″><span style=”color: black;”>falling</span></td>
<td><span style=”color: #ff0000;”>ema9 on 2020-02-21</span></td>
<td>2020-03-20</td>
</tr>
<tr>
<td>Defense</td>
<td>ITA</td>
<td align=”right”><span style=”color: #ff0000;”>-23.27%</span></td>
<td align=”right”><span style=”color: #ff0000;”>-39.34%</span></td>
<td bgcolor=”#ff0000″><span style=”color: black;”>falling</span></td>
<td bgcolor=”#ff0000″><span style=”color: black;”>falling</span></td>
<td bgcolor=”#ff0000″><span style=”color: black;”>falling</span></td>
<td bgcolor=”#a9a9a9″><span style=”color: black;”>falling</span></td>
<td><span style=”color: #ff0000;”>ma200 on 2020-02-25</span></td>
<td>2020-03-20</td>
</tr>
<tr>
<td>REIT</td>
<td>RWR</td>
<td align=”right”><span style=”color: #ff0000;”>-25.76%</span></td>
<td align=”right”><span style=”color: #ff0000;”>-36.60%</span></td>
<td bgcolor=”#ff0000″><span style=”color: black;”>falling</span></td>
<td bgcolor=”#ff0000″><span style=”color: black;”>falling</span></td>
<td bgcolor=”#ff0000″><span style=”color: black;”>falling</span></td>
<td bgcolor=”#a9a9a9″><span style=”color: black;”>falling</span></td>
<td><span style=”color: #ff0000;”>ema9 on 2020-03-05</span></td>
<td>2020-03-20</td>
</tr>
<tr>
<td>Homebuilders</td>
<td>XHB</td>
<td align=”right”><span style=”color: #ff0000;”>-27.25%</span></td>
<td align=”right”><span style=”color: #ff0000;”>-33.19%</span></td>
<td bgcolor=”#ff0000″><span style=”color: black;”>falling</span></td>
<td bgcolor=”#ff0000″><span style=”color: black;”>falling</span></td>
<td bgcolor=”#ff0000″><span style=”color: black;”>falling</span></td>
<td bgcolor=”#ffd700″><span style=”color: black;”>falling</span></td>
<td><span style=”color: #ff0000;”>ma200 on 2020-03-06</span></td>
<td>2020-03-20</td>
</tr>
</tbody>
</table>
The VIX rose +8.21 to 66.04.

TLT shot up +3.57%. The doji candle was a bearish continuation, forecaster climbed, rising into an uptrend. TLT is in an uptrend in the daily and weekly timeframes. The 30-Year yield fell -9.0 bp to +1.47%.

TY climbed +0.87%. The takuri line candle was a bearish continuation, forecaster dropped, but remains in an uptrend. TY is in an uptrend in all three timeframes. The 10-Year yield fell -7.0 bp to +0.87%.

JNK plunged -13.15%. The strong line candle was a bearish continuation, and forecaster dropped, moving deeper into its downtrend. JNK is in a downtrend in both the daily and weekly timeframes. Crappy debt is just getting crushed. And that’s with a vast amount of Fed money printing – without money printing, I suspect much of the crappy debt market would have gone no-bid weeks ago.

Physical Supply

The GLD ETF tonnage on hand dropped -23.41 tons, with 908 tons remaining in inventory.

ETF Discount to NAV:
* CEF -4.75%
* PHYS -1.68%
* PSLV +1.69%
Bullion Vault Premiums:
* gold: +0.82
* silver: +0.79
Gold dealer big bar premiums:
* gold [1kg]: sold out
* silver [1000 oz]: sold out

Shortages are showing up more dramatically now in the physical silver market; in premiums at BV, in premiums to NAV on PSLV, and also in shortages of physical silver at retail. It appears that COMEX SI prices of $12 are being heavily bought by the goldbugs. No surprise – that’s a decade low price for silver.

Economic Reports

Yield Curve Inversion: the 1-10 spread rose +18 bp to +74 bp this week. 1Y: 0.13% (-25 bp), 10Y: 0.87% (-7 bp). No inversion.

Retail Sales: headline -0.54% m/m (prior +0.60% m/m) retail sales (ex-autos): -0.43% m/m (prior +0.58% m/m). Recessionary.

Industrial Production: headline +0.55% m/m (prior -0.51% m/m) manufacturing: +0.12% m/m (prior -0.23% m/m). Not recessionary.

Grey Swans & Geopolitics

COVID-19, China: this week China had no new local infections. Allegedly. Perhaps they will get back to work soon. While China trumpets its alleged success in dealing with the virus, neighbor Taiwan, which China tries to soft-power everyone else into calling a “Province of China”, has had just 67 cases and 1 death. https://foreignpolicy.com/2020/03/16/taiwan-china-fear-coronavirus-success/

COVID-19, International: Lockdowns everywhere, trillions in stimulus in the US, cases ramping up. But hope also; a small clinical trial shows hydroxychloroquine + azithromycin can cure “chinese corona virus” in 5 days. If true, it is entirely possible that with widespread testing alongside early application of this drug regime, the highly contagious and currently deadly coronavirus can be turned into a treatable version of “the flu.”

Hong Kong: No news.

US-Iran: No news.

North Korea: DPRK fired some more short-range missiles this week.

Economic Reports

Yield Curve Inversion: the 1-10 spread rose +18 bp to +74 bp this week. 1Y: 0.13% (-25 bp), 10Y: 0.87% (-7 bp). No inversion.

Retail Sales: headline -0.54% m/m (prior +0.60% m/m) retail sales (ex-autos): -0.43% m/m (prior +0.58% m/m). Recessionary.

Industrial Production: headline +0.55% m/m (prior -0.51% m/m) manufacturing: +0.12% m/m (prior -0.23% m/m). Not recessionary.

Summary

By the numbers, this week was a shattering week for risk assets. We saw new lows in SPX, crappy debt, gold, silver, copper, platinum, palladium, crude oil, a number of currencies. SPX itself ended the week at the dead low, closing below that December 2018 low – both events were not a good sign. Curiously the VIX ended the week at 65, well down from the high of 85.47 set on Thursday.

Talk of trillion dollars in stimulus – cash payments direct-deposited into taxpayer’s bank accounts courtesy of the Federal Government – seemed to drive bonds lower – they were all over the map this week, but ended with very little change. The 10-year is at 0.87%, the 30-year 1.47%, and the 3-month is yielding 0.05%. We are at the zero bound, courtesy of last Sunday’s emergency Fed rate cut.

An incredibly strong dollar rally made gold look bad this week; decade lows in AUD, multi-decade lows for GBP, multi-year lows for EUR and CAD. Money is panicking into the buck from everywhere else in the world.

Crude and copper had very bad weeks, as did platinum and silver. There were losses in the teens for each item in this group. It all smells like Great Depression 2 is just ahead. The similarly-sized plunge in crappy debt underlines this prognostication.

And what of gold? Well, if we factor out the currency effect, gold actually did fairly well this week. Gold/Euros actually moved higher; perhaps that’s why the mining shares also moved higher. If you look at the equity sector map, gold mining shares were the only positive sector [+8.16%], with the other sectors dropping by anywhere from -8% [telecom] to -27% [homebuilders].

I was watching the moves of the various markets intraday for most of the week. While there were no flash crashes that I saw, sometimes the selling was just relentless. Why? Well, here’s one possibility:

https://www.cnbc.com/2020/03/20/clearing-firm-ronin-capital-unable-to-meet-capital-requirements-at-cme-sources.html

In yet another a sign that the turmoil in financial markets is putting extreme stress on some firms, one of the CME Group’s direct clearing firms was unable to meet its capital requirements, according to sources.

The move forced the exchange to step in and invoke its emergency protocols to auction off the portfolios. Ronin Capital, based in Chicago, was confirmed to be the firm in question, according to sources.

Additional sources said Ronin’s problems stemmed from positions in futures tied to the CBOE Volatility Index, or the security that tracks market volatility.

Right. They were short the VIX, and the CME had to unwind all those short-VIX trades. That explains VIX at 85. Short VIX was a trade that worked fantastically well for a long time. Right up until the black swan hit. For this one firm that died, how many others were pushed right to the brink, and had to sell everything in order to stay afloat?

Silver is trading down at $12 and change. Its OI shows a massive drop-off in open interest. This usually coincides with lows in price as well.

Are we really at “the low” for silver?  Who knows.  But if we aren’t at or near a medium-term low, I think we are close.  For silver.  And maybe other things as well, things at historically low ratios, such as platinum, and crude too.

Here’s how I see things shaping up.  The market is pricing in a depression, at least in the commodity space.  Energy equities are being thrown right out the window.  Most of these companies are priced for a near-term bankruptcy.

And yet.  China is allegedly at zero local infections.  Possible?  Well, if the chloroquine treatment really works, and they’ve been handing it out like candy, all of those facts would add up.

If this disease ends up being mostly-treatable for most people, with a 5-day course of treatment that eliminates the virus, this whole mess wraps up just as soon as we get the testing regime rolled out.

A usually reliable source in an unnamed foreign country tells me of the following treatment guidelines released just yesterday in that country, featuring hydroxychloroquine (200 mg) 2 tablets 2 times first day, and 2 tablets 1 time per day for 5 days for patients testing positive with no pneumonia and no risk factors. [note: THIS IS NOT MEDICAL ADVICE!!! There were other things on the treatment guidelines I was not able to translate.]

I think we’ll know in 5-10 days if this ends up being effective.  If so…what do you think prices will do?

China is suspiciously quiet. And this stimulus thing could be really useful to get Trump re-elected. We still need to avoid getting sick in the meantime, but I believe the market risk here is quite possibly to the upside, especially for items at multi-decade lows. Like bond yields, for instance.  And all of the fear currently being generated about this pandemic could be very useful to the “repatriate US industry” movement.

Lastly, I’ll leave you with this chart.  It is SPX, alongside the “NYSE Advance Ratio” – when this ratio goes above 0.50, that’s a buy signal.  Its a 5-point moving average of the advancers / (advancers + decliners).

As always, this is NOT FINANCIAL ADVICE. If you lose money – don’t blame me. I expect chaos over the next week or two. I’m usually early. Best case, even if the next big move is higher, there will probably be a lot of unpleasantness first.

  • Sat, Mar 21, 2020 - 12:15pm

    #2
    vshelford

    vshelford

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    PM Weekly Market Commentary – 03/20/2020

Hi Dave and all – in case anyone else had code instead of a chart for a couple of the sections in this commentary, I’ve turned them back into charts, and here they are (in two separate posts, won’t do it in one, for some reason):

 

  • Sat, Mar 21, 2020 - 12:20pm

    #3
    vshelford

    vshelford

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    PM Weekly Market Commentary – 03/20/2020

hmmm – didn’t show the second, I’ll try again (and if it ends up repeating, apologies):

  • Sat, Mar 21, 2020 - 01:27pm

    #4

    charleshughsmith

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    PM Weekly Market Commentary – 03/20/2020

Nice ending chart, Dave. And yes, I won’t hold you responsible if my bet based on this chart blows up… but frankly, it looks likely that the unpleasantness you anticipate might have already occurred.  Lots of positive divergences out there….

  • Sat, Mar 21, 2020 - 06:41pm

    #5
    jmone

    jmone

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    PM Weekly Market Commentary – 03/20/2020

I did some online searching to check physical availability of retail Gold and Silver here in Oz.  There is basically none at the mint / refiners and large dealers, but if you do find some products in stock they they are at a large premium to “normal” coin/bar prices…which is of course well above spot.

– Silver 1oz Coins + 49% over list price

– Silver 1KG Bars +27% over list price

– Gold 1oz Coins +10% over list price

If you ferret around there is still the old bit of stock with reasonable pricing.  I found one dealer selling 2oz cast gold for A$2,645oz which is $50 above spot.  Only 4 units available.

 

The following is from the Perth Mint:

BULLION – LIMITED STOCK AVAILABLE

Due to overwhelming demand for our products during this time we are out of stock of many items and some will be subject to considerable delays before they become available again.

Silver Bullion Coins: We have very few products still available and will focus our efforts on manufacturing the 2020 Kangaroo 1oz Silver Bullion Coins

Gold Bullion Coins: We currently have 2020 Kangaroo 1oz and 1/10oz Gold Bullion Coins available and this will be our ongoing focus during this period.

Cast and Minted bars: Are currently out of stock and at this time we cannot take orders for any size while we work to satisfy the current backlog of orders.

  • Sat, Mar 21, 2020 - 08:52pm

    #6

    davefairtex

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    thanks

vshelford-

Thanks for the HTML translation.  When I constructed the forum post, it was all formatted properly.  It’s only when I hit “submit” that it all goes sideways.

jmone-

Thanks for the detail.  I totally believe the lack of product.  The deformation in COMEX is really obvious.  $12 silver – probably – won’t last long.  PSLV is my only answer.  Buy a whole lot of it, and take delivery.  Hand the COMEX bars out to your friends as Easter presents.

charles-

The raw advance/decline ratio is a pretty noisy item – but through the 5 MA, you can get the sense of where things are going.

Here’s a fun thought.  All the folks who are now long bonds (using leverage?) may end up pretty unhappy once prospects of “a cure” meet 2 trillion dollars of stimulus.  Lots and lots of new bond supply plus no depression + 0% rates = the Fed may well get the inflation it has been seeking all this time.  What of 0.79% 10-year rates then?

The play may not be in equities.  It may be short the 10-year.  Just thinking out loud. With all the strain on the players now, will this new move push more firms over the edge?  If there is a panic out of treasury bonds – Fed might end up having to print an incredibly large amount to absorb them all.  Confidence impact?

  • Sat, Mar 21, 2020 - 10:08pm

    #7
    jmone

    jmone

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    PM Weekly Market Commentary – 03/20/2020

I’ve not tried converting my unallocated holdings into physical, but I think it will take a lot longer than you would expect.  Looking a PSLV (if it is this one? https://sprott.com/investment-strategies/physical-bullion-trusts/why-consider-sprott-trusts/#reason4) into physical product.

– Looks like they do an order once per month on the Canadian Mint, and

– “The Royal Canadian Mint is implementing a temporary suspension of production effective Friday, March 20, for a period of two weeks….We have a plan to resume modified production in two weeks…”

I’m not sure you would see your product for at least a month and… that is presuming their “plans” don’t change.

 

  • Sun, Mar 22, 2020 - 12:14am

    #8

    davefairtex

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    PSLV – allocated

jmone-

Oh yeah it will definitely take a month to get your bars out of PSLV.  Same is true for COMEX “standing for delivery”, assuming they don’t eventually default.

But my point is not that this is a mechanism for getting physical bars today, but that it does represent the ability to purchase physical bars for the current (low, low) COMEX SI price, and this is a decent vehicle for doing so, if you don’t mind waiting a month.

Canadian Mint is the storage facility for said bars.  PSLV’s bars are allocated – they currently exist and are stored there at the mint.  So there’s no need for the Mint to fabricate them.  They just pluck them out of the vault, put them on a truck, and deliver them to you, charging you a bunch of fees along the way.

That’s as I understand it.

the Trusts store their precious metals in custody with the Royal Canadian Mint, a Federal Crown Corporation of the Government of Canada. There is no levered financial institution between the unitholders and the Trusts’ physical bullion and no risk of financial loss in the event of a bankruptcy or nationalization of the financial institution.

  • Sun, Mar 22, 2020 - 12:43am

    #9

    Eannao

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    China truth

Dave, your theory that things could rebound strongly is predicated on China having solved their crisis (and everyone else will follow suit). So the key to this is finding out what’s really going on there. This thread suggests things are far from well behind the red curtain.

 

  • Sun, Mar 22, 2020 - 01:18am

    #10

    davefairtex

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    my scenario

E-

I can imagine things are far from well, but my scenario isn’t predicated on China being infection-free (which I’m sure is a total lie).  Just that they haven’t collapsed, and that they are past the hump in terms of hospital overload.

This treatment may well work.  If it does, and it turns infection into a 5-day treatable event that ends up with corona virus turning into “influenza”-like death rates, or maybe even better, in a large chunk of the people tested, we will know the answer within a week.

We will get to see the impact of this in prices.

Here’s a possible story.  When that Senator Burr sold all his equities, who do you think was at the other end of the phone on the transactions?  (Even if he did it online, you imagine his broker simply treated him like anyone else?)  I believe that the banksters watch the actions of all the Washington insiders.  Wouldn’t you?

Now imagine that Mr Burr goes and buys his equities back again.  What do you think will happen?  What will the banksters do?

And how will that affect prices?

That’s what I see playing out.  We won’t get told until weeks later.  Big money will know almost instantly.  And prices will react accordingly.

What I’m saying is, be prepared for risk assets to move higher on “no news” – probably right after a fear-induced dip.  Watch the sector map, watch that NYSE Advance Ratio.  Ignore the news, if possible.

My operating theory: if we get a rally, it won’t be the PPT, it will be the banksters front-running the good news, armed with info gleaned from Washington insider activity.

That’s my suggestion.

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