Investors are shying away from risk assets again
Although the US markets are not dropping out of bed there is a shift going on underneath it all away from risk assets again. We chat about this trend with Chris Temple and the possibility of the US Dollar going on a run. We also cover the gold and oil prices which continue to be under pressure today.
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With interest rates going up another quarter % near June once the market is stronger the summer could be rough with high volatility like last year and a significant drop again for the markets while the dollar spikes.
Japan is still spending $65 million a month buying ETFs.
I am sticking with Docs in that I think gold will not do well thru the end of April. Let’s see.
I find it really hard to see the coventionals markets going higher from here.
typo… conventionals I meant…
It would be a mistake to totally discount the jaw-boning power of central bankers, or their ability to buy stocks by direct monetization.
Oil is interesting.
Obviously in the Short run the Price may be determined by heavily-leveraged hedge funds and traders. Thus it may be that shorts can drive the price down, and short covering can drive the price up.
However, these are short-term (Weeks and months) oscillations about the price-demand/consumption long term balance.
Deflationary forces and technological advances have and are currently lowering theproduction cost of oil. But a quasi-stable price is set in the margin of balance.
The world’s largest producer is the US. Its marginal price is around $40, below which most fracking is no longer profitable,
In the Middle east, price and profitability is less relevant than the acquiring of hard currency and the price at which production would of necessity be cut is estimated to be in the mid-teens of dollars, depending on exactly which field is being considered. Thus, other than for Iran, which is still ramping up production for the next year, price is less of a consideration.
Of course in the short-term, the actual price will be determined by the opinions of the analysts, traders and hedge funds, and storage costs for the over-production, but in the long run, once surplus supply is consumed, the price should hover around the $40 +/- as fracking is used increasingly around the world. Short of war, I cannot see any return to high double digit cost per barrel.
Gold is down 1.1% while GDX is up a little, GDX should be down significantly and should eventually follow the move down. In the past GDX would have fallen 4 times the % drop of gold. Oil should head to the 33 to 34.50 area before the next bounce.
I had a stink bid from many days ago on TLT at 35 cents and got filled yesterday.