MacroView

A quick tour around some key markets: signals from gold, the next leg for AG, and what is the euro thinking(!) – all part of today’s MacroView charts. We have mentioned it before, but it’s worth pointing out that the averages are hiding some massive rotations. It’s not so much whether your long or short these days, but rather WHAT you’re long or short.

macroview_9Mar11

Nothing to add

The US markets are closed for Presidents Day – and what a day it is. There are endless stories going around about Qaddafi escaping to Venezuela with gold and what-not in tow. I don’t know. I have no good sources for that kind of information. What I do know, is that our concentration in precious metals and energy was prescient. I have continually written that geopolitical risk and global social unrest are being underpriced – and I continue to believe that. Industrial commodities, which depend on marginal demand staying high and rising (read: China) seem to be a risky speculative punt right now. Copper is only a NEED when housing is ramping up alongside production. Right now, it’s just a want. The 4 staples (wheat, corn, soy, and rice) along with energy, are the NEEDS. Meanwhile, safe havens are becoming NEEDS as well. Silver is hitting $34 and heading towards the all-time Hunt-brothers high of $50, except this time, it’s widespread. Gold, too, is heading up. I’m just holding (remember, we ended up allocating our precious metals portfolio to gold, silver, platinum, and palladium, along with some gold miners).

Lastly, equity-land should start shuddering a little. Aside from the market going higher on ever decreasing volume, the fundamentals and prospective fundamentals (with decreasing margins) are horrible. When the coming correction finally arrives, pundits will talk about the triggers as black swans. While no one I know could have predicted the specific order of events, social unrest and instability was a given. In fact, I think it could go further, as dictatorships and extreme market manipulators face increased pressure. This will be a direct threat regimes in Africa as revolts start spreading southward, to the Chinese political power structure, and South American strongmen. We’ll just have to see how it plays out.

Relevant ETFs: PALL, PPLT, GLD, GDX, SLV, PHYS, PSLV, USO, XLE, NLR, KOL

Position limits – have we learned nothing?

I can’t put my finger on it, but I know it’s all related. Writing about it definitely helps clarify, but then again, it makes me more flabergasted. I’m speak of the direction our policy – on multiple fronts - is headed.

From healthcare to contract law to trading, policy makers seem to believe that government and bureaucracies are the best allocators of resources, best sources of price discovery, and most efficient providers of services, while at the same time believing that increased regulation can encourage wage growth, competitiveness, and productivity. For fun, here’s an article, sent by a friend on the impact of some of these policies: http://victorhanson.com/articles/hanson071809.html.

Today, I won’t go into healthcare (although for those interested, there’s an interesting interview with Daniel Palestrant, CEO of Sermo, an online physician’s community, about the fact that the AMA is not accurately representing the doctors of this country: http://www.cnbc.com/id/15840232?video=1196233131&play=1. I spoke to Daniel and the interview doesn’t do their research justice, and his attack on Howard Dean only scratched the surface of the hypocracy of the current leadership.) Instead, I’ll mention that the current debates on The Hill about speculative limits in commodities scare me. In the 1970′s, with inflation running rampant, the Nixon administration, in its misdirected brilliance, decided to place price controls on everything from meat to lumber. Well, the small time players got hurt and the guys who were smarter went around the price controls and played in the futures markets. Now, we have a new administration thinking they need to control prices and better yet, control volatility. Well, someone should point out that speculators play on both sides; they provide better liquidity, more price discovery, and smaller spreads. Without speculators, hedgers wouldn’t be able to trade and everyone from small time farmers to large conglomerates like General Mills would face increased costs of business. In and of itself, more players do not lead to increased volatility – quite the contrary.

http://www.marketwatch.com/story//spotlight-on-goldman-as-commodities-hearings-begin-2009-07-28

So GS is on the hotseat again, this time for being too large a player in the hedging space. But that’s what they do. They provide an investment opportunity to pension plans and institutional players and then hedge. Should you place speculative limits? Fine, but let’s define speculation and hedging differently. Not all natural hedgers are pure hedgers. For example, many oil companies and airlines and producers take speculative risk beyond the positions their hedging. Same is true for “speculators”, some of whom are actually hedging different risks in their portfolios. The definitions, in my opinion, actually become so nuanced and convoluted as to be virtually irrelevant. I wish someone from GS would get up and say that and more importantly that someone in DC would listen.