Author Archives: Pater Tenebrarum

     

 

 

Endangered Recovery

As we noted in a recent corporate debt update on occasion of the troubles Neiman-Marcus finds itself in (see “Cracks in Ponzi Finance Land”), problems are set to emerge among high-yield borrowers in the US retail sector this year. This happens just as similar problems among low-rated borrowers in the oil sector were mitigated by the rally in oil prices since early 2016. The recovery in the oil sector seems increasingly endangered though.

 

Too many oil barrels are filling up again.

Photo credit: Kay Nietfeld / DPA / Corbis

 

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The Guessers Convocation

On Wednesday the socialist central planning agency that has bedeviled the market economy for more than a century held one of its regular meetings.  Thereafter it informed us about its reading of the bird entrails via statement (one could call this a verbose form of groping in the dark).

 

Modern economic forecasting rituals.

 

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Jayant on Emerging Markets, Precious Metals and Mining Companies

Maurice Jackson of Proven & Probable has once again interviewed one of our friends, namely Jayant Bhandari, a frequent and highly valued contributor to Acting Man.  Jayant is probably best known to our readers for his strong criticism of the economic and nationalist policies implemented by prime minister Narendra Modi in India since he decreed the demonetization of the bulk of the cash currency circulating in the country (see his most recent article here).

 

Jayant Bhandari speaking at the 2016 Capitalism and Morality seminar.

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Our Favorite Veteran of Real Wars and the Gold Wars…

Our friend Maurice Jackson at Proven & Probable has just done an interview with another friend of ours: Bob Moriarty, the founder of 321gold.com, one of the best and most popular gold sites on the web. Many of our readers probably know Bob, or at least know about him. We want to nevertheless provide a few introductory words below, to elaborate a bit on what Bob does for those who don’t know about him, and also to let readers know how we met him, why we like him and why we have the utmost respect for him.

 

Bob Moriarty: war veteran, ace pilot, famous investor, book author and founder of 321gold.com

 

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Slightly Premature Victory Laps

The nightmare of nightmares of the globalist elites and France’s political establishment has been avoided: as the polls had indicated, Emmanuel Macron and Marine Le Pen are moving on to the run-off election; Jean-Luc Mélenchon’s late surge in popularity did not suffice to make him a contender – it did however push the established Socialist Party deeper into the dustbin of history. That was very Trotskyist of him (we can already picture a future Weekly World News headline: “French socialists discover giant alien dust mites”).

 

Lateral entrants to the business of avenging the disinherited, leavened by strawberry cake.

 

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Retail Debt Debacles

The retail sector has replaced the oil sector in a sense, and not in a good way. It is the sector that is most likely to see a large surge in bankruptcies this year. Junk bonds issued by retailers are performing dismally, and within the group the bonds of companies that were subject to leveraged buyouts by private equity firms seem to be doing the worst (a function of their outsized debt loads). Here is a chart showing the y-t-d performance of a number of these bonds as of the end of March:

 

Returns of several of the worst performing junk bonds issued by retailers in Q1 2017. This is rather impressive value destruction for a single quarter – click to enlarge.

 

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The “Nightmare Option”

The French presidential election was temporarily relegated to the back-pages following the US strike on Syria, but a few days ago, the Economist Magazine returned to the topic, noting that a potential “nightmare option” has suddenly come into view. In recent months certainty had increased that once the election moved into its second round, it would be plain sailing for whichever establishment candidate Ms. Le Pen was going to face. That certainty has been shaken quite a bit lately.

 

The four front-runners in the first round election, from left to right: François Fillon, Emmanuel Macron,  Jean-Luc Mélenchon, Marine Le Pen. That’s right, Mr. Mélenchon, a.k.a. the “French Hugo Chavez” has actually become a serious contender. If you want to know how abysmally bad his economic program is, just consider that Thomas Piketty supports him.

Photo credit: Patrick Kovarik / AFP

 

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Fundamental Analysis of Gold

As we often point out in these pages, even though gold is currently not the generally used medium of exchange, its monetary characteristics continue to be the main basis for its valuation. Thus, analysis of the gold market requires a different approach from that employed in the analysis of industrial commodities (or more generally, goods that are primarily bought and sold for their use value). Gold’s extremely high stock-to-flow ratio and the main source of gold demand  – which is monetary, or investment demand – suggest that gold has to be analyzed as though it were a currency rather than a commodity.

 

The stock-to-flow ratios of gold and silver compared to those of industrial and food commodities. Gold’s large StFR is one of the most important features (and to a lesser extent this also applies to silver) making it useful as a money commodity – click to enlarge.

 

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Counterintuitive Moves

Something odd happened late in the day in Wednesday’s trading session, which prompted a number of people to mail in comments or ask a question or two. Since we have discussed this issue previously, we decided this was a good opportunity to briefly elaborate on the topic again in these pages.

A strong ADP jobs report for March was released on Wednesday, and the gold price dutifully declined ahead of it already, while the stock market surged concurrently. Later in the day, the Fed minutes were published, and their tone was definitely seen as very “hawkish”, at least by today’s standards.

 

Strange happenings alert!

 

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Wrong Focus

If one searches for news on LIBOR (=London Interbank Offered Rate, i.e., the rate at which banks lend dollars to each other in the euro-dollar market), they are currently dominated by Deutsche Bank getting slapped with a total fine of $775 million for the part it played in manipulating the benchmark rate in collusion with other banks (fine for one count of wire fraud: US$150 m.; additional shakedown by US Justice Department: US$625 m., the price tag for a deferred prosecution agreement).

 

 

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Unanimity Syndrome

If there is one thing apparently no-one believes to be possible, it is a resurgence of consumer price inflation. Actually, we are not expecting it to happen either. If one compares various “inflation” data published by the government, it seems clear that the recent surge in headline inflation was largely an effect of the rally in oil prices from their early 2016 low. Since the rally in oil prices has stalled and may well be about to reverse, there seems to be no obvious reason to expect the increase in CPI to continue, or heaven forbid, to accelerate.

 

Buying an egg in Berlin, circa early 1923.

Photo credit: DPA

 

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A Case of Botched Timing, But…

When last we wrote about the gold sector in mid February, we discussed historical patterns in the HUI following breaches of its 200-day moving average from below. Given that we expected such a breach to occur relatively soon, the post turned out to be rather ill-timed. Luckily we always advise readers that we are not exactly Nostradamus (occasionally our timing is a bit better). Below is a chart of the HUI Index depicting the action since the January 2016 bear market low, with lateral support/resistance lines relevant to the recent action.

 

After the HUI turned down from its 200-dma, we thought the red line would hold as support, but it was not to be. However, the area between the two blue lines has provided support, so there is a higher low in place for now, due to the “buy the news” response to the payrolls data and the rate hike. It is a bit difficult to see on this chart, but the advance on Wednesday stopped exactly at the 20-day ma, and the gap up open on Thursday (as we write this) stopped right at the 50-day ma. In spite of its volatility, the HUI is actually quite well behaved in terms of the technical picture, this is to say it often respects support and resistance levels, trend lines and moving averages and is quite amenable to Elliott Wave counts as well – click to enlarge.

 

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