November 27, 2015 - Commercial Hedgers Getting Bullish Gold!

Posted by Patrick Ceresna on Nov 27, 2015 5:04:32 PM

In the futures markets, traders need to designate themselves into one of three categories-  Commercial Hedgers, Large Speculators or Small Speculators. In the gold market, the majority of commercial hedgers are the gold mining companies themselves using the futures markets to lock in gold prices.  This almost always has the producers being net short of that future production.  What we have seen over the last 3 years is that the commercial hedgers would forward sell as much as 25 million ounces of gold to as few as 1 million.  When observing their trading patterns, they have been pretty accurate in timing all the cycles in the gold price.  We again see them becoming relatively bullish as they are only forward selling a minimal 2.8 million ounces.  Are they suggesting a gold bottom is imminent?  Time will tell.


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November 24, 2015 - Stocks, High Yield Bonds and Goldman Sachs

Posted by Patrick Ceresna on Nov 24, 2015 3:50:29 PM

Early November brought about a stock market correction from a resoundingly bullish October rally.  Since then we have seen a significant bounce in the S&P500 putting it bullishly back on track to target its year highs.  So what is the problem? The high yield corporate bonds are simply not participating. In fact they are positioned to make a fresh 52 week low.  The question I have - can subordinated common shares rise when the corporate bonds of the very same corporations continue to decline? I personally feel that the divergence is not tenable over the long-term and will be a red flag warning to bulls if the trend continues.


Trend in High Yield Bonds Remains a Red Flag

The divergence between the stock market and high yield bonds continues to be a red flag warning that something is internally wrong with this Christmas rally.


Goldman Sachs gets Bearish (at least as bearish as they can publicly say without crashing the markets) 

US equity upside: Limited by the ‘Yellen call’

Goldman Sachs: We see limited upside to equities in 2016. Our US Portfolio Strategy team has a 2016 price target of 2,100 for the S&P 500, suggesting a very modest return of 5% (from current levels). Their framework assumes that 1) earnings per share will rise 10.1%, driven partly by ‘base effects’ in the energy sector and partly by improvements in global growth more generally, but that 2) the price-earnings multiple will fall approximately 5% (to 16.3x from 17.1x), as typically happens during rate-hike cycles. And, due to the delayed timing of rate hikes, the downside risk to price-earnings multiples is probably greater this year because the positive growth surprises that would normally accompany rate hikes are arguably behind us. Since our US GDP forecast envisions mild deceleration in 2016, equities and other risky assets will likely bear the brunt of rate hikes without the usual buffer of better growth data.

We also see a risk that the ‘Bernanke put’ will gradually be replaced by the ‘Yellen call’. The ‘Bernanke put’ captured the intuition that when the risks to growth, inflation and market sentiment are skewed to the downside and the Fed has an easing bias, monetary policy reacts aggressively to bad news. Now that these risks have receded, we expect the Fed will shift to an easing bias, implying that monetary policy will likely begin to react more aggressively to good news. The inflection point for this shift to an easing bias will arguably arrive in 2016, beyond which rallies in risk sentiment may be met by less accommodative monetary policy – the ‘Yellen call’.

My comment: S&P500 is at 2085 and their upside target is 2100 for the entire 2016 year? Is this "SELL TODAY" and "RUN AWAY"?

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November 5, 2015 - Will the Fed Raise Interest Rates in December?

Posted by Patrick Ceresna on Nov 5, 2015 2:10:24 PM

Many traders are waiting for Friday's job numbers to add further clarity as to if Janet Yellen and the Fed will move on interest rates in December. In light of the very weak economic conditions around the world and a declining U.S. GDP growth rate, is this really what the Fed needed to see to begin tightening? While the Fed Funds Futures are giving a December rate hike a 54% probability, it is hard to see the circumstances from which this would lead to a new trend of sustained monetary tightening.

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November 4, 2015 - Bitcoins Going Parabolic

Posted by Patrick Ceresna on Nov 4, 2015 3:18:18 PM

Bitcoins have increased over 100% in just a few months. The bitcoin story is driven by China's increase in capital controls on their citizens.  The problem? The Chinese don't trust the socialist government and fear the pending Yuan revaluation. Ultimately there is an increasing number of Chinese looking to move their assets off mainland China. Clearly bitcoins have become the newest channel for moving money internationally.

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