COMMODITIES ANYONE?

Around the time Goldman Sachs and other big Wall Street firms are cutting back on their commodity exposure we run into this interesting story.

Tuesday was another bleak day on commodity markets. The prices of crude oil, iron ore and industrial and precious metals all declined pushing a number of commodities to fresh multi-year lows.

The world's major mining companies were trading even weaker than their wares with stock valuations of the top tier reaching decade and sometimes record lows.The commodities market is a contrarian's dream at the moment, but so far few investors that trade on these principles have taken the plunge.

In fact over the past three years 12 commodity asset managers have closed up shop in addition to the big banks closing down their commodity trading arms.This week at least one high-profile hedge fund is sticking its neck out saying the metals market have lost touch with fundamentals. 

The $2 billion Orion Mine Finance Group announced it is launching a new hedge fund in January to trade industrial and precious metals (and eventually equities) Oskar Lewnowski, the founder and chief investment officer of Orion tells Bloomberg "there are three factors driving commodities: momentum-driven financial flows, physical fundamentals and macro events"

 "For a long time, metals were driven by financial flows, be it mining-orientated banks, commodity hedge funds, CTAs [Commodity Trading Advisor] and even retail equity investors," Lewnowski said in an interview in London.

"With those guys out, we are back to fundamentals. And that’s an environment in which we can do well."

Lewnowski, which spun Orion out of his Red Kite fund in 2013 to invest in junior mining firms, is also willing to put a date on a turnaround:

"The turnaround is going to come in 2018," Lewnowski said. "The peak price cycle was in 2011 and these cycles tend to last seven years."

His top pick? Nickel.

Which is perhaps not that surprising considering it's the second worst performing commodity after iron ore this year. And perhaps the one steelmaking raw material that has decoupled from fundamentals the most.

mining.com/this-guy-is-launching-a-new-hedge-fund-to-invest-in-metals/

OVERNIGHT

Markets in Asia trend lower, according to the WSJ, for the second day running as concerns about  China's weakness persist.

Asian markets headed lower for a second day early Wednesday, with better-than-expected economic data from Japan and China failing to stem the selling.

But Chinese stocks made gains after the People’s Bank of China set the yuan reference rate—which determines the currency’s trading levels—at its weakest point against the dollar in four years.

As Chinese markets opened, the National Bureau of Statistics reported the 45th consecutive month of producer-price deflation. Factory-gate prices fell 5.9% from a year earlier, while consumer prices rose 1.5%. Both measures were slightly better than economists had expected in a Wall Street Journal poll.

After an initial selloff, mainland Chinese markets rallied, with the Shanghai Composite last up 0.7% and the smaller Shenzhen market gaining 0.3%. But Hong Kong’s Hang Seng Index fell 0.3% while the Hang Seng China Enterprises Index, a gauge of Chinese companies with listings offshore, sank 0.8%. Elsewhere in Asia, Japan’s Nikkei Stock Average extended declines into a second day, down 0.8% after a brief rally sparked by machinery orders data that sharply beat expectations.

Australia’s S&P/ASX 200 slipped 0.1% after consumer confidence for December deteriorated, while South Korea’s Kospi was flat. The U.S. dollar index, which tracks the greenback against a basket of currencies, was last down 0.1% at 98.32. Gold held steady, with bullion last up 0.2% at $1,076.90.

Some economists said the yuan’s depreciation below levels in August reflected underlying weakness in China’s economy.

Reuters reported falling Chinese factory producer prices continuing its trend and noted the ongoing weakness in commodities as shown in The Thomson Reuters Core Commodity index (TRJCB) Tuesday trading "at its lowest level since November 2002." 

WHAT YOU WISH FOR

Up to now there's been an almost celebratory mood in markets about the once weakening but apparently now tanking energy sector.

It was going to be good for everyone, cheaper gas pump prices, more greenbacks in consumer pockets and all the other perks the media talking heads sounded off  about. But a note of caution might be in store here as low becomes too low and we get the unexpected and unintended.

The collapse of the housing bubble sent the world spiraling into recession. The collapse of the energy and commodity bubble threatens to be just as damaging. That few are willing to even 
use the term "bubble" with regard to the boom and bust in the price of oil, copper, iron ore, and other materials tells how early we still are in the painful unwind phase. 

As with housing, there was a fundamental reason for these prices to soar. China has been on a historic commodities binge as it doubled the size of its economy in recent years to become one of the world's largest. Even so, those fundamentals begat—as they have so often throughout human history—a feeding frenzy.

That frenzy of financing, mining, fracking and dealmaking exacerbated the boom and now, the bust as China's growth and appetite for such raw materials has slowed dramatically. The collapse of this apparatus is already proving deeply painful for the world economy.

Be careful. What you wish or hope for might be getting ready to intrude.

 
cnbc.com/2015/12/08/the-real-danger-of-the-oil-collapse. 

OTHER VOICES

Mark Hulbert's been around awhile, tracking performance of newsletter writers. Here's an interesting piece from MarketWatch today about what the 2016 stock market might do.

It notes some of the pitfalls some investors fall prey to, past is not prologue, but more likely, to use a Zen idea, the market in any given year is what it is.

CHAPEL HILL, N.C. (MarketWatch) — There’s a 66.1% chance that the U.S. stock market will rise in 2016.

If you’re like most investors, you’re encouraged by those odds. After all, the current bull market can’t last forever, and, depending on how you count it, it’s already one of the longest in U.S. stock market history.

In fact, the odds of the stock market rising next year would be the same even if we currently were in a bear market. That’s because the market’s odds of rising in a given year have nothing to do with how it does in prior years. Historically, those odds have been very close to two out of three.

Investors who find this result hard to fathom are guilty of what statisticians call the “gambler’s fallacy.” A common instance of this fallacy comes when we think that, after a coin comes up heads in six consecutive coin flips, there are better-than-even odds that the next flip will be tails. A coin, of course, doesn’t remember whether its previous flip came out heads or tails, so the odds are 50-50.

The situation that applies to the stock market is remarkably similar. More;

marketwatch.com/story/here-are-the-odds-that-us-stocks-will-rise-in-2016-2015-12-08

MORE ON THE DONALD

We continue to stand by our assertions that MSM hates Donald Trump for obvious reasons: Like the Internet, he's their current worst nightmare.

You can do many things in this nation, borrow my car, drink my liquor from an old fruit jar and steal my significant other, but don't whatever you do try to question MSM. The cover picture from this newspaper, media rag or otherwise, says it all.

The higher echelons of MSM in normal times,whatever and whenever that is, might look down on such scribes but they will gladly let them front run, do the door-to-door nastiness when it comes to assassinations.That way they keep their long-time filthy hands seemingly clean.

zerohedge.com/news/2015-12-08/were-war-get-it-through-your-head-trump-doubles-down-during-combative-follow-interview

OUR VIEW

 
We don't like to get into politics specifically because both of these bankrupt entities, left and right, have nothing substantially to offer, but this MSM war against The Donald should tell you everything you want to ever know about MSM.

Our only interest here is economic. Make no mistake: Economics is politics and politics is economics. And there's much riding on this one if you make any pretense whatsoever of giving a big banjo player's butt about your liberty and freedom and economic future.

CNN Money is running a story today with the headline "Donald Trump gets cut off "Morning Joe." First of all, getting cut off from CNN is probably one of the highest distinctions or commendations one could ever achieve in this dimension this time around.

The headline itself is deceiving, a traditional forte of MSM. But we'll let you decide. The trouble MSM has with Trump and anyone else who might be like him is they detest on the one hand and can't accept on the other he simply is saying much that resonates with people who are hardly bigots, hateful or stupid.

A recent example is one so-called journalist at The Fiscal Times wrote that nearly 68 percent of current Trump supporters are not college educated and only around 16 percent, young or old, have been officially baptized in those academic propaganda cauldrons. The essence of the article was to convince these people this guy can't win so why waste your time.

Forget the numbers here; they don't matter. It's the intent. Intent is all with MSM and with MSM all is intent.

Here's another example from the CNN piece. Trump is known among the political press for ignoring questions and instead using them as a springboard.  Apparently, the poor soul who penned this is either woefully ignorant of political history or one of the useful idiots crowd. His sentence is the classic Webster's definition of politicians and bureaucrats the globe over. 

Why single Trump out for it? The simple answer is: Trump is hitting a major nerve, one these MSM elitists who want to interpret and dictate what's good for the rest of us hatefully detest. Some lady we read about daily with a long track record of avoiding answers and jumping onto that springboard, has MSM cut her off yet? 

Know what you have here. That's your only chance. We don't know Trump, never met Trump, don't support Trump. The truth is not so much what he has been saying, offensive or otherwise. Trump presents MSM and the current establishment with three biggies, three major problems, they absolutely abhor. He's unpredictable, uncontrollable and, with a little good fortune for all the rest of us, probably un-buyable.  

The threat is palpable. And if it gets any worse you'll see MSM with an even bigger problem: Trying to figure out which leg their crap is running down the faster. You can tell how threatened these folks are by how many stories on the man they lead with daily. Ones like he wants to kill the Internet or he made millions in Muslim countries.

This goes way beyond character assassination. That's our view. We hope you know yours.

money.cnn.com/2015/12/08/media/donald-trump-morning-joe 

KISS OF DEATH?

CNBC is reporting an interview with U.S. Energy Secretary Ernst Moniz that despite all the bleakness, U.S. Energy production is just fine.

Is it the kiss of death or just another government official sent out to sooth for now the ruffled feathers of an industry feeling the pain of falling prices and too much regulation from an administration that's pushed regulation and caused much pain?

Despite the ongoing weekly closures of U.S. oil rigs, spending cuts and the cancellation of drilling projects in the U.S. shale oil industry amid slumping oil prices, the U.S. energy secretary told CNBC that the country's oil production will recover.

"Oil production in the U.S. has not dramatically dropped, it has gone down a little bit but it's up by four million barrels a day from a few years ago," U.S. Energy Secretary Ernest Moniz told CNBC.

"Our Energy Information Administration (EIA) expects that the average production this year will still be above 9 million barrels a day so the drop-off is not viewed as precipitous. Presumably, the expectations are over time that we'll see a slow reversal of that drop-off and that production will be restored."

"We are certainly not resource limited," Moniz added, noting as well that the country's natural gas production was continuing to rise despite lower gas prices. He said the country's first liquefied natural gas (LNG) exports would come onto the market early next year. More:

.cnbc.com/2015/12/08/us-shale-oil-industry-will-recover-us-energy-sec.

MAGNETS

Magnets in their time have been used for many things. So this should hardly come as a surprise. One wonders, however, should this research hold up, if there's not some use for them on bureaucrats and politicians to decrease their cravings for greed, power and corruption.

Stefano, a 46-year-old cocaine addict from Padua, Italy, had all but accepted that he might die from his habit. He’d just relapsed after a seven-month stay at a rehab facility, his third failed attempt at getting clean. Stefano (who asked that his last name not be used) couldn’t go more than two days without the drug.

So when he read a magazine article about an unusual new method to treat drug addicts, he figured he didn’t have much to lose. The study described how local researchers were using a technique called transcranial magnetic stimulation to counteract cravings. He would have to sit in a chair while doctors waved a figure-8-shaped wand over his head to fire magnetic waves into his prefrontal cortex. “So almost like a joke, a little bit just to make my family happy, I said I would try,” Stefano says.

Now the results of the study, involving 29 cocaine addicts seeking treatment at a Padua clinic, are out. They suggest that the magnetic stimulation treatment significantly reduced both cocaine use and cravings. Stefano says his desire for cocaine diminished dramatically after several sessions under the magnet. “I can’t explain it,” he says. “It happened very quickly. Read more:

http://www.technologyreview.com/news/544081/for-cocaine-addicts-treatment-with-magnets-may-stop-craving/?

MORE ON OIL

 What happened the last time oil fell this low?

Well, here's an interesting chart that gives you one possibility. We're not saying that this is ahead, but with the Fed cocksure on raising interest rates soon the timing could be exactly right for the Fed to do precisely the wrong thing.

Recall the ECB was still hiking interest rates while the U.S. was lowering them before the last recession became the news of the day .Check out action in the oil patch bond market on Monday as the WSJ reports.

A fresh wave of selling hit energy-company bonds, reflecting a growing consensus that slumping commodity prices will push many heavily indebted firms into default.
Bonds from Chesapeake Energy Corp. , which is looking to restructure some of its debt through an exchange offer, traded at 32.8 cents, a decline of 17%, according to data from MarketAxess Holdings Inc. Oasis Petroleum Inc. bonds shed roughly 6% and traded at 79 cents. A bond from EP Energy LLC traded at 80 cents, down about 5%.

The selloff marks a sharp shift in Wall Street sentiment from earlier in the year, when investors piled into energy-company debt and firms sold new bonds as the price of oil appeared to stage a comeback.

But with oil prices plunging anew after the Organization of the Petroleum Exporting Countries decided Friday to keep pumping crude at near-record levels, many firms’ bonds have begun trading at levels that suggest a reckoning is at hand. Crude fell $2.32, or 5.8%, to $37.65 a barrel on the New York Mercantile Exchange.

Maintaining the ability to borrow money at reasonable terms is crucial to many low-rated energy firms, which need to raise cash to retire debt and pay for new infrastructure. Analysts say losing access to the capital markets could accelerate some firms’ slide into bankruptcy, though a wave of defaults wouldn’t necessarily provide immediate relief for the industry’s supply glut.

Recessions bring on unrest and unrest begets conflict. And conflict could be just what the doctor ordered.

OVERNIGHT

Water, water, every where,         
And all the boards did shrink
Water, water, every where
Nor any drop to drink 
                                   
The world seems awash in oil. But unfortunately it's apparently awash in "Whatever!" when it comes to demand. Samuel Taylor Coleridge's line from his famous poem, Rhyme of the Ancient Mariner, pretty much applies to today's oil patch. There's plenty of it around but few takers. And the implications seemingly spread with each decline in prices as the WSJ reports about the Asian markets overnight.

HONG KONG—Asian markets tumbled Tuesday after global oil benchmarks hit the lowest levels in almost seven years in U.S. trading, sending energy stocks and raw materials producers sharply lower.

While oil prices stabilized somewhat during Asia market hours, both West Texas Intermediate and Brent crude had earlier hit their lowest levels since 2009 in the wake of the Organization of the Petroleum Exporting Countries’ failure at their meeting last week to take any steps to cut supply.

WTI futures edged up 0.4% to $37.79 a barrel on Tuesday, while Brent advanced 0.7% to $41.03 a barrel.

Oil isn’t the only commodity slumping. Spot iron ore fell for a seventh consecutive session on Monday, to a fresh decade low, amid further signs of weak demand from steelmakers.

Commodity producers and energy stocks tumbled, sending the Australian S&P/ASX 200 down 0.6% as mining giants BHP BillitonLtd fell 5.3% and Rio Tinto Ltd sank 4%. Both companies rely on iron—a key steelmaking ingredient—for a large portion of their earnings.

Investors are capitulating as the outlook for commodities prices dims further.
“It is quite spectacular, really,” said Tim Schroeders, a Melbourne, Australia-based resources fund manager at Pengana Capital. “We haven’t just seen low commodity prices, but continued falls in commodity prices,” he said. “Now, we are getting to a point where people have been so wrong for so long, they are having to address the situation and sell.”

While Tuesday’s slide follows another oil price collapse, it is also rooted in expectations that the U.S. Federal Reserve will soon raise rates, which could further weaken commodities demand, Mr. Schroeders said.

Chinese stocks fell, even as trade data for November pointed to a slower pace of decline compared with the previous month. Exports fell 3.7% year-over-year in yuan terms and imports fell 5.6%. Both declines were smaller than the drop expected by economists.

And Reuters noted the outlook for China remains nearly as mysterious to many as the Chinese language itself.

Underlining the cautious outlook for China, a Reuters poll of Japanese firms showed deep pessimism about near-term Chinese growth prospects, with 79 percent saying they do not expect to expand business there next year.

Tuesday's data showed China's imports fell for the 13th consecutive month with a 8.7 percent decline in November compared to a year earlier, indicating concerns about China's economic outlook will dog investors next year.

"Investors will remain quite sceptical about the true growth conditions of China which will mean that sentiment will remain quite fragile going into 2016," Kinger Lau, chief China strategist at Goldman Sachs, told a briefing in Hong Kong.

China is expected to eventually report growth of about 7 percent for this year, which would be the weakest pace in a quarter of a century. But according to an index used by Goldman Sachs, actual 2015 growth may be as much as 2 percentage points weaker.