Trying to hear what's not being said
September 3, 2022 Leave a comment
As an addendum to last week’s note about elevated Natural Gas (US$ Henry Hub) prices,
here is a chart pitching those American gas prices against the Australian inflation rate, aiding my call for moderation.
September 3, 2022
by Rob Zdravevski
rob@karriasset.com.au
September 2, 2022 Leave a comment
Here is the price of Aluminium and Alcoa’s (AA.N) stock price waltzing around.
Observe the operational leverage the equity can provide if the company is executing well, when the underlying commodity is in an upward trend.
September 2, 2022
by Rob Zdravevski
rob@karriasset.com.au
September 2, 2022 Leave a comment
The Iron Ore futures (Singapore traded, 62%) price dances nicely along with the stock price of Rio Tinto (RIO.ASX)
September 2, 2022
by Rob Zdravevski
rob@karriasset.com.au
September 2, 2022 Leave a comment
I’m sharing a presentation which I spoke to this week.
The topic is contrarianism where I show long-term charts (on a weekly basis) and quantified extreme moments using three measures, being:
– the 200 week moving average
– the Relative Strength Indicator (signalling Overbought and Oversold readings) and
– Bollinger Bands showing when prices traded to 2.5 standard deviations (either above or below its rolling weekly mean)
I attempted to highlight the case for lower interest rates and inflation (as they are themselves trading at ‘extreme’ levels) by showing a host of correlations and I believe moderation is aided with further mean reversions amongst various prices, while many other commodities have already done so. As reported inflation figures lag, lower readings are expected to appear in the coming 4-10 months.
There is also a series of charts showing recent buying ‘windows’ and where I’m waiting for some others to enter my buying territory.
Towards the end of the presentation I touch on how a scramble to secure supply led to price spikes and parabolic price moves in commodities such as Lumber and Steel, where such parabolas were (and often) followed by sharp declines.
I think there is much finished product still held as inventory, thus tying up working capital and should lead to discounting wars. This will be deflationary and assist in abating inflation and interest rates.
To be clear, I’m calling for interest rates and inflation to abate, not collapse.
September 2, 2022
by Rob Zdravevski
rob@karriasset.com.au
September 1, 2022 Leave a comment
Lows in U.S. Hot Rolled Coiled Steel prices are correlating with the stock prices of selected steel companies.
Cleveland Cliffs (CLF.N) is the featured comparison in the chart below.
September 1, 2022
by Rob Zdravevski
rob@karriasset.com.au
August 31, 2022 Leave a comment
Anecdotally, the most euphoric noise that I hear globally surrounds three markets, being LNG, Thermal Coal and Lithium/Spodumene.
Especially amongst gas prices, I can’t hear anyone making a case for a moderation of prices.
The herd is all huddled together on the same life rafts.
Sure, prices can go higher but I dare you to initiate a new ‘long’ position.
My commentary is to heed warning.
The technicals and the spikes in price action are pointing to extremes which I think provide a terrible risk/reward skew for any recent or new entrants to these markets.
Producers and Sellers of such commodities would be well advised to lock in prices.
Buyers should elect taking a calculated risk of probability and not commit to fixing in those higher prices.
Owners of listed securities exposed to these sectors are doing themselves an injustice if they are not acknowledging the speculative fervour, let alone pondering taking the ‘fat part of the trade’.
The charts below show prices being Overbought, trading to 3 standard deviations and stratospheric miles above their 200 week moving averages.
Although one day doesn’t make a season, the Dutch TTF Natural Gas and Japan/Korean LNG Market prices are down 25% and 15% respectively, thus far, thus week.
August 31, 2022
by Rob Zdravevski
rob@karriasset.com.au
August 29, 2022 Leave a comment
It is the 4th notable time that the DXY hits a monthly Overbought RSI reading.
Monthly Overbought readings in the U.S. Dollar Index (DXY) portends a peak or at least some stifling and sideways travel for the U.S. 10 year bond yield.
Even through the rate hike mania of the early 1980’s, if you queued off the DXY peaks, the abatement in the 10 year bond yield held true.
Tip: RSI Overbought readings can stay Overbought for much longer than many expect.
August 29, 2022
by Rob Zdravevski
rob@karriasset.com.au
August 28, 2022 Leave a comment
In the April 15, 2022 edition of Macro Extremes, I noted that until that moment, the U.S. 10 year bond yield had never registered an Overbought reading on a Monthly basis…….and it stayed there for the past few months.
Furthermore, it coincided with the yield trading up to 2.5 standard deviations above its monthly rolling mean.
The chart below shows circles and boxes when it has hit both 2.5 and 3 standard deviations.
Why the reprise of this topic?
I don’t believe Jerome Powell’s 2022 Jackson Hole declaration that the Fed will earnestly raise rates higher will actually happen.
I won’t bother speculating whether rates are raised once or twice as 2022 comes to a close but I think Mr Powell is now trying to increase the rhetoric and use as much media messaging to help manufacture a slowdown or a decline in demand, if you will.
Yesterday’s note touches on the quantum of the rate increases from the troughs.
Even the peak of Volker’s hikes signalled the beginning of a ‘bottoming process’ for the equity market.
In fact, many of the peaks in the monthly chart below correlated with lows in the S&P 500.
August 28, 2022
by Rob Zdravevski
rob@karriasset.com.au
August 27, 2022 Leave a comment
Brazil was amongst the first of nations to commence raising interest rates.
They started from a base of 2% in March 2021.
At its August 3, 2022 meeting, Brazil’s Central bank increased interest rates a further 50 basis points bringing its rate to 13.75%.
This was the 12th consecutive raise making for a cumulative 1,175 basis point increase.
This represents a quantum of nearly 7 fold increase.
Brazil’s inflation rate in July 2022 fell to 10.1%, down from June’s 11.9% reading.
Incidentally, Brazil’s inflation target rate is 3.5%.
In contrast, the U.S. Fed Funds Rate has risen from 0.25% to its current 2.5% representing a 10 fold increase. The current inflation rate in the United States is 8.5%.
Is the quantum of the rate increase more relevant rather than the absolute percentage rate?
If so, will one more rate hike in the U.S. be enough?
Brazil, Chile, Mexico and other commodity sensitive and exporting countries all started raising interest rates, aggressively and a year before G8 nations.
Why?
As paraphrased in the following posts written over the past year, “inflation is a tax that the poor can’t afford to pay”.
Although, more precisely, the citizens of those nations carry an average household debt as a percentage of GDP nearing 26%.
While the “% of household debt to GDP” for the citizens in the United States, Canada, United Kingdom and Australia range from 80% to 125%, with Australian’s being the highest.
For the rising cost of tomatoes, fuel or lettuce…..hiking rates too aggressively would ‘crucify’ the indebted households in the developed world and more importantly (for some, many or government) it would stifle their largest asset class………residential real estate.
August 27, 2022
by Rob Zdravevski
rob@karriasset.com.au
August 27, 2022 Leave a comment
The following assets (on a weekly timeframe) registered an Overbought or Oversold reading and/or have traded more than 2.5 standard deviations above or below its rolling mean.
Extremes “above” the Mean (at least 2.5 standard deviations)
U.K. 10 year government bond yields
AUD/GBP (3rd consecutive week)
AUD/EUR
Overbought (RSI > 70)
U.S. 2 year government bond yield
U.S. Dollar Index
The Overbought Quinella – Both Overbought and Traded at > 2.5 standard deviations above the weekly mean)
Istanbul Stock Exchange (BIST)
Dutch TTF Gas
Japan Korean LNG Marker price
Extremes “below” the Mean (at least 2.5 standard deviations)
NZD/AUD
Oversold (RSI < 30)
U.S. 5 year minus U.S.3 month government bond yield ‘spread’
Turkish 10 year government bond yields
Hot Rolled Coiled Steel
Tin
EUR/USD
GBP/USD
CNH/USD
DKK/USD
KRW/USD
INR/USD
SEK/USD
The Oversold Quinella – Both Overbought and Traded at > 2.5 standard deviations above the weekly mean)
None
Notes & Ideas:
The big news over the past week mostly occurred on its last business day where U.S. equity indices were poised to finish the week flat.
Other notable news was the renewed strength in the U.S. Dollar and subsequent oversold readings in various currencies, as this weeks list shows,
And the extraordinary surge in LNG and Dutch TTF Gas prices.
There is an undertone seen in the Japanese 10’s (at 0.22%) saying the world is reasonably OK.
Commensurately, the Copper/Gold Ratio is firming to tell us the same.
Keep in mind, that the lows in equities seen in June 2022 haven’t been breached although I’m watching keenly for any emergence of corporate earnings downgrades in Q3.
In other news, Turkish government bonds continued to bid aggressively. In fact, since the late March 2022 highs of 26%, many must of thought that Turkey’s ‘uncreditworthiness’ was overstated, for now their 10’s are yielding 13%.
In fact, Istanbul’s equity index has risen 52% since that March peak in government bond yields.
In similar, albeit shorter contrast, the U.S. 10 year bond yield peaked at 3.497% on June 14, 2022, when the S&P 500 then saw an intra-day low of 3,637. The SPX has rallied 19% over the next 2 months.
The Baltic Dry Index declined again and has done so for 6 consecutive weeks. It has fallen 6% over the past 3 months. 25% of that swoon was seen in the recent fortnight.
Over the same timeframe, U.S. RBOB Gasoline prices have declined 37% from $4.25 to its present levels of $2.68.
The larger advancers over the past week comprised of;
Aluminium 4.9%, Rotterdam Coal 3.2%, China Coal 15.9%, Bloomberg Commodity Index 1.9%, WTI Crude 2.9%, Iron Ore 2.9%, Gasoil 9.8%, Heating Oil 8.3%, JKM LNG 20.7%, Coffee 11.6%, Sugar 2.1%, CRB Index 2.4%, Cotton 2%, Dutch TTF Gas 41.7%, Urea 20.2% for both U.S. Gulf and Middle East prices, Brent Crude 5.2%, Corn 6.8%, Oats 3.9%, Soybean 4.1%, Wheat 4.4%, HSCEI 3%, Hang Seng 2% and Istanbul’s BIST Index rose 1.6%.
The group of decliners included;
Baltic Dry Index (12.2%), Lean Hogs (2.7%), Nickel (2.6%), Orange Juice (3.6%), Platinum (3.7%), Gasoline (11.3%), AEX (2%), KBW Banking Index (4%), CAC (3.4%), DAX (4.2%), Dow Jones Industrials (4.2%), DJ Transports (2.7%), IBEX (3.3%), S&P MidCap 400 (3%), Nasdaq 100 (4.8%), Copenhagen (2.6%), Stockholm (4%), Russell 2000 (2.9%), SMI (1.9%), SOX (5.2%), S&P 500 (4%), Nasdaq Biotech Index (3.4%), Nasdaq Composite (4.4%) and the S&P SmallCap 600 fell 3.3%
August 27 2022
by Rob Zdravevski
rob@karriasset.com.au
