rob zdravevski's blog

How The World Works – edition # 1

A cryptic pondering of how things may go down. 

Winter in Europe is approaching,

Russia has a lot of gas,

Europe doesn’t have enough gas,

European gas prices have quadrupled in a month,

The Nord Stream 2 gas pipeline is not commissioned,

The pipeline runs from Russia 🇷🇺 into Germany 🇩🇪 via the Baltic Sea,

It has been completed but it hasn’t been turned on yet,

Germany has until January 8th to certify Nord Stream 2,

Merkel is no longer chancellor of Germany,

The new chancellor hasn’t been confirmed,

In the meantime, Russia has started filling the pipeline for inventory and pressure,

The pipeline is owned by Gazprom,

although Gazprom is listed, the Russian Federation owns 51% of Gazprom,

Equities in Russia (Gazprom) oil and gas companies have tripled.

Russia accounts for one-third of world’s natural gas reserves,

Russia provides more than one-third of Europe’s gas supply,

Ukraine and USA have opposed Nord Stream,

as it will increase Europe’s reliance on Russian energy.

The West has been imposing sanctions on Russia,

Putin says he is willing to help Europe with supply,

America (Blinken) says Russia shouldn’t use energy supply as a ‘weapon’, 

Russia smirks as renewables aren’t exactly doing it for Europe yet.

Doesn’t Norway have gas?

Norway’s Equinor is Europe’s 2nd largest gas supplier after Gazprom,

they will increase more supply.

So Putin offers immediate gas transported through Ukraine,

Ukraine and Biden (USA) are friends,

Biden could be friendly to Russia by ‘allowing’ gas to run through Ukraine,

Russia then asks for sanctions to ease as a trade off,

Ukraine gets to earn money in transit fees,

Europe receives gas quickly, 

Gas prices fall, easing rising consumer costs,

The U.S. will be nicer to Russia,

because while he was at Columbia Law School, 

Secretary of State, Antony Blinken wrote a book in 1987,

Which suggest being friendly and engaging Russia rather than defeating them, 

And this gives us a clue to his potential diplomacy plan,

The book “Ally versus Ally: America, Europe, and the Siberian Pipeline Crisis (1987)” argued, U.S. policy toward the Soviet Union was less important than U.S. policy toward its European allies.

The Ghost of Blinken Past

The cat and mouse game is….

Petro Nations need Petro Dollars

Supply will be provided, at a cost…..

And not just selling at higher prices,

But a request for quicker commissioning of NordStream 2

and request lifting of sanctions against Russia.

and the trade is…….

Short gas prices,

sell your other oil and gas equities,

hold your Gazprom shares (for the moment),

And buy uranium related investments.

October 7, 2021

by Rob Zdravevski

rob@karriasset.com.au

Copper & the Nasdaq

And Copper needs to initially hold $4.07 over the next couple days and more so, $4.02.

A break below $4.02 means it has recently made a lower high and lower low.

Then we can expect to see the following move lower;
the AUDJPY (a weaker AUD), the CRB Index, Oil and U.S. 10 year bond yields.

This will make down-trodden technology stocks attractive.

For now the U.S 10 year bond is 1.55% and I expect a spurt to 1.58% in the next 2 days.

In turn we should see a couple more down-days in equities and a Nasdaq 100 touching 14,325 (another 2.8% lower from today’ close) would satisfy a 50% retracement of the 21% rally which commence May 12, 2021.

but remember to watch Copper….

October 6, 2021
by Rob Zdravevski
rob@karriasset.com.au

Make a call, Take a position

Do you know how you see price charts after the move has already happened. Financial media journalists are particularly good at that.

I remain critical of them because I just wish they would publicly make a call, form a view or take a position rather than always reporting things after the fact and acting as if they predicted it.

Below is my April 30, 2021 call that Natural Gas prices were on the verge of the ‘mother of all breakouts’.

Natural Gas – the mother of all breakouts?

Upon breaking above $3.03 mentioned in the article, they are now $6.25.
Part of the position was sold at $4.07.
It’s now time to sell the rest.

October 6, 2021
by Rob Zdravevski
rob@karriasset.com.au

Comparing Commodities to the AUDJPY

And then we can watch if the CRB (commodities) Index follows the AUDJPY (orange line) as well.

October 6, 2021
by Rob Zdravevski
rob@karriasset.com.au

Correlations abound

I’m watching the AUSJPY currency cross. It’s one of my favourites.

It’s at an acute point.

Let’s see which direction the AUDJPY (orange line) moves and see the U.S. 10 year bond yield follow it.

October 6, 2021
by Rob Zdravevski
rob@karriasset.com.au

Macro Extremes (week ending October 1, 2021)

The following assets (on a weekly timeframe) registered an Overbought reading or traded more than 2.5 standard deviations above its rolling mean.

Extremes “above” the Mean (at least 2.5 standard deviations)

U.K. 10 year government bond yields (Gilts)

U.S. 2 year and 5 year govn’t bond yields 

The Bloomberg Commodity Index

And the USD/JPY (telling us the Yen is weak)

Overbought (RSI > 70)

Hot Rolled Coil Steel (for the 53rd consecutive week)

Coffee

Tin

The CRB Index

and India’s Sensex & NIFTY 50 equity indices



The Overbought Quinella – Both Overbought and Traded at > 2.5 standard deviations above the weekly mean)

Gasoil

Heating Oil

Baltic Dry (shipping) Index

Natural Gas

And the JKM “Japan/Korea (LNG) Marker”



Assets (securities) which touched the other side of the extreme, being Oversold (where the RSI is < 30) or were at least 2.5 standard deviations below its mean are;

Extremes “below” the Mean (at least 2.5 standard deviations)

Germany’s DAX

South Korea’s KOSPI equity index

GBP/USD (meaning the British Pound has weakened)



Oversold (RSI < 30)

None

The Oversold Quinella – Both Overbought and Traded at > 2.5 standard deviations above the weekly mean.

None



Notes & Ideas:

The price action remained the bond market this past week with commodities also featuring the larger movers amongst the list below.

Bond yields have been rising. Following from last week’s round-up of movers over the past 2 weeks, we take a look at the past 6 weeks movers in yields.

Australian 10’s have risen from 1.07% to 1.49%.

U.S. 10’s from 1.13% to 1.47%

French 10 years from -0.15% to + 0.12%

U.K. 10’s have doubled from 0.52% to 1.01%. This weeks high was 1.06%.

Japanese 10’s are climbing, Korean 10’s are nearly overbought while the US10 year minus US2 year spread is on the verge of forming a bullish trend which is another indicator of stock market risk.

I am also watching the Copper/Gold Ratio to also assist with a directional call on interest rates and the USD (DXY) Index is above 94.

The larger advancers over the past week comprised of Baltic Dry Index (shipping) 12% (it’s up 30% in past 3 weeks), WTI crude 2.6%, Cocoa 4.6%, Iron Ore 6.7%, Gasoil 2.7%, Heating Oil 5%, JKM 13%, Coffee 5% (adding to last week’s 4.2% advance), Natural Gas 9.3%, Gasoline 2.9%, Sugar 5%, the CRB Index 2.2%, Corn 2.8%, Wheat 4.4% & the U.S. KBW Banking Index rose 2.4%, adding to last week’s 3% rise.

The group of decliners included Aluminium (2.4%), Cattle (2%), Nickel (5.3%), Orange Juice (3.6%), Rice (2%), Soybean (3%), AEX Index (3.1%), CAC-40 (2%), DAX (2.4%), S&P 500 (2.2%), TAEIX (4%), OMX Stockholm (2.6%), OMX Helsinki (2.3%), OMX Copenhagen (5.5%) (remember the Overbought signals on these in the last month), India’s Sensex (2.1%), Nasdaq (3.5%), the Nikkei tumbled (4.9%) and SOX fell (5.5%).

Note: the Philadelphia Semiconductor Index (SOX) has been generally trading sideways for 4 months and is the same price at February 2021. This somewhat validates the thinking that when the semiconductor shortage story hit mainstream, it was already built into the stock prices. The SOX has tripled from its March 2020 low and has risen 8-fold since January 2016.

Heating Oil has soared 23% in a month and as the chart below illustrates, has tripled since April 2021, when it last flashed an ‘extreme’ buy signal. Today, my signals for Heating Oil suggest selling.

A rise in the U.S. Dollar has generally resulted in weaker commodity prices. Gold in AUD continues to hold a A$2,312 support level.

But I continue to watch and think that recent rise in interest rates will be a head-fake and lead to a reversal lower. The next resistance in U.S. 10’s is 1.62%. 

Higher U.S. interest rates means a rising AUD. If 10’s hit resistance and reverse lower, the lower AUD and weaker commodities trade is back on.



October 2, 2021

by Rob Zdravevski

rob@karriasset.com.au