Global Market Comments
July 13, 2015
Fiat Lux
Featured Trade:
(REPORT FROM VENICE),
(AN EVENING WITH TRAVEL GURU ARTHUR FROMMER)
If you ever need someone to owe you a big favor, make sure it is the world?s best hotel.
That is what I discovered when I checked into the legendary Cipriani Hotel in Venice, Italy. I had booked their cheapest room at $1,500 a day. Due to a screw up on the reservations, I learned to my great distress, that I could stay only one night.
The good news was that they graciously offered me a free upgrade to their presidential suite, a two-bedroom palace stuffed with 18th century antiques, exquisite Murano glass chandeliers, and its own private pier.
All of this was a bargain for $12,000 a day. Would you care for a $1,000 complimentary dinner for two? And, oh, seniore, could we please cover the cost of the rest of your entire stay in Venice at the Hotel Danieli, a 16th century palace that was the city?s other trophy hotel? Total value of these freebees: $18,000.
Thank you Orient Express!
Thus, my stay in Venice was off to a spectacular and serendipitous start. They say ?See Venice, and die.? That?s because so many drop dead when they get the bill.
Feel like a continental breakfast for two with cappuccino for $100? It was all worth it, as breakfast on the roof of the Danieli was one of those once in a lifetime, bucket list type experiences.
Watercraft churned by in the hundreds, including ancient gondolas, wheezing, smoky old vaporetos, water taxis, inflatable dinghies, and even sail boats. I fought the sea gulls for the butter patties, which if not eaten immediately, melted in the heat.
Squeezing my way through the crowded alleyways of this enchanted Renaissance city, I caught a snapshot of the global economy.
The only Americans I saw were either young hedge fund traders wearing Rolex watches, or technology moguls cashing in this this year?s bubbliscious prices. The rest were clearly scared off by the price tag.
The Japanese were still there in force. But the groups included many single spinster women in their thirties and forties escorting their parents, unable to get married in an economy that has shown almost no growth in two decades.
They were joined by large tour groups from the up and coming economies of China and Brazil, their leaders barking out orders and leading the charge with large umbrellas or flags.
The super yachts of the Russian oligarchs lined the waterfront, conspicuous with their obscure Caribbean flags of convenience.
Extended Arab families that included two, three, or even four wives, and uncountable children in designer togs could be spotted in the best restaurants, the women laboring in their burkas in the 95-degree heat. It seems that oil at $100 a barrel will cover every bill and excuse any excess.
I have been coming here since 1968, and am never disappointed. I made my ritual stop by Harry?s Bar for a Champagne Bellini, and strolled past the American Express office where I used to pick up my mail during my wild and reckless, pre Internet youth.
I made a pilgrimage to Quadracci?s on the Piazza San Marco, where my grandfather used to sip espresso with another young ambulance driver named Earnest Hemingway during WWI. Family legend has it that Hemingway modeled his Italian driver friend on grandpa, who in the book gets killed.
That night, I had the concierge send a speedboat around to my room to take me across the lagoon to the Casino at the Lido. An Arab at my blackjack table was losing $50,000 a hand and sending out hugely negative vibes, so I moved.
I just wanted to let you know where the money for your $4 a gallon gasoline was going. As I was playing merely to see who was there, I gave my winnings to the dealer, who gave me a big grazie. It seems that Italians are lousy tippers.
On my way back, I stood in my powerboat alone, holding on to the cabin and racing across the water at 40 knots in the darkness, wearing my white dinner jacket and bow tie, the wind blowing through my hair, thinking life is good.
I better come up with some new trades to pay for all of this. I mentally prepared myself for my strategy luncheon the next day in Milan.
To be continued.
?If you can?t make yourself loved, make yourself feared,? said Meyer Amschel Rothschild, founder of the banking dynasty.
Global Market Comments
July 10, 2015
Fiat Lux
Featured Trade:
(THE FALLING MARKET FOR KIDS),
(HOLLYWOOD CASHES IN ON WALL STREET TROUBLES),
(THOUGHTS AT SEA ABOARD THE QE2-PART I)
?For several decades on Wall Street, the short term sensibility has been encouraged and compensated very highly,? said Michael Lewis, author of ?The Big Short.?
Global Market Comments
July 9, 2015
Fiat Lux
Featured Trade:
(AUGUST 3 ZURICH, SWITZERLAND GLOBAL STRATEGY LUNCHEON)
(THE ULTRA BULL ARGUMENT FOR GOLD),
(GLD), (GDX), (ABX), (SLV),
(PLAY CHINA?S YUAN FROM THE LONG SIDE),
(CYB), ($SSEC), (EEM)
SPDR Gold Trust (GLD)
Market Vectors ETF Trust - Market Vectors Gold Miners ETF (GDX)
Barrick Gold Corporation (ABX)
iShares Silver Trust (SLV)
WisdomTree Trust - WisdomTree Chinese Yuan Strategy Fund (CYB)
Shanghai Stock Exchange Compostite Index ($SSEC)
iShares, Inc. - iShares MSCI Emerging Markets ETF (EEM)
One of the oldest games in the foreign exchange market is to always buy the currencies of strong countries that are growing and to sell short the currencies of the weak countries that are shrinking.
Any doubts that China?s Yuan is a huge screaming buy should have been dispelled when news came out that exports have once again started to surge, thanks to the recovery of its largest customer, Europe.
China?s surging exports of electrical machinery, power generation equipment, clothes and steel were a major contributor.
Interest rate rises for the Yuan and a constant snugging of bank reserve requirements by the People?s Bank of China, have stiffened the backbone of the Middle Kingdom?s currency even further.
That is the price of allowing the Federal Reserve to set China?s monetary policy via a semi fixed Yuan exchange rate.
The last really big currency realignment was a series of devaluations that took the Yuan down from a high of 1.50 to the dollar in 1980. By the mid-nineties, it had depreciated by 84%. The goal was to make exports more competitive. The Chinese succeeded beyond their wildest dreams.
There is absolutely no way that the fixed rate regime can continue and there are only two possible outcomes. An artificially low Yuan has to eventually cause the country?s inflation rate to explode. Or a future global economic recovery causes Chinese exports to balloon to politically intolerable levels. Either case forces a revaluation.
Of course timing is everything. It?s tough to know how many sticks it takes to break a camel?s back. Talk to senior officials at the People?s Bank of China and they?ll tell you they still need a weak currency to develop their impoverished economy. Per capita income is still at only $6,000, less than a tenth of that of the US. But that is up a lot from a mere $100 in 1978.
Talk to senior US Treasury officials and they?ll tell you they are amazed that the Chinese peg has lasted this long. How many exports will it take to break it? $1.5 trillion, $2 trillion, $2.5 trillion? It?s anyone?s guess.
One thing is certain. A free floating Yuan would be at least 50% higher than it is today, and possibly 100%. In fact, the desire to prevent foreign hedge funds from making a killing in the market is not a small element in Beijing?s thinking.
The Chinese government says it won?t entertain a revaluation for the foreseeable future. The Americans say they need it tomorrow. To me that means it?s coming.
Buy the Yuan ETF, the (CYB). Just think of it as an ETF with an attached lottery ticket. If the Chinese continue to stonewall, you will get the token 3%-4% annual revaluation they are thought to tolerate. Double that with margin, and your yield rises to 6%-10%, not bad in this low yielding world. Since the chance of the Chinese devaluing is nil, that beats the hell out of the zero interest rates you now get with T-bills.
If they cave, then you could be in for a home run.
Ready for a Long Term Relationship with China?
Global Market Comments
July 8, 2015
Fiat Lux
EMERGENCY OIL ISSUE
Featured Trade:
(SPECIAL UPDATE ON THE OIL COLLAPSE),
(USO), (XOM), (OXY), (COP), (LINE)
United States Oil Fund LP (USO)
Exxon Mobil Corporation (XOM)
Occidental Petroleum Corporation (OXY)
ConocoPhillips (COP)
Linn Energy, LLC (LINE)
?
The Middle East is a miserable place to be during Ramadan, a month where the faithful reevaluate their lives and recommit to the teachings of Islam. This year it runs from June 17 to July 17.
During this period, the Muslims are not permitted to eat or drink from sunrise to sunset, or criticize others, or engage in a long list of other hurtful activities.
Although infidels, such as myself, are exempt from these rules, living amidst a population subject to these eighth century laws can be wearing. Everyone is starving, exhausted, and in a foul mood. Restaurants don?t open until sunset. Then people party all night, keeping you awake.
In the more fundamentalist conservative countries, like Saudi Arabia, Oman, and Kuwait, the Religious Police beat offenders with sticks and clubs that they come across in public.
That includes those eating, drinking, or women wearing immodest dress, like short pants and tank tops. Did I mention it reached 120 degrees yesterday in those countries?
As a result, anyone who can afford to do so flees to more liberal regimes during the fasting period, like Turkey, Egypt, and Morocco.
As a result, I am bumping into quite a few interesting people in the five star hotels here who have quite a lot to say about the price of oil.
A rash of hurried negotiations has suddenly broken out between American and European oil majors and the government of Iran. The word is out. Iran is going to imminently cave on US demands of inspections of nuclear facilities, especially the military ones.
The fact that this is all happening now is no coincidence. According to the Koran, Ramadan is a time to ?make peace with those who have wronged us.?
The hard numbers being assigned to these contracts is having the effect of increasing the size of the carrot for both the West and Iran to wind up the talks. The impact will be to permit Iran to rejoin the global economy for the first time in 36 years.
This paves the way for Iran to double its oil exports from 1.2 to 2.4 million barrels a day immediately, and then double them again once desperately needed energy infrastructure investments are made.
It won?t take long for this impending tsunami of oil to hit the markets. The Reuters news agency is reporting that 38 million barrels of Iranian oil are sitting in 15 VLCC tankers slow cruising the Persian Gulf and Indian Ocean.
The second the ink is dry on any US/Iran agreements, these ships are sailing for western and Asian ports to make delivery.
This is why you have seen a cataclysmic plunge in the price of Texas tea over the past few weeks, from $62 to $51, some 18%.
Saudi Arabia has responded to the decline by aggressively cutting prices for their largest customer, and ramping up production even more, in a determined effort to boost market share.
Therefore, the March low of $43 now seems within range, and maybe then some. You have already seen this in the contango for far month futures markets, which have widened fantastically. The world has returned to paying huge premiums for storage.
In case you missed the generational low at these prices four months ago, you now have another shot.
The share prices of my favorite oil plays, Exxon Mobile (XOM), Occidental Petroleum (OXY), Conoco Phillips (COP), and Linn Energy (LINE) all saw this route coming months ago and are already there.
In fact, the weak energy sector, which accounts for 10% of the S&P 500, was a major reason why the index failed to break out to new highs a few weeks ago.
I think that energy could be one of your seminal investment plays for the rest of 2015. Crude should make it back up to the $90 handle within the next three years, riding on the back of the global synchronized economic recovery.
After that, the question arises of whether the next move is to $10, as carbon based energy forms are replaced by alternatives on a large scale. Allow for a Moore?s Law type exponential growth of efficiencies, and we?ll soon be there.
That is Saudi Arabia?s current $5 per barrel cost of production, plus a 20% profit margin and $4 for shipping. Remember, it was only $8 as recently as 1998.
Just thought you?d like to know.
And now, back to my loyal rental camel, whose price, it turns out, is determined by, you guessed it, the price of oil.
Sometimes, You Have to Go to the Source
Global Market Comments
July 8, 2015
Fiat Lux
Featured Trade:
(JULY 31 ZERMATT, SWITZERLAND GLOBAL STRATEGY SEMINAR)
(THE TWO CENTURY DOLLAR SHORT),
(CNN?S JOHN LEWIS; THE DEATH OF A COLLEAGUE)
Global Market Comments
July 7, 2015
Fiat Lux
Featured Trade:
(MY BRIEFING FROM THE JOINT CHIEFS OF STAFF), (XLK),
(WHY THE JGB MARKET MAY BE READY TO COLLAPSE),
(FXY), (DXJ), (EWJ)
The Select Sector SPDR Trust - The Technology Select Sector SPDR Fund (XLK)
CurrencyShares Japanese Yen Trust (FXY)
WisdomTree Trust - WisdomTree Japan Hedged Equity Fund (DXJ)
iShares, Inc. - iShares MSCI Japan ETF (EWJ)