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Four Catalysts Needed For The Industrial Commodities Rally To Resume

Tyler Durden's picture




 

The recent sluggishness in equity markets has certainly affected industrial commodities over the past few months, if not gold, which as pointed out earlier is just 2% below its nominal highs and rising despite the 4th margin hike on the Shanghai Gold Exchange overnight - once again gold is seen at the apex of the fiat currency replacement pyramid. So what could cause a rally in industrial commodities in the near term? Sean Corrigan lists the four key catalysts, whose occurrence listed in order of probability, could rekindle the recently faltering rally.

From the most recent edition of Sean Corrigan's Material Evidence

So, the burning question now is whether commodity prices can shake off the disquiet caused by May’s sharp liquidation and validate the soundbite suppositions of the past few days.

With so much hot money still swilling around the world, readily available at low nominal and largely negative real rates of interest, we can never say never, but so many other beneficiaries of the Bernanke Bubble are either losing momentum and/or breaking trend, that it may be that the whole shell game has been busted pro tem.

Certainly, the fundamental backdrop is beginning to look less rosy, with Japan suffering a 13% decline in exports, Taiwan’s industrial expansion slowing, Thailand’s turning negative, US macro numbers registering a series of disappointments, UK businesses still cutting back on investment and broad swathes of China’s corporate landscape experiencing a severe margin squeeze.

Our feeling is that for a significant rally to take place from here (that is, without enduring any further, intervening weakness), one of four things has to happen soon, listed here in a loose order of their assumed probability:?

  1. The Japanese government will forego the chance to introduce the meaningful, permanent fiscal rebalancing to which it might accustom the electorate under the guise of a supposedly temporary, disaster?relief measure and inveigle the BOJ into monetizing (albeit at one remove) the vast reconstruction effort needed in the country instead.
  2. The Chinese will prematurely relinquish their fight against the inflation which was unleashed by their huge, unfocused stimulus’ efforts of the past two years, in the estimation that the threat to the regime’s predominance posed by slow growth and falling employment is now greater than that posed by rapidly rising prices.
  3. The Fed will find an excuse to revisit a programme of ’quantitative easing’ (i.e., money printing) without first being forced to sit by and watch a prolonged retrenchment in economic activity
  4. The US dollar will undergo a renewed, sharp decline, allowing existing carry?trades and ‘Risk On’ mixes to be reinstituted with the least demand for original thought. Here we should note that while, ceteris paribus, a flight from the dollar should not automatically boost commodity prices in other currencies, a combination of having a greater marginal impact in a much smaller market and the active contracting of paired trades does in practice tend to bring about such a broad appreciation.

If none of these US Cavalry troopers appear over the horizon in a timely enough fashion, or until there is unequivocal evidence that speculative appetite has otherwise fully returned, our worry is that the industrial commodities in particular remain at risk of another 10?15% correction and a more thoroughgoing purge of leveraged long positions before we can find some sort of meaningful base from which to re?enter a fuller exposure.


 

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Mon, 05/30/2011 - 14:14 | 1322852 Muir
Muir's picture

Just do not worry about it and buy silver.

Mon, 05/30/2011 - 14:44 | 1322902 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

The DXY is going to 200 because the dollar is such an undervalued investment compared with all the other fiat debt instruments, and no, this is not a false dialectic, it is merely the question of deciding what else to use when valuing debt?  Gold and silver?  Ha!  There is not enough silver and gold for everyone to use.  Never mind if the prices of precious metals increased dramatically, this would ensure that resources such as oil and water could trade in equilibrium with the value of another tangible good.  The banksters changed the paradigm forever long ago, those brilliant men.  The brilliance of them lies in the fact that they created a new idea that only god understood:  create something out of nothing, and like the big bang, Smithsonian economics was born.  Now slave labor exists to further our society.  Long live the slaves!

The hundreds of trillions of dollars will continue trading with vigor as long as slave labor continues to feed the engine of progress.  And demand will always be high for dollars and slaves and their counter party, the bonds and sharecroppers, because the US is so freakin' awesome with their budgeting and what not, and slavemasters are so freakin' important.

Mon, 05/30/2011 - 15:03 | 1322982 JW n FL
JW n FL's picture

you mean you can find $18 Trillion in silver and Gold and the Bankers would never had been able to pass it around to the extent that it was in fact passed around?

 

Noooo.. say it aint so!

Mon, 05/30/2011 - 15:20 | 1323025 Thomas
Thomas's picture

Not enough gold and silver? I've never understood that claim. Is that a divisibility claim? To use it as an actual currency, sure. In fact, a flood of silver in the 15th century helped move it to center stage (and laid the foundations for the term the "dollar".) To use it as a store a value, by contrast, it only needs to be divisible enough to move around the banking system. There is plenty to do that

Mon, 05/30/2011 - 16:37 | 1323135 Lord Koos
Lord Koos's picture

The dollar as an investment?  bwahahahahaha

Why would anyone in their right mind hold an "investment" which loses value year after year, and when saving them pays negative interest rates?

Mon, 05/30/2011 - 16:40 | 1323136 Lord Koos
Lord Koos's picture

double post

Mon, 05/30/2011 - 16:41 | 1323143 Quinvarius
Quinvarius's picture

There is plenty of gold to back the dollar 100% at $50,000 an ounce. 

Mon, 05/30/2011 - 16:57 | 1323155 cosmictrainwreck
cosmictrainwreck's picture

thanx for that, Quin....I've been a little short on yuk's today

Mon, 05/30/2011 - 19:10 | 1323378 vocational tainee
vocational tainee's picture

I,would love that..

Mon, 05/30/2011 - 14:14 | 1322853 JW n FL
JW n FL's picture

Yes! wait.. dont buy! hold on to that Paper!

if the Fed Printed $3 trillion in debt.. and another $15 Trillion in Loans (this does Not! include swap windows and TARP / TALF and so fucking on...) over three years..

$18 Trillion divided by 3 years ='s $6 Trillion in New Supply is Printed a Year!

 

$6 Trillion Dollars divided by 365 days ='s $1,643,835,6164 a Day in in New Supply is Printed a Day!!

 

$1,643,835,6164 Billion a Day divided by 24 hours in a Day ='s $684,931,506 an hour in New Supply is Printed an Hour!!!

 

so, you hold on to your paper while my Gold and Silver dont rise in price.. Good Luck with that program!

 

Mon, 05/30/2011 - 14:32 | 1322889 MolotovCockhead
MolotovCockhead's picture

And you have not brought in the printing press of the BOJ yet!!

Mon, 05/30/2011 - 14:56 | 1322968 JW n FL
JW n FL's picture

BOJ is a Great! Source of Backdoor Liquidity! with a 95% Value Purchase Program of Bonds.. LOL!

Mon, 05/30/2011 - 15:01 | 1322972 JW n FL
JW n FL's picture

http://www.youtube.com/watch?v=O5Xe_ATNWQQ&feature=related

 

Al Bartlett on energy consumption versus population

http://www.youtube.com/watch?v=tdeclb2xv8c&feature=related

Al Bartlett interview from Blind Spot documentary

Mon, 05/30/2011 - 15:30 | 1323032 JW n FL
JW n FL's picture

http://www.youtube.com/watch?v=6QJhU0TtQOY&feature=related

Jason Bradford interview.. from the movie blind spot.

 

Mon, 05/30/2011 - 14:21 | 1322863 Caveman93
Caveman93's picture

Paper is trash. Buy all things real. Nuff said. 

Mon, 05/30/2011 - 14:27 | 1322881 Kimo
Mon, 05/30/2011 - 15:21 | 1322979 Manthong
Manthong's picture

We don't have those concerns here because we have the FDIC which has adequate reserves to cover everybody and represents in effect, the full faith and credit of the United States government.

As former GM bond holders will attest, you have nothing to worry about when the US federal government is in charge.

Mon, 05/30/2011 - 20:41 | 1323752 JFK.4PREZ
JFK.4PREZ's picture

In Ben Bernanke We Trust

Mon, 05/30/2011 - 16:46 | 1323144 Quinvarius
Quinvarius's picture

And using it to buy gold.

Mon, 05/30/2011 - 17:46 | 1323213 topcallingtroll
topcallingtroll's picture

Wow...when the common people panic it is a game changer.

Greece doesnt have much time to agree to allow an international committee run the country.

Mon, 05/30/2011 - 14:34 | 1322905 vast-dom
vast-dom's picture

And what EXACTLY are you buying with? Nickels and dimes?

Mon, 05/30/2011 - 14:18 | 1322869 DoChenRollingBearing
DoChenRollingBearing's picture

Industrial commodities may very well go down.  Especially if things get really bad.

I think that gold will hold up well though.  Silver?  Who knows, I do not have a good grasp on silver (I of course read up on silver, but I am not an expert, not even close).

$4 / lb for copper seems very high...

Mon, 05/30/2011 - 14:28 | 1322875 delacroix
delacroix's picture

the dollar just ain't what it used to be

Mon, 05/30/2011 - 14:41 | 1322917 XenoFrog
XenoFrog's picture

I laugh really hard when I see pm sellers advertise copper rounds for $1.80/oz.

Mon, 05/30/2011 - 14:59 | 1322975 DoChenRollingBearing
DoChenRollingBearing's picture

Wow, a BUNCH of people I like right all here close together.  Mr Lennon, JW,  delacroix, XenoFrog, send me a gmail (not rocket science) if any (all!) would like to read my blog.  I ask ZH-ers to jump through this hoop because of the nature of THIS site.  I have 90 ZH-ers who did this and are apparently the great majority of my visitors.  Mr Lennon, my blog does not at all compete with yours or Turd's.

Mon, 05/30/2011 - 16:48 | 1323146 Dollar Bill Hiccup
Dollar Bill Hiccup's picture

$4 and rising. Again. Are asset markets this mind numbingly conditioned? That's a rhetorical question ...

Mon, 05/30/2011 - 14:30 | 1322878 Ahmeexnal
Ahmeexnal's picture

Utah Law Makes Coins Worth Their Weight in Gold (or Silver)

http://www.nytimes.com/2011/05/30/us/30gold.html

Mon, 05/30/2011 - 19:48 | 1323459 Captain Planet
Captain Planet's picture

thanks for the link. had seen that brewing.

what a joke propaganda article by the masters of spin themselves, the old record , soon to be less relevent than the onion

Mon, 05/30/2011 - 14:31 | 1322886 sschu
sschu's picture

It seems to me any analysis that ignores the financing of the USG's $1.6T deficit is lacking.  Just how and who is going to lend to the US or is Congress etal going to wake up and live within their means?  That is an easy one. 

He mentions QE, but this has now become a two headed beast, one to finance the deficit and second to maintain some semblance of economic growth.  Up till now QE has been able to provide deficit financing and a little growth.  The marginal return on debt is declining or even negative, how much QE will be required to prevent a deflationary depression or extended stagnation?  How long will the electorate stand by and watch Wall Street get "rich" while they get crumbs?  The winds of change are a blowin, we may not like what we get, but more of the same is unlikely IMHO. 

sschu 

 

Mon, 05/30/2011 - 14:41 | 1322923 Arrowflinger
Arrowflinger's picture

AFTER the perps were bailed out with $trillions from the fed, there is going to be no way in hell to sell austerity to the public. For example, the Fed gave the Arab bank $23 billion, which is enough to fund SNAP/food stamps for AMERICANS for 5 months.....and the list of such outrages totals $15 trillion.

This is the point that the MSM totally misses.

 

Mon, 05/30/2011 - 14:47 | 1322943 sschu
sschu's picture

Austerity now and for the middle class is a political non-starter.  At the same time the idea that we can print oour way out of this problem has become impossible, oil at $100+ insures zero or negative growth.

Events will drive the politicians, not the reverse.  Soon the politicians will surrender and the problem will belong to the public.  Just before that expect capital/price controls and asset confiscation. 

We will all end up with nothing.

sschu    

Mon, 05/30/2011 - 14:35 | 1322898 Arrowflinger
Arrowflinger's picture

The forced retooling, equiping, and distributing of electrical energy is a solid foundation for copper. Chinese pig farmers look around, see hundreds of new power plants going up, and hoard copper.

A Chinese pig farmer with no education is going knock Bernank's socks off return wise and, more surely, common sense wise.

 

Mon, 05/30/2011 - 14:42 | 1322925 agent default
agent default's picture

Pig farmers have to actually work for a living.  You will be surprised how much more they know and understand about economics than economists and politicians. And you bet your ass they understand more than Benny.

Mon, 05/30/2011 - 16:14 | 1323107 Dirtt
Dirtt's picture

Concur

Mon, 05/30/2011 - 17:16 | 1323182 Bob
Bob's picture

Unfortunately, it's not the common sense lobby that he works for.

Mon, 05/30/2011 - 15:21 | 1323024 cosmictrainwreck
cosmictrainwreck's picture

exactly right.... btw, how's that "smart grid" thingy workin' out for us? sure hope they've got some of those "I am an IBMer"s on it

Mon, 05/30/2011 - 14:47 | 1322941 falardea
falardea's picture

At some point industrial commodities have to start flowing, if for no other reason than to produce the guns and ammo with which to suppress the revolutions.

Mon, 05/30/2011 - 15:04 | 1322989 Beatscape
Beatscape's picture

These are good points, but missing a few equally important ones.  Plus, I hate to bundle PMs in with industrial commodities--the whole risk basket. The PMs have their own drivers which should be viewed separately.  As the world-wide economy contracts, it is bearish for copper, aluminum, steel, etc., but it puts more pressure on the Central Banks to monetize in order to juice the economy, which is bullish for PMs.

A perfect example is a Greek default on their debt. This is only a matter of time, and given the CDS holdings of Goldman Sachs, IJ Partners, and several others that hedge for a Greek default, there is a lot of very large positions that will benefit from a default, therefore increasing the likelihood that it will happen.  This is could very well be the domino that finally starts the Euro implosion.  And, this is bullish for PMs, but bearish for industrial commodities.

Silver has it's own unique drivers.  One of the biggest is that the Central Banks (and essentially no one else) have big hordes of silver holdings with which to dump in the market to thwart silver's rise. Silver is a PM just like gold and accepted as currency now in Utah.  Given that an ounce of silver is a much smaller denomination that the equivalent ounce of gold, it is even more likely to be used as a currency.  When buying food or staples, you usually don't whip out a $1,500 note (coin) to pay for it.  Yet at ~$35 an ounce, silver is much more likely to be used in everyday currency, therefore increasing the likelihood that it will be used first and more often as a means of currency when the fiat currencies collapse.

 

Mon, 05/30/2011 - 15:24 | 1323026 delacroix
delacroix's picture

there are not enough hordes of silver to go around, and the big banks, have mostly paper silver. there won't be any flood of supply, demand, will soak it up,in short order

Mon, 05/30/2011 - 17:10 | 1323168 eddiebe
eddiebe's picture

We'll go back to the pieces of eight. I remember what two bits means; really not so long ago.

Mon, 05/30/2011 - 21:05 | 1323915 BigJim
BigJim's picture

One of the biggest is that the Central Banks (and essentially no one else) have big hordes of silver holdings with which to dump in the market to thwart silver's rise.

No they don't, at least, not from what I've read. All the (big) short positions are naked.... they flood the market with paper silver. This is why the shrivelling supplies for delivery at Comex are such a big deal.

Mon, 05/30/2011 - 15:21 | 1323020 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

The fiat ponzi can only hold sway over the economy until finite resources have their respected output peak.  Gold production has peaked, as has platinum, oil may be peaking now, and silver is around the corner.  Gold trades instead of fiat (which is how gold trades with the stronger of the two tiered fiat- euro and dollar.  Silver and oil trade inversely.  The trade has been steady thusfar, but when supply falls across the finite resource board, the move will end the fiat based ponzi economy.

The Fundamental Problem with Oil Prices:

http://www.theoildrum.com/node/7960

 

Mon, 05/30/2011 - 15:50 | 1323066 dollartheque@ya...
dollartheque@yahoo.com's picture

Yea Yea, none of this crap were evident at the start of the commodities bull market 10 years ago, !!!!! its the debt , and gold remains the leading indicator

Mon, 05/30/2011 - 17:00 | 1323113 slewie the pi-rat
slewie the pi-rat's picture

and these are just white swans. 

how many dumbass things will the freaking banksters doodoo before lunch, tomorrow?  plenty!

Mon, 05/30/2011 - 17:01 | 1323160 The Answer Is 42
The Answer Is 42's picture

Gold may be an exception, but industrial metals will not rebound any time soon because

1. QE3 will not happen unless and until Euro or another crisis provides cover, and

2. EM growth story is coming to an end, again.

Mon, 05/30/2011 - 17:39 | 1323196 topcallingtroll
topcallingtroll's picture

Yeah I have always said brazil is a long term hold. Three percent dividend yield is not bad. I dont mind dollar averaging down if it happens.

Brazil has the most transperancy and the most open economy of the BRIC, amazing what that says about the RIC economies. It is also better diversified.

I would love to see ten percent dividend yields again. Probably will never happen.

Mon, 05/30/2011 - 21:06 | 1323942 BigJim
BigJim's picture

Oooo. Shoes.

Mon, 05/30/2011 - 22:43 | 1324214 JW n FL
JW n FL's picture

andddddd... its gone!

Mon, 05/30/2011 - 21:24 | 1324018 Dolemite
Dolemite's picture

Gold to keep going up up up?

http://deadcatbouncing.blogspot.com/

Do NOT follow this link or you will be banned from the site!