The End Of The Supercycle? Commodity "Capitulation" Arrives

Tyler Durden's picture

In a note by BofA's Michael Hartnett titled "When Supercycles end", the bank looks at the latest EPFR fund flows and concludes that the wave of commodity "capitulation" revulsion selling has finally arrived.

Specifically, looking at fund flows, the most recent week saw the biggest outflow from precious metals in four months and emerging market fund outflows reaching $10 billion over the last two weeks leading Hartnett to conclude that "capitulation is beginning in EM/resources/ commodities."

This is what the most recent flows looked like:

The fund flow details indicate a "Great Rotation" out of commodities, Emerging Markets and, curiously, the US, and into bonds and continued flows into Europe, which has now seen 10 straight weeks of inflows with the latest one of $6.0 billion also the largest in the past 4 months.

Inflows into fixed income have been across the board:

  • $1.9bn inflows to IG bond funds (first inflows in 3 weeks)
  • $0.5bn inflows to HY bond funds (2 straight weeks)
  • $0.3bn inflows to EM debt funds (modest inflows but largest in 11 weeks)
  • $2.1bn inflows to govt/tsy funds (3 straight weeks)
  • $0.2bn inflows to muni bond funds (first in 7 weeks)

While in equities it has been a tale of two flow directions: out of the US and into Europe (and to a lesser extent Japan):

  • Japan: first outflows in 8 weeks ($0.5bn)
  • Europe: $6.0bn inflows (10 straight weeks & largest in 4 months)
  • EM: $3.3bn outflows (2 straight weeks)
  • US: $3.7bn outflows (outflows from both mutual funds & ETFs)

By sector, inflows to secular growth areas of healthcare ($1.3bn) & technology ($0.4bn)

To be sure, the best example of the paper flow capitulation is where else but gold, where in the past week algo, 1% of total gold/silver AUM has been wihdrawn!

But while gold has seen its share of pounding in the past 5 years, it is modest compared to the revulsion experienced by companies that have economic exposure to Emerging Markets. As BofA notes "US companies with high economic exposure to Emerging Markets at close to 13-year lows vs broad US equities."

The last chart may also explains why Ray Dalio, after largely ignoring the bursting of China's three bubbles (as shown here previously) finally threw in the towel, became bearish on China and admitted that "There Are No Safe Places Left To Invest." It also explains why increasingly fewer are "buying the dip" across markets despite one-off superstars like GOOG and AMZN.

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USisCorrupt's picture

Don't fool yourself, this is the end game playing out.

 

Paper gold could go to $100 & paper silver to $1

 

The CRIMEX will then close its doors.

Headbanger's picture

Looking moar like "decapitation" to me

NoDebt's picture

The great China growth story has turned out to be nothing but a fairytale.  Commodities are adjusting accordingly.

VinceFostersGhost's picture

 

 

So China, Russia, and myself are buying gold....but we're no match for those two guys in New York.

 

No....I don't know who they are....and neither does the CFTC.

PrayingMantis's picture

 

 

... meanwhile, Goldman Sachs alert: beast from deep freaks out Russian ... footage of an impressive goldman sachs filmed by Russian has emerged online, attempting to steal the catch ;)  >>> http://www.rt.com/news/310634-giant-squid-russian-sailors/ ...   

Headbanger's picture

Wow, what a great way to get rid of banksters

Throw em overboard to be devoured by their own kind!

y3maxx's picture

The next bubble will be.........W W #3

Soul Glow's picture

Paper gold will never go to $100 nor paper silver to $1.  The bullion will be bought at all costs starting now.  Likely a bounce for both is in short order.

Tall Tom's picture

Both paper Gold and paper Silver will trade at ZERO. (Of course the real McCoy will not.)

 

The price for a defaulted contract is NOTHING. It is WORTHLESS if it is unenforcable.

 

And as the Comex is levered at 92 to 1 on Gold and probably over 100 to 1 on Silver that eventuality will happen.

 

My Coin Dealer cannot buy Silver. He has none currently for sale. Whatever walks in that door is gone.

 

There is a PHYSICAL SHORTAGE.

 

Comex is not able to deliver at these prices so they will "Cash Settle". But what good is that when people demand product? So they will allow the paper price to decline as their cash settlements will be less. Or they will give the option for a delayed delivery?

 

And people are beginning to figure this out.

 

The contract is WORTHLESS without available product. The miners are not supplying at these prices as they cannot afford to produce.

 

The US Mint has run out. That demonstrates the restricted supply.

phoggy's picture

No shortage of metals with my dealer.  SilverSaver.com

 

Call them, they have almost everything I want and when I take delivery, it is to my door usually within 4-7 business days.

lakecity55's picture

It seems spotty throught the country at this point.

PTR's picture
SilverSaver is undergoing maintenance.
y3maxx's picture

The next bubble will be.........W W #3.

Everyone will be doing it.

Last man standing wins?

USisCorrupt's picture

There will be NO NEED for WWIII, all China & Russia needs to do is to go on a gold standard and they can CRUSH the West without one shot being fired. And the games that are being played in the Commodities Markets would end and I would NOT be shocked to wake up Monday finding that the announcement has been made. Granted there will be MANY black swans when it does happen, mainly here in the US.

 

Don't forget back in February IMF head Christine Lagard was mocked using astrology picking July as the month the collapse will happen. She has been very very vocal as of late saying just how underwater many countries are and the relief they need now.

 

Just saying, anything can happen. And it sure SMELLS like the time to pull the trigger.

seek's picture

That's assuming the West rolls over and dies.

Don't assume collectively the west is all good guys that wouldn't stoop so low as to start shit. Indeed I'd assume they will.

robertocarlos's picture

Then it's simple. China and Russia will be the capitalist pigs with a gold backed currency and we will be the commie bastards with lines for something but we don't know what it is the store is sellling but we're buying it.

August's picture

Shooting them in the face works, too.

lost money's picture

why are you buying gold on the way down? paying 1100 for something that wil be worth 900 in 2 months? you're  crazy

VinceFostersGhost's picture

 

 

Channeling your inner Jon Nadler today I see.

Soul Glow's picture

At this point if someone doesn't see gold's value and they are writing on ZH they are trolls and nothing else.

uhb's picture

i do own a lot of phyzz, but i'm nevertheless short gold miners right now. I think that guy (lost money) has a point: why not wait until the price for paper falls even lower and then start piling up on phyzz again? Id rather wait for the total capitulation in gold prices to re-stack

USisCorrupt's picture

So you are assuming that as long as there is paper gold and silver there will also be Physical Gold and Silver, hehe.

 

Can someone pass the hookah to me next, please.

Peter Pan's picture

While you may be right about $900 gold in 2 months, you should ask yourself whether at that time you are able to withdraw your cash to make a gold purchase.

swass's picture

This totally depends on whether you're emphasizing the cash part or the withdraw part.  USD has had a long run, so I expect there is still a fair amount of correction left.  This correction should coincide with a bounce in gold after this capitulation.  That could last several months or more, probably through the end of the year and drive gold much higher.  After that, I think the slide may continue for another year or so before hitting a final low.  Either way, now is a good time to buy gold, at least for the short term.  If it doesn't have another drop after this coming bounce, then you'll have got in at a great time.  Otherwise, you can liquidate and wait for the final low to come in.  I expect we may have some difficulties in the withdrawal of cash from some banks once the banks come under pressure, which means it is good to have some hard cash stuffed away for a rainy day too.  .. and never put all your eggs in one bank.

sun tzu's picture

Correction against what? The euro or yen? Correction against assets? When everything is overpriced, cash is king. Deflation is the word until QE4 starts.

seek's picture

Banks sure seem touchy about withdrawls now, let alone durng the next crisis. Mine seems to be bending over backwards to not only not give me my money but sabotaging bill payments and transfers.

Wannabe_Oracle's picture

I'm trying to understand your comment. You're saying that, you know, Au will be 900 in two months... Dang, can you be my financial advisor, cuz you seem wicked smart and in the know... How bout this -- give me a ring and I'll show you how to get back your 'lost money' (fiat of course). :-)

Kina's picture

Please tell me when the bottom is in, and I will buy all then.

HardlyZero's picture

None can predict when or how the spinning top will fall over.

Buy Gold now (maybe 50% of your overall purchases), then wait.

 

A reasonable "now-and-later" precious metals buying strategy: 

50% now

50% later

Model T's picture

The future is a little more difficult to predict than you imagine. Just because you have an opinion, does not mean that events will unfold this way. Also; the "future" goes on for longer than 2 months; suppose Gold is worth $900 in two months; and 4,500$ in two years ? YOu know very little.

flyingpigg's picture

I wish lost money good luck to buy at 900.

There are risks associated with buying physiscal. So to wait until the last moment to convert a large fiat amount into gold can be risky. You might think to save 200 USD/oz and lose the whole stack to criminal who noticed you were buying in size. Better to buy small amount spread over longer periods. That will also allow you to scale in at average prices instead of betting on a forecast of a lower price which might be wrong.

Besides that, it's better to buy two years too early at a price 20% above the low than being one day too late and not to buy at all.

daveO's picture

Meanwhile, the banks have consistently stolen around 5% of savings, per year, since 2008.

August's picture

For the US-based, it's better to regularly exchange fiat for those wonderful, shiny products from the Royal Canadian Mint, so you have the option of legally moving them into Canada with no tax being due, or even a customs declaration.

Sure, in the Big Picture, Canada is merely USA-lite, and no reportable financial event in Canada is a secret from the US Government.  However, not all financial events in Canada are reportable, specifically not the export of personally-owned .999 PMs of Canadian origin.

opport.knocks's picture

Sorry, the price of the coin products that the Canadian mint sells are about double the value of gold in them, hardly a good "investment". But if you want to subsidize an inefficient Canadian government business, be my guest.

fbazzrea's picture

Personally, although living in the States, I've found RCM coins to be more competitively priced relevant to the underlying PM value and to me, more preferable when comparing their higher degree of fineness: .9999 vs. .999 typically produced by other mints. Btw, from what I read about the Canadian government, I believe the US government could take some tips from them.

lakecity55's picture

There will not be any left at 900$

 

Fahque Imuhnutjahb's picture

disciplined dollar cost averaging, which of late is akin to financial masochism

PTR's picture

why are you buying gold on the way down? paying 1100 for something that wil be worth 900 in 2 months? you're  crazy

 

Crazy is also the time frame you're applying to this.

r3phl0x's picture

The CFTC couldn't find a whore in a whorehouse, and that's why they're so well paid.

philipat's picture

@ND

Really? I normally agree with all your posts but not this one, China has a population of 1.6 BILLION and POSITIVE reserves in Gold and some Green Paper, the latter alone representing over 1.4 TRILLION. China's debts are entirely INTERNAL so its defecits are entirely manageable. Unlike some other countries. Russia also is "Isolated" with a Debt to GDP ratio of about 14%.

China for sure has many problems but building infrasturcture is a better long-term investment than pissing money away in the TBTF Banks and their "Investments"? Eventually, families will occcupy the empty apartments in empty citiies but the financial "Investments" by Wall Street will be lost forever in the Caymans?

NoDebt's picture

That may well be, but gold is getting hammered down along with every other commodity right now.  And that's because China's growth story of 7% CAGR has been shown to be a fairytale.  I'm not saying gold deserves to be hammered, I'm pointing out that it IS being hammered just like everything else that gets dug out of the ground right now.  It may not deserve it, but that's what's being done to it.

China's past "investments" are what's killing them right now.  They weren't investments at all.  They were government mandated works projects- buildings that nobody inhabits of works in, stadiums where no teams play, airports with no flights and bridges to nowhere.  They were classical mal-investments.  I'll point out that it takes a lot of steel and concrete to build steel and concrete plants, too.  It was self-feeding in that way.  Now it's coming to a screeching halt, just as centrally-planned economies always do at some point.  And the debt they incurred for these "investments" was heaped on municipal and regional governments (internal to China, as you rightly point out).  

All this has conspired to hobble their growth rate.  They aren't doing 7%, despite their claims.  I have my doubts about whether their actual growth rate is even positive at all.  Not that our growth rate is positive, but it's about EXPECTATIONS.  We know the US is dead in the water, but a lot of people put a lot of chips on China hitting a real 7% growth rate.  When you expect the world's 2nd largest economy to do 7% and you get 0%, commodities are going to get ass-raped.  Yes, including gold.

They can hold all the reserves they want- in gold, in USTs, in RMB.... it doesn't matter.  If you can't turn that into real productivity and growth, you're fucked.  They are fucked.

 

 

Fahque Imuhnutjahb's picture

 

 

When the "click" gets their "buy signal", they'll deploy their free/cheap fiat reserve war chest and gobble up commodities & distressed assets.  Once they've blown their wad into the economy acquiring hard assets, they'll

bide there time waiting on the wad to wend it's way through the system, picking up velocity, priming the pump---till the "sell signal" is given.  Wax on , wax off.  Riding the wave of credit boom manipulation through the

ages.  Inflation & disinflation, the millstones used to grind our bones to make their bread.

HardlyZero's picture

Everything is getting hammered; therefore, this is the end-game.

There must be a lot of pucker'd investors out there.

 

A good metals strategy is to short the stock market, then buy a bunch of metal later, while holding sufficient physical.

USisCorrupt's picture

I would venture to say that those who are in the US will be fucked even more.

 

Everything and I do mean EVERYTHING that we as a Nation were taught to believe in has been a complete and total FRAUD/LIE. The ONLY thing that has allowed us to be where we are at today is that we currently have the reserve currency which that too is going to end, which by what I am seeing could come at any DAY, Seriously.

 

The people in the US have not a clue as to just how bad it can be, there is a reason there are now 400 +/- FEMA Camps scattered all over the US. I truly hate seeing where we are as a Nation and feel there will be very hard times ahead. My main concern will be if the same pieces of shit will hold the control after the downfall happens. I just hate the thought of being more of a Slave than what I am now. The young generation have no idea of the freedoms and liberties that they have already lost as it is now. I look forward to my next life, yes my faith is very strong. 

MFL8240's picture

Chinas growth is a fairytail?  Do you honestly think a country with 3.5 trillion in foreign reserves is a fairytale?

NoDebt's picture

Yes.  At least their claimed growth rate is for sure.  More to the point: if you can explain to me how FX reserves have a damned thing to do with their demand for commodities, I'm all ears.

That IS what this story is about- commodities.  

Vampyroteuthis infernalis's picture

This is just going to move on down the line into bonds, stocks followed with pitchfork armed mobs in the streets.