Risk-On, Risk-Off Markets to Dominate Trading


Author Larry Berman

Posted: 10 July 2012 re-posted from etfcm

We continue to expect the risk-on, risk-off markets to dominate trading until further notice—global economies are slowing and stimulus is expected. Last week’s response to the trifecta of an ECB rate cut, a Chinese rate cut, and a material increase in QE from the BoE was poorly received. We expect the trading ranges of the past year to generally contain the market for the next few quarters.

The rally in WTI was stopped dead in its tracks last week and our call to take some money off the table in the sector was right on the money. For now, we do not see WTI dropping back below recent lows around $78, but we do not see it getting back above $90 unless there is an escalation of tensions in the Strait of Hormuz and a real supply squeeze, we do not see a demand pull for a while—these things are hard to forecast with any certainty.

The gold sector has had the biggest volatility of all as investors await QE or not QE, that is the question. Seasonality for gold stocks begins to look really good over the next few months, so buying dips in the sector is back on the front burner.

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This Market is About Fast Money, Not Fundamentals


Author Larry Berman

Posted: 12 June 2012 re-posted from etfcm

There is no fundamental reason for WTI to have a $5 range yesterday from peak to trough. It reminds us that this market is not about fundamentals, it’s about fast money guys punting billions of dollars around front running event risk. We do know that the US is pumping out more oil today than it did in 1998 thanks entirely to Bakkan. This is causing quite a problem for the Canadian exporters, and unlikely to clear up anytime soon.

The TSX energy sector could have notable earnings impairment for an extended period with nat gas prices cratering once again, which might explain why XEG has been behaving so badly for the past year. Do not expect that to clear up anytime soon, so look for bounces to be limited to about $16.50 in the coming months, barring a big QE bazooka that gets world commodity prices juiced up again (but not until things get much worse first).

The TSX is still constrained in our prime economic scenario for the next few quarters though short-term sentiment is an issue.

 

Profiting from Commodities will be a Challenge Throughout 2012


Author Larry Berman

Posted: 3 Apr 2012 reposted from etfcm

Between steep contangos in many futures curves, a general uncertainty over the short-term outlook for the US dollar, geopolitical risks, and unseasonal weather, making money in commodities is going to be a challenge this year. We are longer-term bulls to be sure on the global growth coming from emerging markets, but we have probably hit some sort of mid cycle peak and we are concerned that global growth in the next few years (austerity driven) is going to have a material slowing impact on commodity prices.

These global macro issues are difficult to time and fully contemplate, but they do have material impacts on investment horizons that for the most part are shortening. We calculate there is a $15-20 geopolitical risk premium in crude oil and risk of an Iran-Israel conflict seems inevitable, but impossible to time. The futures curve has a premium through year end.

Short-term risk in rising gasoline prices may have a more material economic impact with WTI inventories at record levels relative to the 10-year average. A hard landing scenario in China is a downside risk over the next few quarters.

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