Morning Roundup

By Mark Masterson on January 21, 2015

Good morning,

Below are the news items moving markets today…..

 

Executive Summary:

 

Global markets are a bit unsure of themselves this morning.   US futures started lower, but have regained footing.  Europe is mixed to lower ahead of the big ECB meeting tomorrow.  The Chinese Shanghai Composite soared 4.7% last night, after falling 7.7% two days ago.  Go figure.  The Japanese Nikkei ended lower after the BoJ did not add to stimulus.  Per Reuters: “The yen rebounded against the dollar on Wednesday after the Bank of Japan stood pat on monetary policy, as speculators who had anticipated more easing covered their short yen positions. The BOJ refrained from expanding its bond-buying stimulus program, opting instead to expand loan schemes aimed at boosting lending. It also cut its inflation forecast to 1.0 percent from 1.7 percent in the wake of slumping oil prices.”

All eyes remain on Mario Draghi tomorrow.  Ahead of the likely rollout of QE, the ECB’s Ewald Nowotny said that tomorrow’s meeting will be interesting but one “shouldn’t get overexcited about it.” He said that he saw low inflation rates but did not expect deflation. Nonetheless, inflation developments need to be monitored closely, Nowotny said.  Ok.  Expect a massive QE.

Finally, President Obama delivered the State of the Union address last night.  Below is a wide array of commentary on the speech……

 

• Obama defiantly pushes agenda in State of the Union NYT / http://www.cnbc.com/id/102354618?trknav=homestack:topnews:7
• ‘Loud and clear’: GOP responds to State of the Union /  http://www.cnbc.com/id/102354742?trknav=homestack:topnews:9
• To Boost Economy, Tax the Millionaires – Schakowsky & Fiddler, USA Today
• Obama’s Half-Of-a-Loaf Tax Hike Populism – Daniel Gross, The Daily Beast
• Obama’s Tax Plan Amounts to Horrid Social Engineering – Editorial, NRO
• Sorry O, Rich Pay More Than Fair Share – Uhler/Ferrara, Washington Times
• The Subpar Obama Recovery Drags On – Editorial, Investors Business Daily

 

 

Articles of Interest:

 

• Republicans      Reject Obama’s Main Economic Proposals (WSJ)
• Senate’s      Shelby Says White House Bank Tax Is Dead on Arrival (BBG)
• Is Dollar      Next? Investors Reassess After Swiss Shock: Currencies (BBG)
• Bank of      Japan Cuts Price Forecast, Maintains Record Stimulus (BBG)
• Pound      Weakens After BOE Policy Makers Drop Call to Raise Rates (BBG)
• Putin not      flinching on Ukraine despite economic crisis (Reuters)
• Party      Hasn’t Stopped for Russians at Davos Even With Ukraine Sanctions (BBG)
• Fink: Weather the negativity,      you’ll be rewarded

 

Charts of the day:

 

Let’s update you on gold.  It has started 2015 very well, as we expected.  Yet, it started 2014 well too – but faded mid year.  We expect good things for gold in 2015.  Below are some thoughts….

 

First, Marc Faber revealed how to “short the central bankers” yesterday.  You guessed it – buy gold….

Marc Faber reveals the ‘trade of the century’

If investors can find a way to short central banks, it will be the trade of the century, proclaims “Dr. Doom.”

 

Even Barrons is getting in on the act…..Precious Metals Should Keep On Shining – Michael Kahn, Barron’s

 

Here in the US we focus on gold in US dollars – which was negative last year by 1.5%.  Yet, Gold reached an all time high yesterday – in Japanese Yen.  An all-time high.

 

Gold has also broken out in Euros….Below is gold in Euros…..

 

 

Here is an interesting fact…..The bear market in gold started exactly (the high tick for gold) was on 9/6/2011.  What was interesting about that date?  It was the exact date where the Swiss National Bank instituted their peg of the Franc to the Euro.  Interesting that gold breaks out on the date that the SNB ends the peg of the Franc to the Euro…..

 

Gold has started to break out in US dollars as well – despite the dollar strength…..

 

Stansberry research commented on gold overnight.  One reason to own it is negative real rates everywhere…..”In short, gold is one of the last remaining safe-haven assets that hasn’t been bid to the moon. As we wrote yesterday, when interest rates are near 0%, “gold becomes highly competitive with money in the bank.” Governments can print more money, but they can’t print more gold. So when you’re given the choice between earning zero percent over the next five years in government-printed paper dollars, or earning zero-percent interest in a hard asset (like gold) that can’t be printed, which one makes more sense for you to hold? “

 

Speaking of zero interest rates…. Lawrence McDonald posted yesterday that there is now $7.3 Trillion of negatively yielding government debt in the Japan, Eurozone, and Switzerland – says Bank of America.  Read that again….$7.3 Trillion of government debt with a negative yield.  Why hold it at all?

 

Yet, investors still hate gold.  Even after the huge move thus far in 2015 – investors remain stubbornly bearish on gold.

 

 

Investors have not moved money into gold yet.  Rydex Traders still have extremely low holdings in Precious Metals assets.   The chart below shows this and also makes clear that gold has huge upside potential if they move money to gold.

 

 

But- they are super bullish the dollar…..

 

 

Quote of the day:

We are what we repeatedly do. Excellence, therefore, is not an act but a habit.

Aristotle