You know how much a pound of “Dr. Copper” went for earlier today? $2.17. You know the last time the red metal was this cheap? July 2009, at the tail end of the Great Recession.
Market Roundup
How about a metric ton of zinc? Try just under $1,600, the least since that same time … and down more than 26% year-to-date. Aluminum? Nickel? They’re plunging, too.
Just take a look at this chart of the London Metal Exchange Index. It tracks the performance of six base metals, including all the ones I mentioned earlier as well as tin and lead. You can see that it has weakened significantly since mid-2014 and is rapidly slumping toward the 2009 recession lows.
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| Down, down, down. |
Then there’s crude oil, a commodity that markets pay very close attention to. It broke below $42-a-barrel today. That’s a level we haven’t seen since three days after the stock market suffered its late-August mini-crash.
What’s going on? Start with lousy demand in China when it comes to base metals. As I mentioned yesterday, industrial production rose only 5.6% there last month. That was the slowest since 2008 in a country that’s responsible for about 40% of global copper demand, the most of any single nation.
When it comes to oil, the Organization of Petroleum Exporting Countries (OPEC) just noted that the world’s developed economies have a whopping 210 million excess barrels of oil on hand. That’s the highest in at least a decade, and greater than the 180 million barrel surplus they had in the depths of the Great Recession.
But I believe this is indicative of a much bigger, much broader issue. We’ve seen trillions of dollars, euros and yen worth of global QE. We’ve seen negative interest rates in some countries, and promises of even more action every few months.
Yet global growth remains anemic, with many countries mired in recession. And as I just noted, the “stuff” that goes into all the products we use is getting cheaper and cheaper by the day.
| “Think about what this says for the real world.“ |
Forget the asset markets for a minute. Think about what this says for the real world. It suggests we face very serious growth problems, despite years of easy money and artificial puffery in assets. I don’t see how anyone can spin that as bullish, though I’m sure many on Wall Street will try!
My advice? Same as it’s been for the past six months. Grab profits. Cut losses. Pare down overall exposure. Raise cash. And selectively hedge or target downside profits from vulnerable companies, sectors, and asset classes.
I just made two new moves in my Interest Rate Speculator service, for instance, even as one of the large European banks I previously targeted came within a couple of pennies of hitting a fresh, multi-year low today.
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| Dr. Copper is ailing. |
In the meantime, what do you think about the commodity rout? Should we be concerned, or is it just a hiccup? Does the price of zinc, copper, lead, or tin matter to you … or would you rather just stay focused on stocks that have been working, like Amazon.com (AMZN) and Facebook (FB)?
Any additional thoughts on what these moves say (or don’t say) about the global economy? Let me hear about them at the Money and Markets website if you get some time today.
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Are the markets facing a day of reckoning soon … or are we off to the races for the remainder of 2015 and beyond?
Reader John E. said: “I have a short position which expires 11/13, and these last couple of trading days have been a rough ride with the immense volatility. Shorting the market isn’t for everyone, indeed, there are days I’m one of those people.
“That said, I’ve got my money on the table and your points are all cogent and to the point. I believe investors fall into three camps in this market: Hold on for a bumpy ride … hedge your positions … or sell what unrealized gains you have and put into a 1 basis point money market. It beats getting slaughtered if you have a shorter-term investment horizon.”
Reader Billy was even gloomier, saying: “The MACD or breadth problem of the market is yet another in a massive number of canaries in the coal mine that point directly to a bond, currency, and lastly a stock market crash right around the corner. Many of us who have been looking at the markets for literally decades have never seen the conditions as bad as they are today from a macroeconomic, fundamental, technical, cyclical, demographic and geo-political standpoint on a worldwide basis.”
But Reader Paul R. countered by saying: “I’m not so glum as some who are speaking out. My portfolio is mostly mutual funds that lean toward technology. My horizon is long term, no day trading. Portfolio performance has been okay, but not spectacular.
“I believe that the U.S. stock market will weather the stormy periods as it always seems to, dropping periodically and eventually coming back and setting new higher records, stronger than before. I’m staying optimistic; for long-term investment, there’s no better place than the U.S. stock markets.”
As for the underlying economy, Reader Richard highlighted one of the key challenges out there – slumping trade around the world. His take:
“Going with this trend, Maersk — the world’s largest shipping company that delivers 15% of world shipping — just laid off 4,000 workers, or 17% of their workforce. Third-quarter profits were down 61% and the CEO said their forecast is down for the coming quarter.”
Here in the U.S., Reader Jim highlighted the challenges we face domestically by saying: “I have a small business. The various levels of government are taking half of my net now. Then I have mounting compliance costs. I am taxed directly and then indirectly by having the currency debased.
“This cannot continue or there won’t be any small business. All I hear is that I am selfish and not giving enough. Where does it end? I don’t need the help of either party. I need them to leave me alone.”
Thanks for the different perspectives everyone — on both the markets and the economy. I’ve made no secret about my concerns on both fronts. I’m also continuing to highlight what’s going on “behind the scenes” in both stocks and bonds because they raise very serious questions about the health of the markets for the rest of 2015 and beyond.
We’ll see if that approach ultimately proves to be right or wrong. But I wouldn’t be as vocal as I have been if I didn’t believe there were very real reasons to do so. In the meantime, you can add more to the discussion by using this link.
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Sending money to a friend may get easier in the next several months, if Apple (AAPL) has its way. The tech giant is developing a person-to-person money transfer system that would eliminate the need for cash or check payments, and would function over Apple smartphones and iPads.
Several banks already offer similar services, and they’re gradually gaining in popularity. It’s unclear how Apple would make money from its offering at this early stage.
Puerto Rico is all but broke, and running out of options to cover payments on its $70 billion in debt. The U.S territory’s government has to come up with $720 million to make debt payments over the next couple of months, and it’s also struggling to cover everything from salaries to retirement benefits. Potential aid packages remain stalled in Congress, and the clock is clearly ticking.
Kurds and Yazidis launched an offensive in northern Iraq to cut off ISIS forces from their Syrian supply lines. By raiding the town of Sinjar and taking control of a highway in the region, the U.S.-backed forces hope to isolate the city of Mosul and the ISIS forces that took it over some time ago.
The European Central Bank keeps hinting it will take more action in December, but today, the stock market didn’t much care. Both European and U.S. shares came under pressure anyway.
Some of that is because the real world keeps intruding on the fantasyland central bankers live in. The British aircraft engine maker Rolls Royce Holdings PLC (RYCEY) warned of weaker demand, causing its shares to plunge a whopping 19% — the worst one-day drop in 15 years.
But could it also be because investors realize that cutting interest rates further into negative territory, or buying European municipal and state bonds in addition to national debt, will just be another useless step in a process that obviously hasn’t done anything to boost inflation or growth? After all, if the previous round of Euro-QE “worked,” why the heck would the ECB need to do more of it just 18 months later?
Have you used person-to-person money transfer systems, and if so, what do you think of them? Will more Euro-QE accomplish something even as previous rounds haven’t? Do you think the latest assault on ISIS will push the terrorist group back? Feel free to weigh in on those or other stories online.
Until next time,
Mike Larson
Mike Larson graduated from Boston University with a B.S. degree in Journalism and a B.A. degree in English in 1998, and went to work for Bankrate.com. There, he learned the mortgage and interest rates markets inside and out. Mike then joined Weiss Research in 2001. He is the editor of Safe Money Report. He is often quoted by the Washington Post, Reuters, Dow Jones Newswires, Orlando Sentinel, Palm Beach Post and Sun-Sentinel, and he has appeared on CNN, Bloomberg Television and CNBC.
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Why do the markets fear the possibility that the Fed is going to raise interest rates? With what is happening in the economy lately, that seems to have about zero chance of happening. The IMF has come out against it now. It would make the dollar more valuable, and might collapse the Euro, the Yen, and the Pound – the other three currencies on which the Special Drawing Rights (SDRs) are based. The SDR itself could be in danger, and the world economy that depends on it could collapse. It is not impossible that Dr. Yellen might find it needful to follow the lead of other central banks and go to negative interest rates? Anything to steal from those who have.
The reason why they (the Fed) won’t lift rates is because their own banks have exposure to derivate debt in the way of Credit Default Swaps. Greece can’t repay their debts and several other European countries aren’t far behind. The Fed is pulling everyone’s chain and don’t rely on the funny numbers in the jobs report.
Hi Mike
We all know where this is going. Let’s see who can pick it just before it hits.
Person to person. …more data for IRS to tax
The commodity slide is just the beginning, as was the drop in farm prices in 1923. Too much capacity, sluggish demand and poof, economies collapse world wide. With prices falling folks postpone purchases as in Japan for 20 years. Just watch this christmas season as sales flop till the january markdowns. Oh my what a rout it’ll be. David
Smart man who does his homework. I’d like to hear more of your comments!
Howard, I got a good piece of today’s downside; a fools errand…timing the market. Having cashed out of that position I turned around and bought some calls for some lunch money; thankfully, i cashed out of that position before the market completely fell apart in the after market on no new information. Maybe all the bearish signals are just settling in….who knows what tomorrow will bring.
In response to former commentary, the Fed has essentially said they will increase rates and may do so in less than a gradual fashion as previously initimated by one of the members of the FOMC today. Frankly, that’s the only rationale I can ascertain to the magnitude of todays decline across virtually all markets (commodities included).
Tomorrow brings Friday the thirteenth.
I think blaming the world’s problems on central banks is misguided. The real problem is a lack of demand. Wages have stagnated for many years, so consumer demand hasn’t grown much, and with consumers not spending there’s not much reason for business to expand. This leads to the classic macroeconomic liquidity trap. Interest rates are so low that if there was any hint that an investment would pay off, it would be made, but corporations would rather sit on cash than invest. And it doesn’t look that will change anytime soon. And that cash build up just acts to hold interest rates down.
I know free marketers don’t like to hear it, but maybe we should put money into the hands of people who will spend it. Maybe raise the minimum wage, where every dime will be respent, and through the magic of the multiplier it just might get things moving again. Yes, we may pay a little bit more for our Big Macs. Or do some serious investment in infrastructure, and tax those of us who can afford it to pay for it. That would create a lot of economic activity, and maybe we’d get paid back in the form of increasing corporate profits, not to mention that we might not have to sit in traffic as much as we do. Or we could try the old fashioned approach and throw another big war.
Corporations aren’t exactly sitting on cash. They are starting to buy one another out, and not just with earnings, but with borrowed money – especially with low interest borrowed money. Some are also buying back stock, again sometimes with borrowed money. A few are raising dividends – again, sometimes borrowing money to do so. Huh??
Broomy, the reason there is no demand today is that today’s demand was brought forward by low interest rates to be already spent a number of years ago. So indeed, it is the fault of the Fed because they held interest rates low for so long. It is their policy that encouraged past spending instead of spending happening now. If you put more money into the hands of people again today, you will be repeating the same mistake now through additional stealing from the future. The market and society need to now get purged of this mistake and wrong thinking, which will happen sooner or later through market correction. If you do not believe what I am saying, then just continue to invest in stocks like there was no tomorrow; and you will learn the hard way that the free market speaks the truth.
I haven’t heard it put like this. It makes a lot if sense. Jim
I believe we’re in for one of those Black Swan events, where many markets across the Globe get trashed together. The Debt Implosion starting in Europe and the Emerging Markets along with Junk Bonds especially financing the Fracking and Oil Patch in general
along with the $1 Trillion in Auto Loans and $1 Trillion+ in Student Debt of which a lot is not being paid back will exasperate this. Me?
My main theme of investment today is betting Long Term % rates will continue to rise (up 39% this year alone), as investors in Europe, Emerging Markets, Oil Patch become more concerned about the return OF their money rather than the return ON their money. My no.1 investment pick is “SRS” a 2 Xx Bear ETF in Real Estate REITs to capture profit on these Debt Implosions that have already started in Europe. Look at Credit Suisse, one of largest Swiss Banks just closed down their Bond Operations purchasing Soverign Govt. European Debt. I guess that Elephant wants to be the first out of the room?
Next my no. 2 investment pick is “EPV” ProShares = Ultra Short MSCI Europe
My no. 3 investment is “MCPIQ” which is a Rare Earth play currently in Bankruptcy?
Well there’s like 12 companies with bids in the wind hoping to pick this up maybe even before it get’s distributed. Yes World Economy is down and maybe going lower, but these minerals are even required for Defense Contractors in the event of a War which surely will follow a World Economy Collapse. So either way I figure it’s up from here.
My next Investmens are in Jr. Gold/Silver Mining Cos.
A. CLGRF
B. SVM
So, I guess you could surmise that I’m not too optomistic on the World Economy?
Mr. Salyer
Another service is recommending investing in bonds that drop into the junk class. Institutions can no longer hold them and must sell – likely at huge discounts. If the company still holds cash it must pay dividends until bankruptcy. You may be able to buy at 25-30% of par, roughly tripling the dividend percentage. If they only have a few years to maturity, they may actually make it and pay full par. In bankruptcy, they typically pay off around 40% par, so you could make another 30% or so even then. Sounds like an interesting play. I pass it on for those with the recommended $50,000 or so to spare.
By the way, buy at the height of the coming credit crunch.
That’s correct, Chuck; and also do not buy these with money you can not afford to lose. Personally, I believe there are other low risk plays to be available at the time.
Don’t like the sound of P2P money transfer systems because I don’t want everyone who has access to the digital system to know what I’m giving to whom. Seems that governments just want to make it easier to tax citizens eventually on those transactions. Let’s keep some things private!!
American Voters Only Vaguely Aware of Growth Problems
The poor, old American voters of any kind are stuck in a bit of a rut, a conundrum of sorts. They have a vague unease about the economy as they feel the squeeze of higher fixed costs of necessities, while their paychecks are not going up very much. Slowly, each year the average worker is losing ground. Surveys show the majority of voters now feel the country is not headed in the right direction. After 8 years, its too late to change course.
The Middle Class is shrinking in place and not going anywhere. The American standard of living (High) is slowly but surely coming down. Voters are desperate and looking for the easy fix. Elect a leader and fix the problems. Restore MY prosperity. No individual responsibility for the situation. Time for voters to grow-up a bit, I would say.
Not knowing the fundamental reasons, they “Hoped” President Obama would change things. He did. Just not the way they expected when he was running for office in 2008. Studies suggest President Obama has only kept his promises about 40% of the time. The rest was just lies and damn lies. Now its time for yet another Presidential election next year, and most Americans are looking for the “right” candidate to “lead” us. Sadly, we never learn. Change starts with each individual demanding better. Until the voters up the standard, the pols will just get buy as usual.
One (fellow) retiree, a bit older, tells me he wants a “leader” to fix things. What does that mean? Possibly a right-wing Authoritarian. That would be nice, but Hillary promises all kinds of free things. Hard to beat that when most Americans are poor(er) and easily conned. The individual voters must first change and then the pols will have to follow. The reverse never will happen. That is not how the world works. Wise up, America or suffer the consequences. Its another “CHOICE”.
Copper has always been considered the prime economic activity indicator, with oil right behind it. These have always been notoriously cyclical. This cycle seems different though. The easy money made over investment so easy everyone in the commodity business did it. Everybody thought China was some kind of commodity black hole, which has proven not to be the case. If Canada is any kind of indicator this down cycle will be worse than any we have seen in our lifetimes. Normally after a year or so of declining investment and rig counts we would see some kind of recovery in oil by now. It just isn’t happening. If anything the oil glut is getting worse. Between OPEC fighting each other for market share and US frackers desperately trying to keep up with their debt payments, the oil downturn doesn’t appear to anywhere near over. I fear we are going to reap an unprecedented whirlwind sown by the Fed’ monetary experiments. We are about to find out just how good an old fashioned commodity bust is for the world economy. The collateral effects could be horrific. I have been fairly optimistic up till now, but not anymore. Jim
THE BIG BANG OF 2016
Watch out for Glenmore, a large commodity mining and trading firm founded by tax-dodger Marc Rich ( Pardoned by President Bill Clinton). Some call it “Glen-ron”, in reference to defunct energy and electricity trader Enron who want bust after fraud and corruption were disclosed to the public. Many lost their life saving over that one. It could happen all over again, only in commodities and junk bonds this time if Glenmore can not liquidate enough assets fast enough to meet its growing debt covenants and margin calls. It would undoubtedly spill over into the stock market like a bad Winter head cold.
Try Glencore
The final event will takeout commercial property, and other entities
that will be looking to refinance large obligations..
This morning, Larry E. came out announcing one of his video calls for Monday, and sounding as though he was going to announce the bottoms are in, and time to back up the truck and buy. If so, I hope he’s right, but nothing seems that way now. The S&P 500 dropped below it’s 200 Day M.A. again, after a bit of bull-trap seeming action on the high side, and the news certainly seems anything but positive. Wait and see.
Low and falling commodity prices? Great! The cost of making and building everything is much cheaper. The cost of transporting everything is much cheaper. The cost of consumption is much cheaper. What’s not to like? It’s the same story with the “strong” Dollar. The cost of imputs is much cheaper. All positives!
Tommy, I was taught the same thing in school but I just don’t see evidence that that the commodity bust is helping economies anywhere. Prosperity should be breaking out everywhere. The US had become the number one energy producer in the world. How could it be good for the number one producer to have the price collapse? Let’s see what a collapse in wheat, corn, and sugar does to our farmers. Great grocery prices, but bankrupt farmers? Hundreds of thousands of workers are losing their high paying jobs. Entire countries are approaching bankruptcy. The price of a commodity falling below its production cost, to me, is a very bad indicator for future economic activity. This low input dynamic may be good for the short term but its lousy for our long term prospects. Jim
Absolutely true, Jim. Most politicians love it, though, as long as the tale gets them votes.
Really all we are talking about is disruption. Citizen A may save $20 bucks at the gas pump, Citizen B lost his job. You are taking money out of one persons pocket and putting it in another’s with no real gain for the economy. Its kind of like what the Government does with our money and calls it “Investing in America”. Jim
Both citizen A and citizen B has seen their healthcare cost significantly rise. Obamacare is the biggest de facto tax ever imposed.
The average American voter is so oblivious to free enterprise that they must first suffer the consequences needed to wake them up and chose another way than to expect free stuff for everyone to simply flow to them from business forever by way of bureaucracy brought about by corrupt politicians who buy their votes with promises of more free stuff. If you rob Peter to pay Paul you will have the support of Peter until the day that Paul wakes up dead and is no longer able to fund the debt needed to pay for buying votes. God bless America and damb the vote buyer as there is no such thing as free stuff. America was not built on free stuff, but on the backs of our hard working American ancestors. Unfortunately free stuff is breaking Americans backs.
With the leaders of tomorrow on our college campuses claiming these great institutions of higher learning were built by plantation owners on the backs of black slaves for the benefit of their white children, it’s hard to be optimistic about our future. America’s chickens are coming home to roost. Jim
They are only the product of the roosters and hens in the yard. Freedom of speech goes both ways. Sanity will only return when the left is pushed to the middle. That will only happen when administrators grow some balls and politicians become statesmen and quit worrying about how many votes they can get.
Any politician is a liar. They must at least hedge the truth in order tell a good story that will get them elected. It is only a little twist from telling lies to becoming a crook of one sort or another. These are the people we elect to run our country.
Deflation is rampant Globally inspite of a lot of QE. Duh!! QE is a powerful depresant on economic growth! Low interest rates and flat yield curves are poison to economies! These smart-ass academics are killing us! They are making just as big a mistake now as they made in the Great Depression! Things will not improve until they stop this stupidness.
Don’t be surprised if we get another QE. The Fed is in a corner with no room to lower interest, unless they want to go negative, and charge for “safety”, like some other central banks.
How to stop the Fed’s foolishness Tommr? Once a fool, always a fool.
While many countries are printing money to cover their debts (like the U.S.), where does it end? If the stock market dumps, where will all this cash go, in banks, at .01 % interest? Well, I see this as a good time to start nibbling at “gold.” It has already taken a big dump and now isn’t crashing like the other commodities. Somebody else likes it too… it’s called “safety.”
How do you figure this: “Houston-based Hilcorp Energy Co., a privately held oil and gas exploration and production company, gave every employee a bonus of $100,000 for making the company’s five-year goals earlier this year, the Houston Chronicle and Fortune magazine report. “
I think I can help. Conventional oil producers can lift a barrel of oil for $15-20, making the $44 price very profitable. It’s the reckless shale drillers borrowing huge sums of money to drill wells that are only profitable at $75 that are at risk. It’s pure speculation that failed. It’s one of those “it seemed like a good idea at the time” deals. Hilcorp is a smart, prudent operator that didn’t go out on a limb to get rich quick, but stuck to the basics. Jim
Thanks Jim. Blessings To Ya.! (<:
Mule
I hear that conventional drillers are luring people out of retirement who know how to do it the “old fashioned” way. They can get big money.
No, you guys heard wrong. There are some places they can still make money at $40/bbl, but not many. The “Crazy Shale Speculations” as it is called above doubled US oil production in the past few years. The US could have been energy independent in 2 more years had the Saudis not gave up trying to keep prices up. The real tragedy is OPEC keeps manipulating oil prices, causing the Boom and Bust cycles, resulting in rapid inefficient growth in the boom period and unemployment, rust and loss of capital in the bust period. All this happens and our government does nothing to help the US oil and gas companies, in fact they hurt these companies and then go fight wars for our Saudi “Friends”.
Hilcorp made a promise when times were good and kept it when times were bad. Good for them.
Good morning everyone; and welcome to Friday the Thirteenth.
Killjoy!!!!
Your absolutely correct David, but don’t forget that this “global recession” will last at least another decade before recovery.
In fact the term depression will apply to 90% of major and emerging economies.
Because the aftershock of the 2008 financial crisis now takes hold as the fabricated M2 money supply ( just one of several reasons) dries up.
While the person to person money transfer system seems appealing on the surface, it is yet another step toward the elimination of cash and the implementation of an all-electronic money system. The only problem with this is what happens when the government runs out of money like recently happened in Greece? The government can then just hit the switch and turn off your access to your money. Gotcha!! Please be wise. Keep cash on hand. And look at moving some of your money outside of the country – out of reach of our ever-growing government.
Person to person money transfers have been operating for years in Africa. Most are done through simple cellphones. One simply adds money to one’s cellphone account. When one buys something in the market just dial the other’s cellphone number, put in the amount to transfer, push send and the money leaves your account and is instantly in the account on their phone. Money can be converted to cash at any cellphone shop whenever it is needed or may be used to make another transaction via phone. It is very safe since no one can access the money on your phone without your personal code. The phone companies have made banking easy, especially for the poor who can’t afford to have a regular bank account. No lines, no bank hours. Long distance and local transfers are available 24 hours a day. The phone companies make money on the system simply because there are large amounts of money stored in their systems at all times so they have a constant working capital. No corporate loans. No dividends to pay. No interest. I believe we have not had it in North America simply because it would cut deeply in banks’ profits.
Products are to pricey and consumers have no monies. Normal recession would lay off and then rehire after 6 mos. at lower wages and profit margins would live another day and the economy would thrive. High wages is not the problem. High pay for the top 20% has driven price out of reach of the consumers. 71% of worker make 2.3T$, 29% make 15.5T$. The 29% has raised the prices to the point that the 71% want buy. United States GNI is 17.8T$ our deficit is 17.8T4, what tax rate will pay our deficit? Answer 200%.
I see that retail sales in October came in with a .1% rise, but this was one third of what had been expected. Part of this was a reduction in the value of auto sales, even thought the number was good. Lower gas prices also hurt money sales at service stations. Deflation is starting to take hold in a number of ways, it seems.
With ISIS — We (the muppets) have no real idea who they are and who is actually running them. We are told all kinds of stories and given bits of scripted media clips but the real powers behind them that; arm feed, organize, work the web sites, keep the oil tankers, rolling into turkey , keep all the new Toyota Hiluxes services and washed for the lovely media shoots with the nice new black flags waving ……………… wait a MINUTE is this a Toyota add or am I missing something………
Is it my imagination, or if a company in an index underperforms, they pull it & replace it with one that is doing better? Obviously, when a company is bought out or goes BK they need to act. But my theory goes further than that. How many of the Dow 30 from 1975 are in the avg today? The S&P 500 the Nasdaq 100; all leading indicators seem to reflect what the “experts” need to show. Don’t get me wrong, I enjoy playing the indexes as part of my portfolio. I do not, however, use these indices for my overall decision on stock picks. Fortunately, fundamentals are fundamentals; one should not invest in most stock because an index is moving in a certain way. The “big guys” can manipulate the numbers. They can not manipulate me.
God Bless & Good Trading,
Yours in Christ,
Russ Bell