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The New Bull Market

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@Knobby22 agreed, POTUS looks to be pursuing a scorched earth policy. How much damage can he do in a month that he hasn't managed in 4 yrs? On other news:




Not everyone is happy about that one. I doubt the markets will care, probably applaud it, the Fed. after all is their BFF.




I know 1 chap that drastically cut the salaries of middle management (those he didn't fire) who moved out of the city permanently.

Inflation is just now indicating that it might be gaining some traction:




As POO (absent any production increases out of the Arabs) looks to be heading higher. Ironically, gold:



Looks to be falling.

My main man Mr flippe-floppe-flye rides the Turkey gods



I removed the last of my hedges, 100% long once again, at least into Thursday, when once again, the Turkey gods will vanish.

The US$ looks to be ready to move higher against the Euro



Which further muddies any analysis re. inflation. You would need to be comprehensive and look at all currencies to really come to any firm conclusions. But the analysis is confirmed by:



Which would need to be monitored if the inflation indicated above (because it is still low) catches any sustained traction.

jog on
duc



 
In the aftermath of the US election, the numbers of voters relocating from San Francisco, Los Angeles, New York, Chicago are apparently astronomical and will change the allocation of the electoral college. Too late for Mr Trump, but, next time round, possibly an even crazier election. To such a point that serious people are calling for the US to split into 2 or more separate countries.

Income gap: which has the 'have nots' screaming to the point of burn it all the f**k down:



QE (no surprise here) does not help the lower incomes:



China on the move, which will drive US policy in this new cold war:



Echo's of the French Revolution.

jog on
duc
 
The Frenchman in me tells that the revolution will not happen with the reset,the rich 0.1% will remain rich and have even more wealth and power, the 99.9% will be poorer..but equals in outcome, vegan, and happy in their total absence of freedom but endless streaming series, force fed propaganda, abysmal education and universal incomes.1984 was indeed yesterday. During that time, China is carrying on its expansion: cultural, economic and geopolitical.
Where do you place your bets/assets then looking 10y ahead?
 


There has been a lot of discussion on the merits of the 'Forever Portfolio': 25% in cash/gold/govt. bonds/equities. Covers all bases all eventualities.

Back to today: the inability to plot a trend line that (I consider valid) in equities has required that I construct a different view, at least for the time being: Corporate Bonds, specifically BBB rated are a flash-point for equities, which follow them:



So a valid trend line for Corporate BBB



Something worth a read: https://themarket.ch/interview/were-at-the-beginning-of-a-commodity-super-cycle-ld.3092

So Oil news:




- In August 2020, U.S. offshore production fell by the most on a monthly basis since September 2008, due to several hurricanes.

- Offshore output fell by 453,000 bpd, or a decline of 27%.

- Production fell to 1.2 mb/d for the month, a seven-year low.

- EIA expects output to recover to nearly 1.92 mb/d by December 2020.

Market Movers

- Noble Corp. (NYSE: NE) is expected to exit Chapter 11 bankruptcy protection. The offshore driller declared bankruptcy in July.

- BP (NYSE: BP) agreed to sell its London headquarters for $332 million.

- The S&P energy sector (XLE) surged by nearly 5% on Tuesday as oil prices rallied. Apache (NYSE: APA) was up 8.8% and Occidental Petroleum (NYSE: OXY) was up 7.9%, but the entire sector posted gains.

Tuesday November 24, 2020

Oil prices rose to their highest levels since March, with WTI nearing $45 and Brent topping $47. Oil prices surged on the potential for a third highly-effective coronavirus vaccine. Also, the seeming end of the election drama also boosted sentiment, as investors hoped for more stimulus under the Biden administration. “By some time in the middle of next year, the economic environment should really move quite rapidly toward normalization, which ultimately means that demand for petroleum products should start to recover,” Bart Melek, head of global commodity strategy at TD Securities, told Bloomberg.

Bakken struggling at $40. Prices need to get “above $45/bbl for completion of drilled-but-uncompleted (DUC) wells, and we need to see $55/bbl oil, in general, to drill new wells and complete them,” Lynn Helms, director of North Dakota’s Department of Mineral Resources said, according to NGI.

UAE eyes 5 mb/d. The UAE said that recent discoveries from state-owned ADNOC could help boost oil production to 5 mb/d by 2030.

India to double refining capacity. India’s Prime Minister Narendra Modi said that India would double refining capacity within 5 years.

China seeks to become the world’s largest refiner. “China is going to put another million barrels a day or more on the table in the next few years,” Steve Sawyer, director of refining at energy industry consultancy Facts Global Energy, told Bloomberg in an interview. “China will overtake the U.S. probably in the next year or two.”

Biofuels industry calls for clean fuels standard. America’s largest biofuels companies are asking President-elect Biden to implement a nationwide clean fuels standard, as the existing renewable fuels standard nears expiration.

Venezuela arrests oil workers. Venezuela’s regime has recently arrested oil workers or retired oil workers who have dared to expose the corruption and mismanagement at its state oil firm PDVSA and its dire financial, operational, and working conditions.

IMO to ban fuel oil in the Arctic. The International Maritime Organization (IMO) approved on Friday a ban on the use of heavy fuel oil for ships in the Arctic, but environmental organizations slammed the new regulation as “riddled with loopholes.”

EU pushes back on U.S. LNG. A recent U.S. LNG deal with Europe was scuttled over concerns about methane emissions. It may not have been a one-off. Politico reports that U.S. LNG is running into trouble across the European Union. “There's a real sensitivity in the EU about fracked gas,” one industry executive told Politico. The incoming administration “would be well advised to prioritize that. If [customers] can't use U.S. gas, then they're using Russian gas and Mideast gas.” The Biden administration’s attempts to regulate methane may be unwanted by U.S. drillers, but it may help gas exporters access European markets.

Oil companies commit to methane cuts. BP (NYSE: BP), Royal Dutch Shell (NYSE: RDS.A), Eni (NYSE: E), Equinor (NYSE: EQNR), and Total (NYSE: TOT) have signed the Oil and Gas Methane Partnership (OGMP), a voluntary commitment under the United Nations, the European Union and the Environmental Defense Fund aimed at slashing methane emissions from oil and gas wells. They aim to cut methane emissions by 45% by 2025. The group consists of 62 members, although American oil majors Chevron (NYSE: CVX) and ExxonMobil (NYSE: XOM) are not participating.

Colorado regulators approve 2,000-foot setbacks. Colorado regulators approved new rules for oil and gas drilling, including expanding setback distances from 500 feet to 2,000 feet for wells near homes and public spaces. The rule takes effect on January 15.

GM does 180 on fuel economy standards. GM (NYSE: GM) switched sides in the fight between California and the Trump administration over fuel economy standards. The automaker backed the Trump administration’s effort to water-down standards, but on Monday switched over to California’s side, better aligning it with the incoming Biden administration. Toyota suggested it may switch as well.

CFTC released a report on the April flash crash. The Commodities Futures Trading Commission (CFTC) released a report on the April crash in WTI prices into negative territory. One of the commissioners criticized the report as inadequately addressing the root causes.

Williams restructures contracts with Chesapeake. Williams Companies (NYSE: WMB) said it would take ownership of some of Chesapeake Energy’s (OTCMKTS: CHK) assets in exchange for lower gas gathering fees.

Total to shut refinery. Total (NYSE: TOT) will shut its Donges refinery due to the market downturn.

Oil lobby says it will fight fracking restrictions. The American Petroleum Institute will use “every tool at its disposal” to combat potential restrictions on federal lands for drilling under the Biden administration.

Survey finds institutional investors switching to renewables. Global institutional investors managing nearly $7 trillion said that they plan on doubling their investments in renewables over the next five years. The share of renewables in their portfolios may rise from 4.2% to 8.3% by 2025.

Canada’s oil and gas sector sees record job losses. A total of 37% of oil and gas companies in Canada resorted to permanent layoffs due to the pandemic-driven oil price and oil demand slump, a recent survey of energy labor market organization PetroLMI showed.

Last but not least, Mr flippe-floppe-flye:




jog on
duc
 
So with the US markets closed for Thanksgiving, there is time to have a look at the carnage in the crypto markets.

This chart warned of trouble ahead:



Which has come to fruition:



The fall in gold was tracked by this chart:



Which are rising yields of the 10yr. Yields have been marching higher at a fair clip since September, where the 10yr is +25basis points. That is a pretty hefty move and even more if you count from the lows of Aug. Two questions: (a) where is it headed if unimpeded and (b) will the Fed. intervene and if so where? Well the answer to (a) is 1.22%. The answer to (b) is probably yes, but where is the unknown.

Therefore, in the short term, gold is likely to be toast. Which means that cryptos are also toast in this time frame.

Which rotates us to the really macro question: inflation or deflation. When I say deflation I mean deflation (debt destruction) and not disinflation. Deflation would very likely lead to the possibility (certainty according to some) of hyper-inflation, as the only way to really combat it (other than letting it run its course and that would be so destructive that those in power would try to combat it) is to move way past QE, which is the hyper-inflation that Schiff et al. fear. The current QE/monetary policy will not lead to hyper-inflation and without the type of laws that existed in the 1970's, probably will not even lead to an inflation. This is an inflation of the PPI, not the CPI. We have had CPI inflation forever and nobody cares. The only real risk of PPI inflation lies in just how badly damaged productive capability of the oil has been effected.

With the vaccine (assuming success) and economies re-opening, the global economy will start to fire again. Oil demand will ratchet back higher. The issue will be (a) how quickly will that demand return, (b) how high will that demand be and (c) can supply meet it. If supply is constrained (for whatever reason) then we will see a price spike. That is inflationary. Monetary policy will allow or actively raise interest rates. To a point, stocks will continue to rise. To a point. Probably circa 5%. After that, if rates are still rising, stocks go down...and probably a lot. Of course with valuations already sky high, possibly that 'point' is a lot lower.

The irony here is that in the shock of the C19, when at the bottom, the economy was turning to toast, stocks rallied hard into a V shaped recovery. Now that the economy is set to mend, the very inflation that the Fed. has being seeking, if it eventuates, will lead the market lower (into the improving economy), which will potentially catch as many wrong-footed as did the bottom of the market.

The challenge of 2021 will be to monitor closely the macro-fundamentals and watch for a change significant enough to reverse the market. This is a similar situation that existed after 2009. Many avoided the market and missed out. There were some scary moments. Either through luck or skill, the market however continued until we hit the C19 berg. This will likely be the scenario 2021 and beyond.

As to gold v BTC: gold everyday. BTC is trash. Why is it trash? Because anyone can make a digital currency. Look how many there are currently. They are the digital equivalent of fiat currencies. They trade against each other. They compete against each other. Prices, like all prices, fluctuate and are open to manipulation. As a speculation or trading instrument, absolutely, they move. As a hedge against a failure in the rule of law, they will fail or at most be very marginal players.

jog on
duc
 
Quick apprentice question:
Why would the 10y yield head to 1.22%?
Great post BTW
 
About crypto, let me differ: anyone can indeed create A crypto, but no-one can create BTC again.
Bitcoin is limited in number so cannot really replace gold: i agree, but only because there is not enough supply: people can not get excited owning 0.0001 btc, and this is enough to limit its rise.
i believe Bitcoin, not cryptos in a generic way, will play a gold like role.
Not the others, even whatever amazon, the chinese, croatian or other government released/approved ones.
Some like Ethereum will be used as tool: like POO in the industry, should they become too dear, they will be replaced and will fluctuate
So imho, BTC will be similar to gold, the only threat is government regulations: becoming illegal.the risk is real
there was such a push a year ago, with media campaign labelling it as a crook tool, making dark web links etc etc
Should BTC remain nimble enough,the powers in charge might not bother and so is my hope
I plan to own a few.buying bits at every fall opportunity. long game.i own now, have not set my limit but it will be nowhere near as big as my gold target
 

So first off, just some recent missives on BTC:

Bitcoin price plunges over 10% to stage Thanksgiving correction

Bitcoin prices on Friday trade in correction territory after suffering a Thanksgiving tumble, with the asset pulling back sharply just at it was on the verge...
www.marketwatch.com

6 reasons bitcoin is trading at its highest level since 2017 --- and 1 warning

Bitcoin, the digital currency that is arguably one of the most polarizing assets in financial markets, is approaching heights not seen since a frenzied rush...
www.marketwatch.com

Ray Dalio Admits He May Be Wrong About Bitcoin But Still Concerned of Government Ban – News Bitcoin News

Billionaire hedge fund manager Ray Dalio has admitted that he may be wrong about bitcoin after stating that governments will ban the cryptocurrency if it "becomes material." Dalio founded Bridgewater Associates; his hedge fund is the largest in the world.
news.bitcoin.com

None of which really address the issues:

1. The issue of what blockchain is itself. When someone says they are running something “on a blockchain,” what they usually mean is that they are running one instance of a software application that is replicated across many other devices. That is an issue.

2. The required storage space and computational power is substantially greater, and the latency higher, than in the case of a centralized application. Blockchains that incorporate “proof-of-stake” or “zero-knowledge” technologies require that all transactions be verified cryptographically, which slows them down. Blockchains that use “proof-of-work,” as many popular cryptocurrencies do, raise yet another problem: they require a huge amount of raw energy to secure them. That is an issue.

3. Speed. Consider the many schemes that rest on the claim that blockchains are a distributed, universal “world computer.” That claim assumes that banks, which already use efficient systems to process millions of transactions per day, have reason to migrate to a markedly slower and less efficient single cryptocurrency. This contradicts everything we know about the financial industry’s use of software. Financial institutions, particularly those engaged in algorithmic trading, need fast and efficient transaction processing. For their purposes, a single globally distributed blockchain such as Ethereum would never be useful. A second issue around speed: Furthermore, unlike base-level protocols, blockchains are “stateful,” meaning they store every valid communication that has ever been sent to them. As a result, well-designed blockchains need to consider the limitations of their users’ hardware and guard against spamming. This explains why Bitcoin Core, the Bitcoin software client, processes only 5-7 transactions per second, compared to Visa, which reliably processes 25,000 transactions per second.

4. Computer languages: Another false assumption is that blockchain represents something akin to a new universal protocol, like TCP-IP or HTML were for the Internet. Such claims imply that this or that blockchain will serve as the basis for most of the world’s transactions and communications in the future. Again, this makes little sense when one considers how blockchains actually work. For one thing, blockchains themselves rely on protocols like TCP-IP, so it isn’t clear how they would ever serve as a replacement.

5. Has the scaling issue been solved? Just as we cannot record all of the world’s transactions in a single centralized database, nor shall we do so in a single distributed database. Indeed, the problem of “blockchain scaling” is still more or less unsolved, and is likely to remain so for a long time.

6. A third false claim concerns the “trustless” utopia that blockchain will supposedly create by eliminating the need for financial or other reliable intermediaries. This is absurd for a simple reason: every financial contract in existence today can either be modified or deliberately breached by the participating parties. Automating away these possibilities with rigid “trustless” terms is commercially non-viable, not least because it would require all financial agreements to be cash collateralized at 100%, which is insane from a cost-of-capital perspective.

7. Moreover, it turns out that many likely appropriate applications of blockchain in finance – such as in securitization or supply-chain monitoring – will require intermediaries after all, because there will inevitably be circumstances where unforeseen contingencies arise, demanding the exercise of discretion. The most important thing blockchain will do in such a situation is ensure that all parties to a transaction are in agreement with one another about its status and their obligations, vis-a-vis contractual obligations.

Now gold, requires none of these things, particularly when the need truly arises, where possibly all of the electronic based advantages of a BTC will simply vanish in the nuclear cloud or bacterial/virus plague. What we are truly talking about is an ironclad, 100% guaranteed, insurance policy, with zero counter-parties: only physical gold, buried in your garden, provides this.

If you are looking for a speculative product to trade, that has huge volatility, then absolutely BTC or any of the other coins are viable trading vehicles. As a do or die (investment) insurance, a waste of time.

jog on
duc
 
Stepping back for a more macro-view:

The inflation trade:

Stocks are through their Sept/Oct pullback (seasonality) and are now getting involved in the Presidential cycle. Good news for the Bulls. The issue is that we are technically extended, which means that when a pullback occurs, it will likely be fast without too much warning.



Gold remains (until further notice) caught in weakness and will likely continue lower.



Which means cryptos are likely not finished pulling back.



The US$ also looks to be breaking down as against the Euro. This supports an inflationary environment building some traction.



Oil moving up faster than yields, inflation PPI style. Too early to be a problem and is probably welcomed. That of course will change if POO continues past $70/barrel and yields are capped by the Fed. Yields (are on my reckoning) on the 10yr are firmly headed to 1.2% and higher, depending on what POO actually does.



Early warning. BBB rated bonds offering an early signal of instability in the SPY.



Confirmed in the Junk (really dire Bonds) market.



On the other hand, Mr flippe-floppe-flye is still confident.



And wrapping up with a little history of vaccines:



Necessity...the mother of?

jog on
duc
 
Hey duc
Just a question, u state here that there is a possibility of a market reversal in 2021 ? Is this a technical view ? Just curious cause atm I'm 30% in the big 4 asx banks , and looking to pull before Xmas end
 
Dark1975 said:
Hey duc
Just a question, u state here that there is a possibility of a market reversal in 2021 ? Is this a technical view ? Just curious cause atm I'm 30% in the big 4 asx banks , and looking to pull before Xmas end
Click to expand...


I am talking about simply a pull-back in the ongoing bull market. The inflation issue, if it develops, will take at least 1yr, probably 3yrs, to become an issue. So no rush to sell banks, they have a ways to run, unless you believe FinTech is about to eat their lunch.

So banks:



Are in my estimation, ready to outperform. Why?

(i) Steep yield curve. Banks borrow short, lend long, earn the spread. The greater the spread, the better their profitability. The spread is good and getting better. So while certain sectors of the market are interest rate sensitive in a negative way, banks are not. Banks love a rising yield environment. The 10yr going to 1.2% would see bank stocks catch fire.

(ii) Generally speaking, Bank's balance sheets are far stronger than they were after 2008. There are issues: commercial RE could be an area where things are not so great and many will worry about residential mortgages. Residential mortgages are bundled into securities and sold...fast. Your average bank, after 2008, does not want to eat their own cooking. So mortgages are someone else's problem if they become an issue (again).

(iii) The financial system is critical to the economy (any developed economy) and they are gatekeepers to transactional business. As economies re-open, their earnings will start to surprise to the upside as valuations are still really LOW.

Now the caveats are:

(a) Bank financials are truly an operation in opaqueness. Trying to decipher where they have hidden the dead bodies is a true undertaking. I would not hold Banks individually, only as part of an ETF.

(b) Because of the above, banks can blow up and depending on their size and importance to the financial system, may or may not, be the recipient of a bail out. I don't like trying to guess if they are or are not systemically important: there are some obvious candidates, JPM, BAC, GS, etc. If you are holding Australian banks, the big 4 would probably be bailed out if they failed, NAB etc, but smaller ones would be quite risky unless you were intimate with their financials.

jog on
duc
 
Thank you duc , for your invaluable input
 
So a whole bunch of charts and data:











The above is particularly useful for day-traders. You know which stocks could move, outside of an earnings environment and (usually) the initial reaction, is the reaction that holds for the rest of the session.



For the Bond chaps (combined with the TED spread [above] a very useful gauge).



Should be with the other insider charts/data.



For those whom dividends are part of the decision making process.

So a bunch of data points that I will normally review over the w/e combined with numerous cups of coffee. This is not so much the macro-data, although I have that as well, more the day-to-day stuff that makes better reading in preparation for the coming week.

jog on
duc
 
End of November for the US and heading into December:

Potentially some weakness, which we may be starting to see today.



The overall market not looking great today.



So I have now added a trend line, which has today been violated. I have put back on 75% hedges. I'm turning into flippe-floppe-flye myself. So now there are potentially 2 trend lines, of which the older one may not even actually be valid any longer. The new one is - the problem is that it is valid for the breach, it is also now (potentially) invalid.




So gold: on a seasonality basis, moving into a better area.



My concern is that it is not (currently) in a bull trend. Will seasonality break the bear trend? It will need to break through the trend line.



Finally, Mr flippe-floppe-flye, all out for December (which will only last about the length of time it takes me to type this).



jog on
duc
 
between own feelings, the fact we have had a good run and the fact i expect the xmas positive to go to crash early january after virus scare ramping with more cases and biden starting his reset, I thought I would go back to cash and conservative/treasury on my US portfolio yesterday night.
Did not want to wait for the open..I probably should have..sleep is costly, I sold early this morning before reading Mr Ducati of flip flop Joe ;-)
Am now 50% cash and the rest mostly treasury and gold, even unloaded some of my XOM/LMT pet plays.Most of the sales were on healthy gains
I also started building on TMF : leveraged bull 20y treasury bonds..will see..market is psyche and this is my psyche right now
 
Today is about divergence: a number of metrics are indicating lower, yet, the market gapped higher at the open.

So if you remember, yesterday's chart signalled a breach. It faded back through the day. Today, we have still a signal, but on its own, not terribly convincing. You could easily argue that the trend line has held and vol. is heading lower. That may well turn out to be the case, except for the fact that currently a number of others are indicating otherwise.



So this is my 'tie-breaker'. They are not live, hence yesterday's date. However, today's gap higher (I doubt) will send us back through the trend-line. Thus, while the market signals higher, the x-rays indicate a stress fracture. You can play on for a while with a stress fracture, but too long and it becomes a full fracture.



Again, yesterday's chart. Increased PUT buying. Today, again, it will drop back to CALL buying, but not a lower low and we are already at the wrong end of the range.





The run to safety is already on: Gold/Silver, out of speculative Crypto, the anomaly being yields on the 10yr jumping higher. Equities haven't received the email yet.

Mr flippe-floppe-flye is of no aid currently, he is yet to form an opinion and remains basking in his own prowess.



So I have hedged the a further 50% to sit at 125% hedged or 25% short.


jog on
duc
 
Last edited:
Stocks remain in a wait and see:

We have stuff happening in the US$, Oil and Interest rates (10yr).



And Oil/Interest rates:







Difficult to say where it is all heading.

However, if my call of 1.2% in the 10yr pans out and oil stays within $60/barrel then the US$ should strengthen somewhat, even if that means it just stops falling and remains in a trading range, which means that stocks remain nicely in their bull market. Currently the oil market is waiting on OPEC to confirm deny supply. We then have the potential stimulus package, which will have an effect on interest rates (possibly) and also possibly gold/BTC.

In a time of flux and some uncertainty, there is of course 1 constant:



jog on
duc
 
We've had a couple of weeks now of really reduced vol. and quite boring markets. A bit of intra-day drama, only to return to essentially flat for the day. These are the markets (unless you are day trading) it is probably best just to mostly ignore, the tendency is to churn the account.

So we have the dribble sideways vol. We have breached 1 trend line and look set to meander to the next, where, who knows.



The SPY trend has now broken out of the August - Oct. seasonality doldrums and we should be into the (new) Presidential cycle, after the initial new trend was called into question.



Gold still remains weak, although having a bounce. For gold to resume its bull move, we need it to break the trend line. The question of course is the low of 2/3 days ago, the bottom and therefore an excellent entry point?



To answer that, the US$ continues to weaken as against the Euro. So on that basis, assuming continued weakness of the dollar, yes, gold should be a buy. The dollar looks to be heading at least to that support point, so gold should do well in the short term. After that it depends whether the dollar bounces or collapses.



Which is also confirmed by POO, which underlines the inflation meme.



Finally, Mr flippe-floppe-flye



I have closed hedges and return to 100% long, becoming a flippe-flopper myself.

jog on
duc
 
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