Dec 13, 2016 - Story of the Week: Fed raising the rates by 50 bps tomorrow?

Hello mates,

So tomorrow is the big day, right? Well, still wondering what to really expect after few missteps from Yellen. Hike with dovish comments? No hike with hawkish comments? Or a surprise hike of 50 bps as the economy is growing and inflation pressures will kick in soon?

I believe we can all agree on a 25 bps hike that is already priced in by the market. The most important part will be the comments and guidance for 2017. Here, we are not likely to see dovish Yellen talking about 2-3 additional hikes next year even though Trump’s fiscal plans can support inflation expectations. We are also on the same page by saying Fed doesn’t have more or less any clear idea what to expect, what potential risks the economy might be coping with next year…etc.

What is a very strong signal proving that Fed is already behind the curve (we have expected Fed to raise rates in September) is the situation small and medium enterprises in US face. Actually, they already signal the shortage of qualified workers in some fields. As we move along, the economy is closing the output gap and the only question mark after OPEC/Non-OPEC countries agreed on crude oil production cuts is the level of capital investments. Still lacking a bit.

There is also another factor, apart from those we already discussed in The last big event in 2016 that we know about... and it is raising yields that may in turn support the banks, their profitability, improve risk models metrics and spur the lending activity to corporates as well as public.

Would you agree that it sounds like 50 bps hike tomorrow?

PS: Please keep in mind that the new US Government will likely look like a “US Inc.” sort of structure with all high profile and pro-business oriented people that will definitely push for more relaxed regulations and tax cuts.

Good luck Champs, let’s see tomorrow!

Mr Hawk

DISCLAIMER: This material was created for informational purposes only and represents the Land of Trading team’s view of the past and current economic and capital market environment. It is not an investment advice and should not be viewed that way at all, and the creators of this material cannot be held liable for any potential losses resulting from trading, where despite this disclaimer someone would consider this material as an investment advice. All rights reserved ©2016. Contact: landoftradingATgmailDOTcom

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Nov 21, 2016 - Why Angela Merkel will win German elections in 2017 and become the Chancellor for the fourth time?

Simply, because of the change, so no surprise here.

-          She seems to be tired and not bringing anything new but it may be her advantage as Europe desperately needs stability, experience and leadership at this time.

-          Europe needs her as a symbol of stability after few rounds of Greek crisis, ongoing rise of populism in Europe and around the world of which the last proof is Donald Trump becoming the US president. Without the experienced leader, stability, pragmatism and realistic view Europe cannot reinvent itself.

-          All of that is happening when her close allay on international scene Barrack Obama is leaving White House, the UK has no idea how to pursue with Brexit, French president Francois Hollande is not very popular (nicely said) and Marine Le Pen is gaining support on international scene and of course not to forget about Russian president Vladimir Putin who is actively working on creating the chaos and split between Western leaders.

-          Europe needs an experienced leader who can deal with problems like refugees crisis as well as to face the unpredictability that may come from Washington in terms of security and protectionism.

-          Her strength as well as weakness lies in her being the last one who can defend the basic principles of liberalism and free trade. She is very pragmatic and sometimes invisible, what is a good contrast to populists, like those who pushed the UK to Brexit situation.

Angela Merkel’s victory can bring the hope for a change on the continent.

Good luck Champs!

Mr Hawk

DISCLAIMER: This material was created for informational purposes only and represents the Land of Trading team’s view of the past and current economic and capital market environment. It is not an investment advice and should not be viewed that way at all, and the creators of this material cannot be held liable for any potential losses resulting from trading, where despite this disclaimer someone would consider this material as an investment advice. All rights reserved ©2016. Contact: landoftradingATgmailDOTcom

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Nov 21, 2016 - Why Trump, Putin and Erdogan are good for Europe?

Simply, because of the change. Europe needs to redefine itself in the field of:

-         Whether to continue with a closer cooperation or return some of the decision making powers back to national governments. We believe going back is not the smartest move as it would lead to fragmentation and loss of benefits of common market.

-          Security and military perspective – still growing threats from Russia and terrorism will lead to redefining and creation of EU army and closer police cooperation. All of that is also happening in the light of Donald Trump becoming the US president and questioning the role of NATO especially, in Eastern Europe.

-          Uncontrolled immigration and external borders protection – is the deal with Turkey really good for EU? The EU must have a full control of its borders as it is not possible for thousands of refugees to freely move across the continent. Also having a deal with the antidemocratic leader doesn’t bode well for democratic values.

-          Economic and international trade – well, as the EU is the largest market in the world as well as largest trading partner for China, definitely should benefit from it. It should also take advantage of its position on the back of likely upcoming protectionism from US side. Actually, the last week’s ASEAN meeting can be an interesting inspiration as Asian countries are open to closer cooperation without US. Why not to join such an initiative from EU side as well when Americans don’t want?

-          Increasing populism and nationalism in Europe – European public will have a unique chance to express their wishes in the upcoming referendum in Italy and elections in Austria, Netherlands, France, Germany, Czech Republic and Slovenia, and decide whether Europe should follow the path of irresponsible promises without accountability. The only thing EU needs right now is pragmatism and leadership what leads us to German elections and Sunday’s official announcement of Angela Merkel to run for a Chancellor again.

Good luck Champs!

Mr Hawk

DISCLAIMER: This material was created for informational purposes only and represents the Land of Trading team’s view of the past and current economic and capital market environment. It is not an investment advice and should not be viewed that way at all, and the creators of this material cannot be held liable for any potential losses resulting from trading, where despite this disclaimer someone would consider this material as an investment advice. All rights reserved ©2016. Contact: landoftradingATgmailDOTcom

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Sep 1, 2016 - Story of the Week: US job market - Full time vs. Part time employment

This week we are focusing on the situation in the US job market. The headline total NFP employment numbers are followed by the public but the data should be broken down into full time employment and part time employment. This can give us an interesting insight. There are still some opinions that part time employment being still too high etc. I have put together few interesting charts below to see the real trends and what could be behind the numbers…. Before we continue however, let’s look at the reasons why people could be employed part time...

Part time employment figures include people who are part time employed because they couldn't get a full time job or their working hours have been cut...etc. Despite that, they still want to have a full time job they accept the part time offer  (Part time for Economic reasons). The other group contains those who just need more free time to take care of their kids, want to earn some extra money or just want some time for their hobby … (Part time for Non-Economic reasons).

Now the rest is for those who still have doubts about the health of the US Labor market … let the charts below tell you the rest of the story about the full time and part time employment in the US…

Total employment is increasing steadily since 2011:

… and the Full time employment is keeping the pace:

Part time employment stopped growing in 2013 and since then it stays within the range. However, when you look at the chart closely, the trend turned to the downside: 

The number of those who are part time employed for non-economic reasons or if you like, those who don't want to be full time employed are growing rapidly… (please note here the data is only for the last 10 years):

However, the number of people who are “forced” to work part time, despite they would like to find a full time job, is falling strongly, which is offsetting the increase of the Non-Economic Reasons group… (again chart starting in 2006):

Well, after looking above we should believe the Fed when they say the labour market is in a good shape. However, what the Fed should realize is that without doubt these trends shown on the charts will cause sooner or later an increase in wages and this will generate inflation.

Our message... 

Dear Fed, 

There is no more time to postpone the hike and if you will be too late to do so, you will make the same mistake as Mr Greenspan did few years ago. This will be the beginning of another crisis, but this time much bigger one than the last one.

Sincerely Yours,

Mr TechMan

DISCLAIMER: This material was created for informational purposes only and represents the Land of Trading team’s view of the past and current economic and capital market environment. It is not an investment advice and should not be viewed that way at all, and the creators of this material cannot be held liable for any potential losses resulting from trading, where despite this disclaimer someone would consider this material as an investment advice. All rights reserved ©2016. Contact: landoftradingATgmail.com

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Corn and Wheat at record lows! Is it time to buy?

Crops had a few very rough weeks behind and Wheat hit historical lows while Corn was very close to lows of 2009. Last week the market didn`t react to the heat wave forecast in the US for the coming week but historic lows may seem to be an opportunity to catch the bottom. However don´t forget it`s always dangerous to try to catch the falling knife. Let`s take a look what`s behind the sell-off…

Wheat

USDA projects record yield for winter wheat at record high of 53.9 bushels per acre, 11 bushels higher than last year. Spring wheat yields are slightly above average. If these numbers hold, the wheat production could be 19% higher than the year before. The export demand looks quite good, raised by 25 mil. bushels to 925 mil. which would be the highest the last 3 years, however ending stocks forecast is the highest from 1988 at 1.105 mil bushels. Foreign production was raised 2.7 mil. tons and the effect of good weather conditions almost in all parts of the world couldn’t be offset by the damage caused by the rain in France and drought in Algeria. Very strong supply supported with almast perfect weather is reported from Russia and Ukraine. Unless we will see any supply disruption, huge stocks and expected high yields will probably weight on the price of the wheat.

Corn

In the last WASDE report the Corn production for 2016/17 is projected 110 million bushels higher reflecting the increased planted and harvested areas from the June 30 Acreage report. Despite the decline of Brazil corn production due to early end of raining season in central Brazil, the increased exports still could not offset the rising ending stocks which are projected in US  73mil bushels higher. Global ending stocks are projected at 3.3 mil tons higher mainly increased by Chinese stocks.

Main reasons behind the current negative records:

• Oversupply due to favourable weather conditions in most of the world
• Expected record harvest in US
• Strong dollar

What could change the outlook:

• Traders are closely watching the developing El Nina effect which is delayed. The colder weather with more rain fall expected to hit in mid-August, can cause big losses in key production areas in the US.
• Weaker USD

What to watch in the coming weeks:

• Weather report in key production areas in the US
• Next USDA WASDE report on 12^th August where we should be looking for sign of easing supply or increasing export. However, some analysts are expecting the USDA will raise yields on corn which will add to bearish bias
• COT report, which can give a hint whether the big players start to cover their shorts
• Calendar spread tightening, as if the demand is increasing it often pushes higher the closer delivery leaving behind the longer contracts. And if the contango turns into backwardation, a strong bull could be very close...

Watch your risk and be consistent!

Mr. TechMan

 DISCLAIMER: This material was created for informational purposes only and represents the Land of Trading       teams view on past and current economic and capital market environment. It is not and shouldn´t been viewed   as an investment advice and the creator of this material shouldn´t been hold liable for any loss resulting from       action where despite this disclaimer someone would consider this material  as an investment advice. 

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Story of the Week: Gold Platinum Spread

The increased spread (difference in the price) between two instruments often creates interesting opportunities. Currently gold seems to be overvalued compared to platinum, in the terms of historical average. Recently the difference in the price of these two precious metals reached historic levels around $350/oz. While usually the price of platinum was higher in the past, currently it seems that gold is outperforming his cousin big time while this happened only once the last 25 years. This anomaly will very likely attract many traders and this may offer us an interesting investment or trade opportunity if we play smart. We can bet on the tightening of the spread between these two metals by a kind of Inter Market Spread Strategy. Here are some Pro`s and Con`s:

Pro`s:

•       Platinum is 15 times rarer than gold 
•       Historically unprecedented spread between Gold and Platinum will probably attract spread traders betting on the tightening of this gap. 
•       Platinum`s main substitute is Palladium, which can cause a shift demand from automobile industry for Platinum (Platinum is used mostly in Automobile  industry - especially in diesel vehicles. Eventual Palladium supply disruption from Russia could give boost demand for Platinum and push up the price
•      Comparative advantage of Platinum vs. Gold, more in the technical view (see below)

Con`s:

•         Risk of slowing global economic growth may cause further widening of the spread
•       Eventual supply disruption in South Africa may cause the car industry will not shift  back to platinum
•       Eventual crisis in diesel car markets (for example spreading of the Volkswagen case),  where Platinum is used the most in catalytic converters
•       Any geopolitical risk which could cause Gold will maintain momentum over Platinum

The Spread

By now you should have the a quick picture about the background. For more fundamental information about the two metals please roll lower. From the chart below you can see how the spread between them looked like over the last 25 years. As you can see, it was most of the time in favor of Platinum. However, the recent uncertainty created by the Brexit vote and the slowing global economy caused a strong Gold rally and Platinum is not really catching up with it yet. Last week we closed with tighter spread than the record week before. Even the pace of closing up the gap slowed down this week, there is a got chance will close the week with even smaller difference.

You can follow the gold platinum spread at this website: 

http://www.denvergold.org/precious-metal-prices-charts/platinum-gold-spread/

Now let´s take a deeper look at the fundamentals behind the two precious metals.

Platinum

Currently we estimate that Platinum is app. 15 times rarer than Gold. There are only 4 big mines in the world providing 90% of the production of Platinum.

Nowadays, it is as precious as industrial metal, and it’s used in many industries as a chemical substance, as a catalyst and apart from many other uses also in dental and jewellery alloys.

Most of industrial use of Platinum however come from the automobile industry where it`s used in catalytic converters.  There is also a substitute to Platinum, it`s Palladium (and rhodium), but in diesel cars only Platinum could be used. Looking at the current economic slowdown in Europe, where most of the diesel engines are used, you can get a hint why are the Platinum prices so depressed.

The most important factor for car industry to choose between them, is their relative price. In 2001 the Palladium prices were after a huge bull market at historic heights while Platinum was just about to pick up momentum. Given the huge difference in prices the car industry changed the technology toward Platinum which kick started the Platinum bull market at the same time. Similar reverse shift could have been seen during the last financial crises when Platinum prices reached historic records. At the same time the Palladium bull market started...

Geopolitically you need to take into consideration that the most of worlds Platinum is produced in South Africa and most of Palladium is mined in Russia. Problems with the Russian Palladium supply will lead to an increase in demand for it`s substitutes, among them demand for Platinum and vice versa. If there is a Platinum supply disruption in South Africa, the biggest Platinum producer of the world, Palladium will rally due to the increased demand from car manufacturers.

Gold

The qualities of the yellow metal makes it probably the most popular and best known precious metals in the world. The usage of Gold is diverse, starting from jewelries to different range of industries. As a dental supplement for example the Gold has been used for more than 3000 years.
 
Gold is heavily used in manufacturing of electric devices as it acts as a reliable and fast conductor of electricity. However silver and copper are better conductors so why to use gold...? The advantage of gold compared to its much cheaper peers is that it is not corroding hence offering better durability and stability.

For some interesting figures let`s look at the mobile phone industry. According to the World Gold Council, a single mobile device contains up to 50 milligrams of Gold. That’s a tiny amount but nearly 1 billion cell phones are produced each year... 

For Gold is also typical seasonality when the physical demand for the yellow metal increases especially in Asia. The two most followed periods of the year are the Indian Wedding Season in the fall and the Chinese New Year around January and February. In Asia, Gold is still a well trusted asset representing social status. Therefore, in times of falling Gold prices many families are also trying to get the yellow metal at bargain price, which may provide certain cushion to the decline.

From technical perspective

Gold 

Gold has confirmed a few weeks ago the higher low by breaking above 1300. The yellow metal has recently broken another significant resistance at 1350 and if it can close the week above, the break will be confirmed. The next level with a potential 40 dollar gain is around 1400 (more accurately (zone 1392-1433) which could be a significant hurdle for the bulls.

Platinum

There is a slightly different (or delayed) situation at the Platinum market. As Gold had already confirmed its higher low, Platinum`s resistance zone of $1090-1100 is just tested and the bulls seem to struggle to break out. Until this resistance is not broken (weekly close above) the higher low cannot be considered as confirmed. However, if this will happen the next significant resistance zone starts app 100 dollars higher (resistance zone $1190-1290). This gives Platinum a comparative advantage vs. Gold.

Summary:

You can play this situation with two simple strategies:

1   

      1. Long Platinum at breakout with a stop below former resistance expecting the white metal will catch up with the momentum of gold. Targets $1200-$1300-$1500 per ounce by moving the stop higher each time.

2    2. Inter market spread trade: Long Platinum and Short gold, same notional at current levels. This allows you to play on the spread tightening hedging partially the risk of an eventual sell off in the precious metals market by shorting gold. Getting out of the strategy when spread reaching -$361 (you need to monitor this daily, link to spread chart). Targets spreads are $0 and $180 (just below average spread). With a small part of your position you can try to wait as long as the spread goes up to $500 per ounce, but to reach this it will require fundamental change in the background of the Platinum market.

       I hope this helps. If you have any question regarding the above, please do not hesitate to     contact us

       Watch your risk and be consistent !

       Mr. TechMan

       DISCLAIMER: This material was created for informational purposes only and represents the Land of Trading       teams view on past and current economic and capital market environment. It is not and shouldn´t been viewed   as an investment advice and the creator of this material shouldn´t been hold liable for any loss resulting from       action where despite this disclaimer someone would consider this  material  as an investment advice. 

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