As was.. Asia steady overnight. Shanghi up 14 points or so. The US debt issues are not affecting sentiment in the markets. No one is pricing in any US default or even slightly hedging against such an event.
US indexes got that near term weakness but rebounded into the close. Some sort of breakout rally on the extension of the debt ceiling looks likely. Pre this expect volatility with spikes to the downside to catch the unprepared and weak hands. Technology issues are generally doing very well but with a strong bias to the largest tech players.
Dollar index has pushed downward as suspected. She wants to test the lows. The disasterous ugly trio of the ugly quadruplet rise vs the usd. The jpy,gbp,euro looking to push on vs the usd with the jpy threatening all time highs vs the usd. The USD is in serious trouble here and Yuan peg must be under enormous pressure.
Oil failing pegged at 100 usds for the moment. Call put ratio is strongly positive at present with a large group betting on 120 usds by end of year. Fundamentally its easy to see why participants would take this bet. For the moment i’m waiting and watching. Copper remaining red gold, equity prices assisting her miners that are tracking the underlying metal. Copper miners very strong and looking to potentially breakout even as China struggles. Here the copx etf which shows the world’s copper miner’s performance (USDs).
As the copper miners are a few percent away from breaking out from there prior early 2011 highs. The underlying copper has not broken out beyond her early 2011 highs. The miners are therefore correlating very well to the underlying price of copper which is what you might expect.
Here a chart of the gdx(un-hedged gold miners)
The gold miners are 5% or so from there early 2011 highs much like the copper miners. But gold is 11% higher than her early 2011 highs. A relative over performance vs copper on the underlying of 16%. Whereas the gold miners have performed less strongly than their copper peers over this period since early 2011. Whats more the earnings per share ratios for gold and silver miners are higher than for copper miners. On absolute and relative models the pm miners are cheap and getting cheaper. Where and when this market madness ends we cannot know. I cost average from any excess cash generated by trading etc. Option calls to march 2013 on these miners is a very interesting market bet, imo.
Precious metals, the underlying metals, remain the strongest charts in the markets. The breakout continues in gold with new all time record highs yesterday again. (Precisely no gold miners, not a single one world wide, made a new high, for note). Silver looking to join the party. Silver looks to be building for the next push onward. Imo, this next wave should take silver to 46. An entry around 39.4 has a good risk reward therefore. Upside 46 downside stop at 38.5 or so.. ratio 6 to 1..
On to the precious metal miners.. What is true for iron ore, copper, tin etc is not true for gold and silver miners: Ie as the price of silver and gold push ever on the price of the pm miners lags? Some participants blame rising energy and labor costs. I find it odd that copper miners etc should not experience the same issues as pm miners. The only logical conclusion is that the gold and silver miners are hugely undervalued at present. Several are on 2012 single digit pes on underlying metal prices that add 25% or more yoy. Either other metal miners are over valued or pm miners are hugely undervalued. The ratio of miner to metal suggests a significant undervaluation. There is certainly no bubble in the pm miners. No fizz at all and not much interest in the sector. As above cost average in and use option calls to gain the beta for the ‘pop’ when she comes.
Summary.. remains as was.. dx lower, equities higher, pms higher, industrials strong and threatening breakouts in some areas. Large can tech a market outperformer.
The paradoxical market continues. The worse it gets the more money is printed and the higher asset prices rise.
Lets remind ourselves of what Mr Munyukwi from the Zimbabwe stock exchange said on this paradox.
‘Negative interest rates and inflation had caused a stampede for assets, which had driven share prices to record highs, even in real terms. It’s quite embarrassing because the exchange is supposed to mirror the reality of the economy. We have benefited from the distortion of the market.”
CEO Zimbabwe stock exchange – E Munyuki
Luck to all Rich
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