With John Hampson
Please excuse the brevity and standard of this post. Internet provision in Australia is behind the times (payable, slow, restricted or unavailable), and it appears this will continue for the remainder of my time in Australia and again in New Zealand. I am currently approaching the region around Melbourne.
We’ve reached extreme bearishness levels in coffee, sugar, gold, silver and wheat, as well as oversold readings and what looks like a capitulation in both gold and miners. These are normally the circumstances in which I would buy, but I am happy with my exposure in commodities and as the alternative scenario remains in play (secular commodities peak passed) I do not wish to twist here. I am awaiting more evidence in support of the primary scenario (secular commodities peak ahead within the next 12 months), which would include evidence of another extreme hot year developing globally (January data not in yet), evidence of sunspots still climbing towards their peak (currently a quiet sun), and technical breakouts with momentum in the laggard commodities. Oil and copper have been involved in the pro-risk rally, which I believe is a good sign, particularly as oil correlates normally well with both agri (key input in production) and gold (inflation hedge).
US equities remain resilient but I maintain the overall picture for equities, as represented by the MSCI World Index, is that a consolidation began at the turn of February. My short treasuries position made some progress in line with the pro-risk rally but also looks to be digesting a little.
The latest leading indicators from the Conference Board showed a move into the positive for Japan, another +0.1 reading for the UK and flat for Korea. The latest ECRI leading indicators reading for the US showed a small pullback but still strong positive. The OECD leading indicators for all the OECD countries showed the healthiest picture for some time. The overall picture remains supportive for pro-risk.
We are in a down pressure period until the full moon around the 25th February. On the flip side, geomagnetism remains tame.
So I watch and wait. Equities have stretched to the upside, agri and precious metal commodities have stretched to the downside. A switch in performance ought now to follow, with bearishness extremes in the latter providing the fuel. Gold is certainly testing patience, but there is a historical pattern of assets pre-secular parabolic finale doing their best to shake out weak hands before the final upleg, plus on a secular view (since 2000) it can be seen that gold has been consolidating near its highs over the last 18 months, which is not a typical secular bull ending pattern. Nonetheless, the case I made for the ‘alternative scenario’ (secular commodities peak passed) remains potentially valid for now (though I rate it lower probability), so I await developments to shore up the one or the other scenario.