What We're Reading

Since the beginning of the Industrial Revolution, the world has seen its population and the need for natural resources boom.

As more people and wealth translate into the demand for global goods, the prices of commodities—such as energy, agriculture, livestock, and metals—have often followed in sync.

This cycle, which tends to coincide with extended periods of industrialization and modernization, helps in telling a story of human development.

Why are Commodity Prices Cyclical?

Commodity prices go through extended periods during which prices are well above or below their long-term price trend. There are two types of swings in commodity prices: upswings and downswings.

Many economists believe that the upswing phase in super cycles results from a lag between unexpected, persistent, and positive trends to support commodity demand with slow-moving supply, such as the building of a new mine or planting a new crop. Eventually, as adequate supply becomes available and demand growth slows, the

It’s 2025, and 800,000 tons of used high strength steel is coming up for auction.

The steel made up the Keystone XL pipeline, finally completed in 2019, two years after the project launched with great fanfare after approval by the Trump administration. The pipeline was built at a cost of about $7 billion, bringing oil from the Canadian tar sands to the US, with a pit stop in the town of Baker, Montana, to pick up US crude from the Bakken formation. At its peak, it carried over 500,000 barrels a day for processing at refineries in Texas and Louisiana.

But in 2025, no one wants the oil.

The Keystone XL will go down as the world’s last great fossil fuels infrastructure project. TransCanada, the pipeline’s operator, charged about $10 per barrel for the transportation services, which means the pipeline extension earned about $5 million per day, or $1.8 billion per year. But after shutting down less than four years into its expected 40 year operational life, it never paid back its costs.

Technology is only as good as the materials it is made from.

Much of the modern information era would not be possible without silicon and Moore’s Law, and electric cars would be much less viable without recent advances in the material science behind lithium-ion batteries.

That’s why graphene, a two-dimensional supermaterial made from carbon, is so exciting. It’s harder than diamonds, 300x stronger than steel, flexible, transparent, and a better conductor than copper (by about 1,000x).

If it lives up to its potential, graphene could revolutionize everything from computers to energy storage.

Graphene: Is It the Next Wonder Material?

The following infographic comes to us from 911Metallurgist, and it breaks down the incredible properties and potential applications of graphene.

While the properties and applications of graphene are extremely enticing, there has one big traditional challenge with graphene: the cost of getting it.

The Ever-Changing Graphene Price

As you can imagine, synthesiz

Since the election the financial markets have been trying to price in “Trumpflation.” This is the idea that the combination of infrastructure spending, tax cuts, rising deficits, immigration curbs and protectionist policies could reverse the disinflationary trends we have witnessed over the past few decades and more dramatically since the financial crisis. The selloff in the bond market amid surging interest rates might be the single most important piece of evidence in this regard.

Over the summer I noted we were likely witnessing the final blow-off stage of the bond bull market (see this and this). Since then the long bond has fallen nearly 15% leading many pundits to conclude it has already begun pricing in the prospect of Trumpflation. However, if you look at the data, it appears it’s just not pricing in as much deflation anymore. In fact, by some measures the yield 10-year treasury bond would still need to double in order to finish the job.

A simple model based on #inflation, #ISM

When it comes to energy, there is one matter everyone agrees on. For the near future, at least, the world will need more of it—and how it is produced and used will be a critical factor in the future of the global economy, geopolitics, and the environment. With that in mind, McKinsey took a hard look at the data, modeling energy demand from the bottom up, by country, sector, and fuel mix, with an analysis of current conditions, historical data, and country-level assessments. On this basis, McKinsey’s Global Energy Insights team has put together a description of the global energy landscape to 2050.

It is important to remember that this is a business-as-usual scenario. That is, it does not anticipate big disruptions in either the production or use of energy. And, of course, predicting the future of anything is perilous. With those caveats in mind, here are four of the most interesting insights from this research.

Global energy demand will continue to grow. But growth will be slower—an ave

The stock market continues to weaken, as evidenced by these ETF charts.    If you zero in on a sector you wish to short, I would bear in mind that ETFs are comprised of market leaders.  I would look for names "outside" of the ETF components; consider them leaders and you want the weaklings to short.

The reasons for weakness are numerous. 

Consider the election weight (a Trump win would weigh on equities but Clinton weighs on pharma pricing).  Then there are flat-to-dropping sales.  Of course the USD movement (up will weigh on commodities and large caps with overseas exposure).  Then there's those who feel we are already at or above maximum value and they're not buying here.  They're hedged, short some and long financials ahead of the Fed rate hike.  Then there's that Fed hike itself.  High dividend is flushing down the toilet (SDY) in September.  Overseas weakness with China not helping boost confidence for demand.  And we also have more failure at the OPEC talks with no offer from o

With disruptions fading and Libya now reaching a deal to end their brigade, oils top may be in for now.  This man, however, feels it's going to be a very long road ahead for crude oil bulls.

Next week will be a historical one for both the United Kingdom and the global economy. On June 23^rd the British people will decide whether to leave or stay in the European Union. Polls have been mixed over the last couple months, but the latest out show momentum for leaving, which is scaring the markets.

Loss of British sovereignty is the fundamental reason for leaving the EU, as many supporters want to take back control of U.K. borders in order to curb immigration. Those that wish to stay in the EU say there are severe short-term economic consequences that would make trade difficult and slow the economy. Even President Obama recently said that if there is a Brexit, the U.K. would go to the “back of the queue” in American trade deals.

While debate and speculation is running rampant, markets are watching the British Pound closely. Last week U.S. indices tracked and moved with the Pound tick for tick, showing that traders are very concerned about the upcoming vote.

So how can you profit

We’ll start with the obvious: the number one export for many countries here is crude oil or related petroleum products. Middle Eastern countries made up a significant portion of global oil export revenues during 2015 with shipments valued at $325 billion or 41.3% of global crude oil exports.

Saudi Arabia, Iraq, United Arab Emirates, Kuwait, Iran, and Oman were all among the top 15 exporters of crude oil in 2015. Russia and Kazakhstan, countries on the Central Asian part of the map, were also members of that same group.

Regimes in the region found that there were many other corollary benefits from this economic might. Unrest could be stifled by rising wealth, and these countries would also have more influence than they otherwise would in global affairs. Saudi Arabia is a good example in both cases, though a major driver of Saudi influence has been slipping in recent years.

Outside of Oil

Aside from exports of oil, there are some other interesting subtleties to this map. One of the most

I'm continually saving charts and data points which I find interesting but generally don't post enough to share the data.  That being said, I thought "wth" and decided to share some of my most recent.  Perhaps you can find a few of interest or maybe you can translate one into a trade.  It certainly can't hurt.  Your comments would be of interest and will be answered.  Happy trading.

Online shoppers by income group.  It certainly seems Amazon benefits by middle income buyers.  Possibly they just don't have the 'time' to shop in a store, working 60+ hours a week and balancing soccer games, football, cheerleading practice, dinner, laundry, etc.

Jet[dot]com is now selling some items at a loss to gain marketshare from Amazon

We've had numerous talks in Chat over coal usage (is clean coal an oxymoron or what?) and this certainly backs up the belief that natural gas continues to be embraced.

Then we have a look at Bear markets of 20% or more.The average # of months caught my eye. 

The chart above is the Bloomberg Commodity Index. It consists of baskets of common commodities, including energy, metals, foodstuffs, softs and precious metals.

After a fairly flat period in the 1990s, the index leapt upward beginning in the early 2000s. The context explains the jump: High inflation, weak dollar and low interest rates. From 2001 to 2007, the dollar lost 41 percent of its value, and all commodities priced in dollars skyrocketed. At the same time, China began a huge expansion of its infrastructure, transportation, housing and manufacturing sectors. The BCOM index moved from around 90 to almost 240.

You know the rest of the story: Inflation is nowhere to be found, and the Federal Open Market Committee is concerned about deflation. The dollar is at multiyear highs against just about any other currency. Commodity prices have suffered as a result.

Oil prices have been cut almost in half compared with a year ago, to $45 from $87. They are down more than 60 percent from the pe

When crude oil was stopped by it's 200 month simple moving average in June, I wrote here that this posed a problem for the energy sector.  We analyzed rig counts and even questioned here if the Saudis had it wrong.  I had already posed here that there would be no recovery in 2015 and we should be fearful of the nasty word "deflation" here and it doesn't appear I was wrong.  Who's feeling the most pain from these prices?  We took a look here as these countries could pose good buying opportunities down the road.  What's being said now on crude oil's recent drop in price is even more interesting.....at least until there's a disruption in supply or the Saudi's change their mind.

Back in January, Morgan Stanley drew similarities between the current oil crash and the one in 1986— when oil prices fell 45%.  Though they have been making these parallels for six months, analysts are now saying that the current crash could fare even worse.  "On current trajectory, this downturn could become wor

This was the week Greece inched closest to chaos, as a bank holiday and a technical default caused markets around the world to erupt in turmoil. They recovered somewhat Tuesday, and futures looked stronger Wednesday morning, but on Monday, the NASDAQ Composite Index lost 2.4 percent, the Standard & Poor's 500 Index lost 2.09 percent and the Dow Jones Industrial Average fell 1.95 percent. Volatility exploded, as the Chicago Board Options Exchange Volatility Index surged 35 percent, its biggest increase in two years, to 18.85. 

One would imagine that such a scenario might be constructive for gold. It has been called the best measure of fear, the only real currency, a refuge for those who plan for panic. So how is it doing these days? Spot prices were soft on Monday, despite the wild volatility in equities, drifting down a few bucks from about $1,180 an ounce to about $1,176. They fell a few dollars more yesterday, and are soft Wednesday.

I thought gold was an investor’s best friend dur

Received this SoberLook email from member Ryan and had to chuckle.  Did oil bulls (who are always drooling at the mouth) truly feel OPEC would cut production at some point to satisfy their desire for higher pricing?  Come on.  How much can the U.S.consumer handle with new jobs created at the low end of the scale?  What would happen with $5 gas gasoline?  Carpools would become all the rage here in my locale. At a time when the U.S. consumer needs money to spend, the impact of higher oil would be the last thing we need.

With low oil, the weak will fail and M&A will continue in the crowded space.  Let new technology force cost savings (as we're seeing it every where else) and bring O&G production up to 21st century standards.  I've written about it several times and I think the Saudis knew it was time.

In 2014 the Saudis could no longer accept the loss of crude oil market share as the North American production levels shot up sharply over a three-year period.

Source: Yardeni Researc

Had to share this monthly chart of crude oil because I am one that has viewed it bearishly since it broke it's 200 month sma; prior support during the financial crisis. (click chart to enlarge)

Blame it on fracking.  Blame it on OPEC.  Blame it in fuel efficient cars.  Blame it on whatever you wish but just because it was bullish for years, does not mean it will always be the same.

Natural gas has been embraced by the U.S. and continues to grow.  Coal is all but dead; being dropped by one country after the next.  There obviously is no U.S. oil shortage (thank you Bakkens) and our dependency on overseas oil becomes less with each passing day.

Yes they have shut down rigs to cut back on the oversupply but (imo) barring any disruption in production, I see this years move in crude oil as nothing more than back-n-fill.  The 200 month is an interesting overhead obstacle.  And that strong U.S. Dollar?  No, that not going to help it either (again barring a disruption).

It's not a bear mark

I'm back from Illinois after "life intervened" and I rushed out the door and gold has done exactly what I felt it would do.  In this previous post I felt that the 100 week SMA would pose a resistance and if you think about it, it makes complete sense.

• From a season standpoint, gold doesn't have much demand until last Summer when Indian festival and wedding season kicks in followed by jewelry gift giving as the Winter holidays approach.  (see seasonal chart)
• Inflation is very low = no need to hedge with gold
• The stock market is challenging new highs.  When equities are doing well, not to mention the killer strong U.S. dollar, again there's no need to hedge risk with gold.

For all you gold bugs out there, dude, be a patient investor and wait for smart entries.

My guess is that gold will take out the low which has been tested three times and we'll see lower pricing.  For those who want to place bets on gold falling, I would recommend $GLL or $DGZ however beware; they are thinl

While guests on CNBS CNBC and Bloomberg are busy encouraging you to buy oil names which are down over 50%, I wouldn't expect to reap any big rewards any time soon.  In fact I believe there will be much more pain ahead, depending on the strength of the company you chose.  Iran sanctions may be giving it a boost near term but once they're lifted (or eased) their production is expected to double which is once again, bearish for this oversupplied market

While everyone is in agreement that crude oil is in a bear market, quite often one strategy is to buy the laggard and anticipate it to outperform the following year.  The trouble with crude oil however, are the fundamentals.

1. U.S. consumer Demand (figure 1)  Consumption has been dropping since 2000 thanks to more fuel efficient autos and younger Americans (millennials born from 1980 to early 2000s) being drawn to work in and the lifestyles of large metropolitan areas.  Baby boomers (born 1946-1964 or 51-69 years of age) will contribute

Russia's central bank raised interest rates last Friday from 9.5% to 10.5% in an effort to support the falling currency and battle inflation.  When that did nothing, they shocked markets by raising it again overnight from 10.5% to a whopping 17% in what some are calling an emergency move.  This was their sixth interest rate hike this year to support the currency.

The central bank early on Tuesday also increased the maximum volume of foreign currency it provides to Russian banks via its foreign-exchange repurchase agreement auctions for 28 days to $5 billion from $1.5 billion.

Sadly the RUB/USD barely moved. (left image - click to enlarge)

Russia's economy still depends in large measure on sales of oil and gas, which account for about two-thirds of exports, despite liberal policymakers calling for structural economic reform for years.

That means swings in global oil prices have a significant impact on Russia's balance of payments, and therefore the rouble exchange rate.  This will c