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Via Dana Lyons' Tumblr,

Industrial metals are attempting to break their relative downtrend versus precious metals; that has historically been good news for the economy and stocks.

There are few better illustrations of the post-election trade, thus far, than the dichotomy between industrial metals and precious metals. The illustration is especially vivid when combining the performance of the 2 groups into a single price series. And while it seems that many folks on financial social media have taken to the practice of gratuitously lumping 2 seemingly disparate securities into a meaningless ratio chart, in this case there may be some merit. First, however, take a look at how the ratio between the S&P GSCI Industrial Metals Index and the S&P GSCI Precious Metals Index is hitting a potentially critical juncture right now.

Specifically, the ratio has essentially been in a descending triangle since 2009. That is, the Industrial Metals have been making lower highs and horizontal lows versus precious metals. In a conventional single issue chart, this pattern would carry negative connotations, i.e., it would suggest a likely eventual breakdown below the lows. If that same interpretation holds here, then Industrial Metals should continue their under-performance relative to precious metals so that the ratio moves to new lows.

Importantly, the ratio was able to hold a test of its 7-year lows, which we noted in a post back in May. However, in order to prevent the customary descending triangle breakdown, Industrial Metals need to break the top of the triangle. This top is marked by the Down trendline stemming from the 2010 peak and connecting the 2014 peak. The group has a chance to do that here as the post-election bounce has lifted the ratio up to the point where it is challenging the post-2010 downtrend.

So, assuming the ratio is relevant, you can see why its present proximity to the Down trendline is important. But is the ratio relevant? Why would anyone care how Industrial Metals are faring versus precious metals. As we wrote in that May post, there are a couple potential reasons arguing for its relevancy.

1. The 2 two price series are from the same asset class and, thus, at least somewhat relatable.
2. While not always the case, each asset contains an implied message regarding the state of the economy or markets at large. The industrial metals are said to be a barometer of economic demand. Meanwhile, precious metals are very often a safe haven during times of turmoil.
3. The implied messages of the 2 assets are for the most part contrary in nature. Often times, the market forces that will prop one of them up will push the other one down. Thus, combining the 2 into a ratio can visually accentuate the message that markets are sending.

Graphic evidence of the validity of the message behind the Industrial Metals/Precious Metals Ratio can be seen in the next chart depicting the S&P 500 alongside the ratio.

As one can see, the slopes of the 2 series appear highly correlated. That is, when the ratio has been rising, stocks have also generally risen in lockstep. Conversely, when the ratio is declining, stocks have generally fallen as well. Witness the 2000-2002, 2007-2009, 2011 and 2015 declines. This is an important point given our present set of circumstances..

In sum, while they are widely overused and misused, ratio charts can be an instructive tool under the right circumstances. When the 2 assets are relatable, we can learn a lot about the assets themselves as well as perhaps the broader economic and market environment. In this case, if the Down trendline in the Industrial Metals/Precious Metals ratio puts a halt to the rally in Industrial Metals, it could possibly serve as a warning sign for the growth in stocks and the economy. If, on the other hand, the sharp rally in Industrial Metals over the past 6 weeks is for real and durable, then perhaps the ratio breaks out – and takes stocks and the economy along for the ride.

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More from Dana Lyons, JLFMI and My401kPro.

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It was just this past Monday when we were reported that the Venezuela currency, the Bolivar, had crashed below 3,000 for the first time ever, losing 15% of its value in just one day as the Venezuela hyperinflation had entered its terminal phase.

Today, the DolarToday.com website, maintained by a person the WSJ dubbed “Public Enemy No. 1 of Venezuela’s revolutionary government, Gustavo Díaz, a Home Depot Inc. employee in central Alabama” reports that having crossed the psychological 2,000 level ten days ago, and taking out the 3000 barrier earlier this week, the Bolivar has now plunged to a new all time low of 4,609.37 on the black market, dropping by 15% from its latest print of 2,972 reported on Friday of last week, and has lost 60% in its value just in the past month.

So for anyone still unsure what real-time hyperinflation looks like, here is the updated visual answer.

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With almost 90% of the nation disapproving of him, it hardly a surprise that French President Hollande just told the nation that “for the good of his country” he will not run for Presidency in 2017 saying he was “conscious of the risks” a candidacy would have caused.

The unprecedented decision was driven by his historically low popularity ratings. 

“Power and the exercise of power have not made lose my lucidity. And today, I am conscious of the risks that would create my candidacy for the majority,” he said in a solemn televised address on Thursday evening. “Therefore I have decided not to run for president for president”

He has had some of the worst approval ratings for a president in modern French history.

Polls so far indicated that Mr. Hollande, who has struggled to significantly reduce unemployment and whose term saw some of the worst terrorist attacks on French soil, would not make it past the first round of the elections, which will be held in April.

As Bloomberg reports,

French President Francois Hollande said he won’t run for re-election next year, stunning the country and potentially opening the way for Prime Minister Manuel Valls to run in his place.

 

Speaking in a televised address, Hollande acknowledged some mistakes, defended his record, and said he was putting the country’s needs ahead of his personal ambition.

 

He warned against the danger of protectionism and France turning in on itself.

While not unexpected it is imporant as it leaves the Republic likely to vote for the right wing Fillon or Right-er wing Le Pen.

Hollande’s prime minister Manuel Valls has hinted strongly that he will run instead in a bid to unite the fractured Socialist party against centre right candidate François Fillon and far right National Front leader Marine Le Pen.

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Submitted by Charles Hugh-Smith via OfTwoMinds blog,

Technology cannot eliminate human bias or poor decisions, but it has the potential to eliminate systemic bias and privilege.

Technological skills are often viewed as the dividing line between globalization's "winners" and "Losers." Those with high technology skills tend to be paid considerably more than those with lower skills, and have more opportunities to advance.

In this view, technology is the purview of the highly skilled, highly paid "winners" of the 4th Industrial Revolution, and "the rest of us" are merely consumers of technology.

I think this overlooks the great potential of technology to flatten privilege and reduce institutional bias. I discuss this in my new book Inequality and the Collapse of Privilege. Here is an excerpt from the book:

What kind of system eliminates social privilege and opens equal opportunities to all?

The answer I describe in my book A Radically Beneficial World: Automation, Technology & Creating Jobs for All is technology-based: each member of every Community Labor Integrated Money Economy (CLIME) group is paid the same for every hour of work as every other member in the region. Every member and group has the same opportunity to buy and sell goods and services on their own in the CLIME marketplace. Different groups will earn different outcomes, but the opportunities for advancement will be equal for all participants, as individuals can switch groups, join multiple groups or start their own group.

Software, if properly programmed, is blind to human bias. A software-based system can eliminate bias and privilege by treating every member and organization equally.

Imagine a city in the near future that only allows self-driving rental cars on its streets: human-driven privately owned vehicles are banned as hazards. Every rented vehicle obeys all traffic rules, and accidents are rare. (Recall that vehicle speeds are low in congested cities.)

Why would the city waste valuable police time cruising streets filled with vehicles that cannot deviate from traffic rules? The only time it would make sense to send a traffic officer out is to file a report on the rare accident.

If an officer did pull a car over for a defective tail light, the driver would be blameless, as the responsibility for repairing the tail light would fall to the rental car agency, not the driver. Since the vehicles would record all activity, there would be readily available evidence if police officers pulled over vehicles with no ticketable defects because the driver happened to be African-American.

Not only would it make no sense financially for the city to pay police officers to monitor self-driving rental cars, any city government that persisted in driving while black bias would open itself to punishing civil lawsuits. The data collected by the rental car fleet would be undeniable in court.

Technology cannot eliminate human bias or poor decisions, but it has the potential to eliminate systemic bias and privilege, and collect data that makes any remaining bias transparent to all—not just to the unprivileged who experience the bias first-hand.

Technology has the potential to offer everyone the same opportunities for individually tailored advancement. While software cannot eliminate differences in wealth-based opportunities—for example, the children of wealthy families get private lessons, while the children of disadvantaged families do not—technology has the potential to level the playing field (for example, by enabling nearly free lessons tailored to each student), and provide transparency at levels that are unreachable in systems riddled with human bias.

While there is no substitute for caring, encouraging parents and mentors, technology can open the path to the advantaged class that is currently a thicket of obstacles for the disadvantaged.

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After securing a deal to save 1,100 jobs at a Carrier plant in Indiana from being exported to Mexico, Trump is set to kick off his Midwest “Thank You Tour” with a speech there which is expected to get started around 2pm EST.

As we pointed out earlier this morning, Trump’s deal reached with Carrier keeps 1,100 jobs in the U.S. in return for $700,000 in annual tax breaks for a period of 10 years.  Per the Wall Street Journal, the heating and air conditioning company will also invest about $16 million into a furnace plant in Indianapolis that it had previously planned to close and move to Mexico.

As Fortune reports, citing a source close to the company, Trump called Greg Hayes, CEO of Carrier’s parent company United Technologies, two weeks ago and asked him to rethink the decision to close the Carrier plant in Indiana. Hayes explained that the jobs were lower-wage and had high turnover, and the move was necessary to keep the plant competitive, according to the source. He said the plan would save the company $65 million a year.

 

Trump then replied that those savings would be dwarfed by the savings UTC would enjoy from corporate tax-rate reductions he planned to put in place. During the recent campaign, Trump threatened to slap tariffs on Carrier imports from Mexico.

 

So what were the “incentives”? In the end, UTC agreed to retain approximately 800 manufacturing jobs at the Indiana plant that had been slated to move to Mexico, as well as another 300 engineering and headquarters jobs. In return, the company will get roughly $700,000 a year for a period of years in state tax incentives. Still, some 1,300 jobs will still go to Mexico, which includes 600 Carrier employees, plus 700 workers from UTEC Controls in Huntington, Ind.

 

In summary, the “math” works out to $636 per year per job saved in tax savings: hardly an egregious sum, and one which could likely be extended to other companies (unless, of course, those other companies decide to hold Trump hostage and demand escalating pay schedules) if and when Trump’s fiscal stimulus package is implemented. It remains to be seen if the popular response, outside of conservative groups, will interpret this trade off as taxpayer funded “moral hazard.”

Look forward to going to Indiana tomorrow in order to be with the great workers of Carrier. They will sell many air conditioners!

— Donald J. Trump (@realDonaldTrump) December 1, 2016

After the speech at Carrier, Trump is expected to make several more stops across the Midwest beginning with a rally later tonight as the U.S. Bank Arena in Cincinnati, OH scheduled to begin at 7pm EST. 

Join me in Cincinnati, Ohio tomorrow evening at 7:00pm. I am grateful for all of your support. THANK YOU!
Tickets: https://t.co/ozezHRazlx http://pic.twitter.com/flwHDZV6Pf

— Donald J. Trump (@realDonaldTrump) November 30, 2016

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Going into the Algiers OPEC meeting in late September, the prevailing sentiment among the analyst community was that there is no way any deal will get done: after all there was no secret that the recent animosity between Iran and Saudi Arabia had recent reached unprecedented levels, with both side directly involved across from each other in the Syrian proxy war.

However, the deal did happened, surprising virtually everyone, and based on a new Reuters report, it was thanks to one man.

Russian President Vladimir Putin was the mediator who played a crucial role in helping OPEC rivals Iran and Saudi Arabia set aside differences to forge the cartel’s first deal with non-OPEC Russia in 15 years.

The interventions ahead of Wednesday’s OPEC meeting came at key moments from Putin, Saudi Deputy Crown Prince Mohammed bin Salman and Iran’s Supreme Leader Ayatollah Ali Khamenei and President Hassan Rouhani, OPEC and non-OPEC sources said. According to Reuters, Putin’s role as intermediary between Riyadh and Tehran was pivotal, and is a “testament to the rising influence of Russia in the Middle East since its military intervention in the Syrian civil war just over a year ago.“

It started when Putin met Saudi Prince Mohammed in September on the sidelines of a G20 gathering in China. The two leaders, who realized they stand to benefit more from cooperating in order to push prices higher, agreed to work together to help world oil markets clear a glut that had more than halved oil prices since 2014, pummeling Russian and Saudi government revenues. 

The financial pain made a deal possible despite the huge political differences between Russia and Saudi over the civil war in Syria.  

“Putin wants the deal. Full stop. Russian companies will have to cut production,” said a Russian energy source briefed on the discussions. Of course, Russia’s energy minister Novak has already said that it will take a long time before Russia’s fulfills its production cut quota of cutting 0.3tb/d from its current production level of 11.2tb/d due to “technical complications” suggesting that Russia is perfectly happy to sit back and watch how the world reacts to the OPEC cut first before engaging following through on its promises. After all, there is potential Saudi market share to be gained.

But first, prices had to go up.

The back story is familiar to all who have followed the endless OPEC melodrama of 2016: in September, OPEC agreed in principle at a meeting in Algiers to reduce output for the first time since the 2008 financial crisis. But the individual country commitments required to finalize a deal at Wednesday’s Vienna meeting still required much diplomacy.

Recent OPEC meetings have failed because of arguments between de facto leader Saudi Arabia and third-largest producer Iran. Tehran has long argued OPEC should not prevent it restoring output lost during years of Western sanctions. Then there is raging animosity between the two nations: proxy wars in Syria and Yemen have exacerbated decades of tensions between the Saudi Sunni kingdom and the Iranian Shi’ite Islamic republic.

Threatening a repeat of the April OPEC meeting which achieved nothing, heading into the Vienna summit, the signs were not good. Oil markets went into reverse. Saudi Prince Mohammed had repeatedly demanded Iran participate in supply cuts. Saudi and Iranian OPEC negotiators had argued in circles in the run-up to the meeting.

And, then, just a few days beforehand, Riyadh appeared back away from a deal, threatening to boost production if Iran failed to contribute cuts.

That’s when the Russian leader stepped in.

Putin established that the Saudis would shoulder the lion’s share of cuts, as long as Riyadh wasn’t seen to be making too large a concession to Iran. A deal was possible if Iran didn’t celebrate victory over the Saudis. A phone call between Putin and Iranian President Rouhani smoothed the way, Reuters reports. After the call, Rouhani and oil minister Bijan Zanganeh went to their supreme leader for approval, a source close to the Ayatollah said.

“During the meeting, the leader Khamenei underlined the importance of sticking to Iran’s red line, which was not yielding to political pressures and not to accept any cut in Vienna,” the source said.

“Zanganeh thoroughly explained his strategy … and got the leader’s approval. Also it was agreed that political lobbying was important, especially with Mr. Putin, and again the Leader approved it,” said the source.

On Wednesday, the Saudis agreed to cut production heavily, taking “a big hit” in the words of energy minister Khalid al-Falih – while Iran was allowed to slightly boost output.

Iran’s Zanganeh kept a low profile during the meeting, OPEC delegates said. Zanganeh had already agreed the deal the night before, with Algeria helping mediate, and he was careful not to make a fuss about it.

As we showed yesterday, the resolution culminated in an oil production table with a deliberate “error” in it” – while Iran’s reference level was picked based on directly communicated data, at just under 4mmb/d, the adjustment was applied to the “secondary” reported data, some 400kb/d lower, allowing Iran to present the deal as a victory to the people as it was the only nation that had a “positive” adjustment, while Saudi Arabia would demonstrate that Iran’s effective production level was 200kbpd lower than its reference point.

After the meeting, Reuters notes, the usually combative Zanganeh avoided any comment that might be read as claiming victory over Riyadh. “We were firm,” he told state television. “The call between Rouhani and Putin played a major role … After the call, Russia backed the cut.“

There was one problem: a last-minute quarrel threatened to derail the deal when Iraq became a problem (just as we warned would happen in September).

As ministerial talks got underway, OPEC’s second-largest producer insisted it could not afford to cut output, given the cost of its war against Islamic State.

But, facing pressure from the rest of OPEC to contribute a cut, Iraqi Oil Minister Jabar Ali al-Luaibi picked up the phone in front of his peers to call his prime minister, Haider al-Abadi. “Abadi said: ‘Get the deal done’. And that was it,” one OPEC source said.

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Will the deal last? It is unclear – many say that due to the inherently unstable game theory involved in the deal, there is very little chance that some or all deal participants won’t cheat, dooming the agreement to failure.  However, one thing is certain: with oil up over 4% today, following yesterday’s 9% gain, the head of the world’s largest oil exporter – having masterminded the Vienna deal at a time when both OPEC and Russia are pumping record amounts of oil – is smiling.

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Having predicted the Donald Trump victory, and nailing the upturn in US Treasury yields as well as the concurrent stork market rally, DoubleLine’s Jeffrey Gundlach appears to have once again taken the other side of the trade after riding it for the past 3 weeks, and is now considerably less exuberant on Trumponomics.

Speaking to Reuters, Gundlach said that markets could reverse the recent momentum in equities (something they appear to be doing this very moment), and at the very latest by U.S. President-elect Donald Trump’s Jan. 20, 2017 inauguration.

The new bond king said that the strong U.S. stock market rally, surge in Treasury yields and strength in the U.S. dollar since Trump’s surprising presidential victory more than three weeks ago look to be “losing steam,” Gundlach told Reuters in a telephone interview.

“The bar was so low on Trump to the point people were expecting markets will go down 80 percent and global depression – and now this guy is the Wizard of Oz and so expectations are high,” Gundlach said. “There’s no magic here.”

Putting money where his mouth is, Gundlach – who has been bearish on bonds for the past three months – said he had purchased Treasuries and Agency MBS as yields rose. 

In terms of specific forecasts, Gundlach said that the “dollar is going down”, bond yields and stocks have peaked, and gold will move up in the short term.

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