Comment of the Day
Video commentary for February 10th 2022
Some of the topics discussed include: bonds yields surge, TED spread negative when SOFR incorporated, risk-off reappearing as resistance encountered at the lower side of overhead trading ranges, gold, oil and copper pause. Singapore, Malaysia and Vietnam strong but will likely pause if Wall Street follows through on the downside, Dollar mixed, Yen weak
Goldman Commodity Veteran Says He's Never Seen a Market Like It
Thanks to a subscriber for this article from Bloomberg which may be of interest. Here is a section:
Jeff Currie, the closely-followed head of commodities research at Goldman Sachs (NYSE:GS) Group Inc., says he’s never seen commodity markets pricing in the shortages they are right now.
“I’ve been doing this 30 years and I’ve never seen markets like this,” Currie said in a Bloomberg TV interview. “This is a molecule crisis. We’re out of everything, I don’t care if it’s oil, gas, coal, copper, aluminum, you name it we’re out of it.”
Futures curves in several markets are trading in super-backwardation -- a structure that indicates traders are paying bumper premiums for immediate supply. The downward sloping shape in prices is generally taken to mean commodities are severely undersupplied.
My view - This is the time in the cycle where there is a vociferous argument between whether the strength in commodity prices is cyclical or secular in nature. If it is cyclical then we are in a repeat of the post global financial crisis episode where commodity prices surged to new highs and subsequently gave up most of the advance. On the hand, if this is the beginning of a new secular theme, we can expect the breakouts to hold and prices to multiply several times over the next decade.
Insurance executive says death rates among working-age people up 40 percent
This article from WYFI.org may be of interest to subscribers. Here is a section:
“We’re seeing right now the highest death rates we’ve ever seen in the history of this business,” said Scott Davison, the CEO of OneAmerica, a $100 billion life insurance and retirement company headquartered in Indianapolis.
“The data is consistent across every player in the business.”
Davison said death rates among working age people – those 18 to 64-years-old – are up 40 percent in the third and fourth quarter of 2021 over pre-pandemic levels.
“Just to give you an idea of how bad that is, a three sigma or 200-year catastrophe would be a 10 percent increase over pre-pandemic levels,” Davison said. “So, 40 percent is just unheard of.”
He said the data shows COVID deaths are greatly understated among working age Americans.
Davison says OneAmerica expects to pay out more than $100 million in short- and long-term disability claims due to the pandemic.
“Whether it’s long COVID or whether it’s because people haven’t been able to get the health care they need because the hospitals are overrun, we’re seeing those claims start to tick up as well,” he said.
Because of this, insurance companies are beginning to add premium increases on employers in counties with low vaccination rates to cover the benefit payouts.
My view - Middle aged people have been dying at an increasing rate in the USA over the last decade. Poor lifestyle habits, suicide, and an opioid epidemic contributed to that condition. Now the pandemic has resulted in an acceleration of the trend.
U.S. Inflation Charges Higher With Larger-Than-Forecast Gain
This article from Bloomberg may be of interest to subscribers. Here is a section:
The data reinforce the Fed’s intentions to begin raising rates next month to combat broad-based inflationary pressures and could lead markets to expect even more aggressive action from the central bank. The steady run-up in prices has eroded recent wage gains and diminished American families’ purchasing power, sucking much of the air out of what has been an exceptional bounceback in the U.S. economy.
Leading up to the Fed’s March 15-16 meeting, policy makers will also have the February CPI and employment reports in hand.
Investors boosted their expectations for a a half-point increase in the federal funds target rate in March following the report. While most economists expect a more gradual approach to liftoff -- as has been telegraphed by several Fed officials -- the acceleration of inflation on the heels of rapid wage gains will keep the possibility of a half-point hike on the table.
My view - The Federal Reserve has already signalled what their plans are. They aim to end purchases next month and simultaneously begin to raise rates. The market is well on its way to pricing in a 50-basis point hike. Reducing the size of the balance sheet is expected to begin sometime later this year. That’s where the big differences between this tightening cycle and last begin.
The process of running off debt is expected to take a different trajectory from the last time around. Jay Powell signalled they will be focusing on reducing mortgage debt holdings. The Fed is probably worried about the spiralling cost of shelter. By reducing their holdings of mortgage bonds, they are potentially aiming at property prices.
The Chart Seminar 2022
With global vaccination rates rising, the prospect of anti-COVID pills on the horizon and the promise of travel restrictions being dropped, it is time to start thinking about venues for The Chart Seminar in 2022.
Please drop sarah@fullertreacymoney.com a line if you would be interested in attending an event next year, as well as your preferred location.
At present I am looking at a late May date for a London seminar and I am open to other times and locations subject to demand.
Eoin's personal portfolio: short reopened February 2nd 2022
One of the questions subscribers as most often is how to find details of my open trades. To make it easier I will simply repost the latest summary daily until there is a change.
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