May 16, 2016
With gold and silver remaining firm and gold and silver shares surging once again, today Peter Boockvar says the backdrop for gold and silver could not be better in a world of monetary madness.
Peter Boockvar: The economic data released over the weekend in China were all below expectations for April. Retail sales rose 10.1% y/o/y vs the estimate of 10.6%. That is a slowdown from 10.5% growth in March and it’s the weakest since May ’15. The National Bureau of Statistics said slower auto sales vs March was the main reason for the slowdown. Industrial production grew by 6% y/o/y, below the forecast of 6.5% and down from 6.8% growth in March…
Continue reading the Peter Boockvar piece below…
Peter Boockvar continues: Part of the weakness however was self inflicted in that China is shutting down steel, coal and cement plants in order to rid themselves of too much excess capacity. There was also a moderation in the rate of growth in motor vehicle production. Lastly, fixed asset investment ytd y/o/y in April rose by 10.5%, less than the expected gain of 11% and just off the slowest rate of gain since 2000. Most of the slowdown in this category was in ‘primary industry’ which China defines as the extraction of natural resources or production activities utilizing natural resources which includes agriculture and mining. Thus, another self inflicted reduction in growth.
Chinese stocks weren’t bothered by the continued Chinese weakness as the Shanghai composite was up by .8% and the H share index was higher by .1%. The yuan was up, both kinds. If we take what the ‘authoritative’ figure in China said last week, we should not expect any new monetary stimulus as it seems enough is enough. Instead, China will hopefully accept the massive debt problem they have and face it head on.
Monetary Madness And Gold & Silver
Triggered by the lift in crude prices this morning, helped by Goldman’s realization that it’s the supply side that creates the bottom in prices at this point in the cycle (oil rig count has fallen 80% since the peak in October ’14), the CRB index will likely trade at or near its highest level in 5 ½ months today. The Journal of Commerce Industrial Commodity index is at an 8 month high. And, the CRB food index is just off its highest level in 5 ½ months. I repeat my bullish stance on commodities and emerging markets by extension. Bear markets end when news gets less bad, not when the news gets good. For gold and silver, which are really currencies, the macro fundamentals couldn’t be better with the monetary madness going on, particularly with NIRP.
These commodity market moves come before tomorrow’s CPI where the headline gain is expected to be 1.1% as we recycle out the sharp drop in oil prices. Core prices are expected to gain 2.1%. Mediocre global economic growth combined with a curl higher in the inflation stats in the 2nd half of 2016 will create the next conundrum for the Fed. As to the possibility of a June rate hike, the market is saying NO CHANCE just a week before the UK EU vote. The fed funds futures contract in July, capturing the June meeting, is pricing in 4% odds. As for John Williams and his Friday forecast for 2-3 hikes this year, the market is also saying NO CHANCE. Odds of one are at 56%. The yield curve continues to flatten with the 2s/10s spread narrowing by another bp to just below 95, the tightest since December ’07. What’s that saying? The Fed will have to respond with maybe one hike by yr end when headline inflation touches 2% and the US economy and markets won’t like it?