“West Point became the Fort Knox of Silver on Wednesday, July 6th, 1938.”
- William Silber
Until I read about it, I didn’t know that. Did you? Did you know that the Chinese were going to dump some Commodities like Copper and Aluminum on the market yesterday in order to try to tone down #InflationAccelerating?
Someone always knows something. AFTER the Chinese “news” hit, I got the memo on the “why” that I couldn’t answer on The Macro Show yesterday (there were 13 subscribers who asked about Copper)…
If you could only pick one (and invest on it), would you pick “why” or “when”? I’m a big when guy. Back then in 1938 a “fleet of trucks arrived at 3:30PM carrying 114 tons of the white metal belonging to the US Treasury.” -The Story of Silver, pg 90
Back to the Global Macro Grind…
It’s a good thing that A) the Chinese didn’t sell Silver (SLV) on me… and B) that I’m still short Chinese stocks (FXI). Silver is inflating another +0.7% this morning and remains Bullish @Hedgeye TREND.
Chinese stocks were down another -1.1% overnight taking their 2-day drop to -2.0% after reporting more than just “selling some strategic reserve commodities.” They reported more #Quad3 Stagflation:
A) Chinese Industrial Production #slowed (again) in May to +8.8% y/y vs. +9.8% in April
B) Chinese Retail Sales #slowed (again) to +12.4% y/y in May vs. +17.7% in April
The #slowing of it all matters WHEN it’s within a cyclical slowdown that is also secular. In Hedgeye vernacular that’s when:
A) The Cycle, or the @Hedgeye TREND, which is “3-months or more” (i.e. quarterly analysis) runs into the
B) @Hedgeye long-term TAIL Duration, which is “3-years or less” (i.e. capturing secular slowing in China’s case)
*To my little kitty copy-cat fans out there, that’s slide 9 in the Hedgeye Macro #process deck. It’s been there for a long time.
I’ve always used this multi-factor, multi-duration #process that we trademarked as TRADE/TREND/TAIL, for one very specific lesson I learned while running money on the Buy Side: solving for WHEN matters most.
But “why”? Why wouldn’t you short Copper now that the Chinese are selling-SOME of theirs?
Do we know that they’re selling tons of it today? Did they already front-run the news, selling it in America’s face? Are they buying-SOME of it back today? Why isn’t a “China selling” headline “transitory”?
The “smarter” people are in this business the more rabbit holes they can run down on the why of it all. I’m not saying why doesn’t matter. I’m just reiterating that getting the when to buy-more Copper (or not) matters more.
In addition to their Silver and French Wines, what the Chinese do not appear to be selling this morning is their Oil:
A) Oil is inflating to yet another new CYCLE HIGH of $72.24/barrel… and
B) Energy Stocks (XLE) delivered us another +1.9% return to +48.3% YTD yesterday
What carries a heavier weight in our proprietary US INFLATION Nowcast, Copper, Zinc, or Oil? Do you need to know why on that or are we good being long TRENDING inflation instead of whining about why it could be “transitory”?
You know who needs inflation to be “transitory”, right? Both the US and Chinese government!
Unfortunately for the Deflation Bears who just got blasted chasing Gold and TLT charts from last week’s lower-Cycle-highs, yesterday’s US economic reports delivered new Cycle Highs for #Quad2 data:
A) US Industrial Production Growth #accelerated +0.8% sequentially … and
B) US Producer Prices inflated again to new Cycle Highs of +6.6% year-over-year
If only the #1 input cost in the world (Oil) would bloody well stop going up, eh?
Maybe the US Government should announce they are selling Oil from America’s Strategic Reserve. Would that be “transitory” though? Or would it, like the Chinese sales of Copper, be a tacit admission that inflation isn’t going away anytime soon?
Immediate-term Risk Range™ Signal with @Hedgeye TREND signal in brackets:
UST 10yr Yield 1.46-1.66% (bullish)
SPX 4198-4276 (bullish)
RUT 2 (bullish)
NASDAQ 13,780-14,266 (bullish)
Energy (XLE) 54.91-57.23 (bullish)
Shanghai Comp 3 (bearish)
VIX 14.27-18.39 (bearish)
USD 89.62-90.67 (bearish)
GBP/USD 1.406-1.420 (bullish)
Oil (WTI) 68.53-73.09 (bullish)
Nat Gas 3.06-3.39 (bullish)
Gold 1 (bearish)
Copper 4.32-4.69 (bullish)
Silver 27.45-28.40 (bullish)
Best of luck out there today,
KM
Keith R. McCullough
Chief Executive Officer
