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  • GBI Daily Insights: 1-13-14 0 comments
    Jan 13, 2014 8:12 AM | about stocks: ABX, NEM, GLD, GLDX, GDX, GDXJ

    1/13/14

    Featured Chart: US Average Hourly Earnings Y/Y

    (click to enlarge)

    Lost in all the commotion from Friday's BLS employment report was the fact that average hourly wages in the US continued their fall in December to 1.8% Y/Y vs. 2.0% previously. The media doesn't give earnings data as much attention as the juicy non-farm payroll number, but falling wages have implications not only for the labor market but also inflation - covering both legs of the Fed's dual mandate. It seems counterintuitive that the Fed is seemingly so confident that it should be reigning in asset purchases when numerous signals show prices falling even further from the Fed's target. Perhaps a strong CPI this Thursday (1.5% Y/Y expected, 1.2% previously) will justify their confidence.

    Gold in the Headlines:

    Will Gold or Bitcoins Perform Better in 2014? - Investor Place

    While gold struggled, a newcomer to the 'safe haven' market stole the show in 2013: Bitcoins. This new type of currency-which is 'mined' by supercomputers-has attracted a huge following.

    Gold Rises But Gains Limited After 'Head Scratcher' U.S. Jobs Report - Forbes

    Gold futures rose, but somewhat modestly Friday after a report showing that U.S. nonfarm payrolls grew far less than expected in December.

    Outlook For Gold In 2014 - Forbes

    Gold had a rough 2013. With a loss of 28% on the year, the spot price of gold was down by nearly the same percentage that the S&P 500 was up. And I don't expect gold to regain its shimmer in 2014.

    Harmony CEO Imposes Cost Cap at South African Mines on Gold Drop - Bloomberg

    Harmony Gold Mining Co. plans to cut costs at each of its South African mines to less than 400,000 rand ($37,000) a kilogram of bullion by increasing productivity and reducing spending on equipment and exploration.

    Overnight Macro Developments:

    Asia

    China - signs the country is preparing a nationwide property tax; Local media reported the land ministry plans to form an inter-ministerial real estate registry, seen as a precursor to any country-wide expansion of property taxes - Reuters

    China's A-share market will very likely stay weak in 1H because of tight liquidity and economic growth of 7%-7.5% for 2014, according to a front-page commentary published by China Securities Journal - Bloomberg

    China may change its food policies; the country now requires it to produce enough food domestically to meet 95% of consumption needs but that could be lowered to 80% - Bloomberg

    China - the country is officially targeting auto sales up 8-10% in '14 but many analysts think the numbers will wind up being a lot higher - WSJ

    South Korea - the country said it still wants to strike a TPP deal but would focus on signing a bi-lateral trade deal w/China first - WSJ

    Indonesia - the country has imposed a ban on unprocessed minerals although granted exemptions to NEM and FCX - FT

    Europe

    Germany - machinery orders surged in Nov; total plant and machinery orders in November rose 7% on the year - DJ

    Portugal - the country thinks it will be able to sell bonds at auctions before its bailout program ends in the middle of May - Bloomberg

    UK and Europe - George Osborne in a major speech this week will call for the UK to remain in a reformed European Union; Osborne will say he has allies in Europe in his push for reforms - London Telegraph

    Europe is considering scrapping a binding target for renewable energy production, a move that would please utilities but anger environmentalists - FT

    Americas

    Fed likely to proceed w/$10B taper-per-meeting pace despite the weak jobs numbers according to a variety of Fed comments Friday. A few officials also suggested the UR decline wouldn't prompt the Fed to change the present 6.5% ZIRP threshold - Reuters

    Business capital spending may finally break out this year; hopes are on the rise that businesses will finally ramp up spending on plant and equipment in 2014, providing an important boost to the economy - WSJ

    GM - the company's CFO said GM is "the closest it has ever been" to reinstating a dividend. GM added that the European market appears to have bottomed - WSJ

    VW - the co said it would be investing $7B in the North American market - Reuters

    Canada - remarks from a senior gov't official suggest Canada isn't worried about the recent CAD sell-off - Reuters

    Commodities

    Iran - Iran has agreed to start eliminating its stockpile of higher levels of enriched uranium on January 20 under an interim deal announced in November, the White House said Sunday - CNN

    GMOs: DD, Syngenta, and DOW filed a lawsuit on Friday to overturn a new law in HI that would restrict the planting and spraying of genetically modified crops (the law is set to come into effect in August on the island of Kauai) - WSJ

    Cargill: The US based ag trading group has paid $200M for a 5% stake in UkrLandFarming. The co is the Ukraine's largest agribusiness holding and the deal could potentially sees both groups partner up for future grain exports to China and other growing markets amid reports that China is increasingly rejecting shipments with GMOs - FT

    Hog prices are set to jump and some think could hit record levels this year thanks to a virus that is killing off young pigs throughout the country - WSJ

    Metals/Mining

    The London Metal Exchange (LME) has approved a metals warehouse owned by Scale Distribution Inc, part-owned by Australia's Macquarie Group, to operate in Detroit, the LME said on Friday. Detroit is home to investment bank Goldman Sachs' Metro warehousing unit, where large stockpiles of aluminium and long queues for metal developed about three years ago - Reuters

    Hedge funds and money managers raised their net long positions in gold futures and options for a second straight week, data from the Commodity Futures Trading Commission showed on Friday, as losses in equities prompted funds to add positions in the precious metal. Speculative investors increased their net gold long by 6,124 lots, or 18 percent, to a seven-week high of 40,229 in the week up to Jan. 7, CFTC's Commitments of Traders report showed - Reuters

    GBI Data Points*:

    Ruminations:

    It's getting harder and harder to be optimistic about the Canadian economy these days. While the US employment report was surprisingly weak, its economy did gain jobs in December and the unemployment rate fell 0.3% to 6.7% (albeit from lower participation). In contrast, Canada also released its employment data for December on Friday and there were very few positive takeaways. The net change in employment fell -45.9k vs. an expected gain of 14.1k, and the unemployment rates rose 0.3% to 7.2%.

    USD / CAD

    (click to enlarge)

    If you consider that the US's population in nine times that of Canada, that's the equivalent of a loss of over 400k jobs in the US - which would almost certainly send the global economy into an instant tailspin. In addition, data earlier this week showed that Canada's trade deficit grew nine times more than the forecasted amount in December, and its PMI slid to a four-year low. Predictably the Canadian Dollar has not taken this data well (chart above)…

    (click to enlarge)

    Not surprisingly, the Bank of Canada (BoC) has struck a dovish tone of late. On Thursday, BoC Governor Stephen Poloz said that he is "most worried about inflation and how it's underperforming all of (their) models." Of course raising interest rates is almost out of the question, not only because of the softening data, but also when you consider the level of household debt in Canada. Much of this debt has come from the housing market, where many are anticipating a bubble to be popped, but Poloz reiterated that housing "appears headed for a soft landing." Ultimately, if the US recovers in a significant way in 2014, Canada will be fine but the domestic fundamentals are nothing to brag about.

    Bonus: Extreme Sheep Herding.

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