Monday, August 9, 2021

Morning Note: About Last Night -- And -- "Paradigm Shifts" That Matter

Last night was something to behold during the Asian session. The volatility was notable in equity futures, in tech in particular, but it was extreme in the precious metals space. Here's Peter Boockvar's take:

"It was a wild Sunday night in the precious metals markets, or we can just call it another flash crash. Someone around 7pm est last night decided to puke gold down to $1678. Silver got as low as $22.30. The trade with gold and silver is pretty straight forward here."

His conclusion in terms of what it portends given the potential for Fed policy going forward was spot on:

"If you believe the Fed will get ahead of the curve or at least in line with it with regards to inflation, then sell. If you think the Fed will crab walk their tightening, then this selloff is a gift. I believe in the latter."

The latter -- if not even more benign than a "crab walk" -- is a virtual no-brainer. Of course the action in precious metals -- as in any market -- is influenced by many factors, Fed policy of course being a big one...

He goes on to remind us of gold's response to previous Fed crab walks:

"Just a reminder, when Greenspan was lifting rates off 1% on towards 5.25% in the mid 2000’s, the price of gold doubled. When Yellen started raising rates in December 2015 after 7 years at zero, gold bottomed. I know we are not debating rate hikes now, but rather the timing and pace of tapering but you get the point."

Again, the fact that a dovish Fed has been historically good for gold (seeing it double, then signaling the end of a bear market in the metal) in no way makes it the only consideration, just a big box to check, that's all...

About last night, somebody, somewhere, placed an order to sell $4 billion worth of gold at the market. Folks, that doesn't happen outside of a forced sale (say, a margin call), never, as the $100 freefall in the price per ounce illustrated.

Take a look:

On the other side of that trade (the buyers at the bottom), somebody's feeling very lucky this morning. 

Asian equities were mixed overnight, with half the markets (that were open) closing higher, half lower.

Europe's mostly green so far this morning, with 11 of the 19 bourses (1's closed) that we follow trading higher as I type.

U.S. equities are mostly red to start the day: Dow down 120 points (0.34%), SP500 down 0.18%, SP500 Equal Weight down 0.34%, Nasdaq 100 up 0.06%, Nasdaq Comp up 0.03%, Russell 2000 down 0.40%.

The VIX (SP500 implied volatility) is up 6.01%. VXN (Nasdaq i.v.) is down 2.96%.

Oil futures are down 2.93%, gold's down 1.12%*, silver's down 2.06%, copper futures are down 1.08% and the ag complex is down 0.53%.

The 10-year treasury is up (yield down) and the dollar is down 0.03%.

Led by solar stocks, emerging market equities, wind stocks, healthcare and staples stocks -- but dragged by Viacom/CBS, oil services stocks, silver, ALB (lithium miner) and energy stocks -- our core portfolio is off 0.27 to start the session.

*Note, in addition to our broader hedging of the S&P 500 with put options, we're presently hedging our gold exposure as well, which has effectively neutralized 42% of this morning's decline so far.

We're intimately aware of, and have expressed in our inflation narrative (and in client portfolios), distinct geopolitical "paradigm shifts" that matter from an asset management perspective going forward. As has Clocktower Group chief strategist and author of a most insightful book Geopolitical Alpha, Marko Papic:

"If you are a CIO of an institutional investment fund, a portfolio manager in an asset management firm, or a C-suit executive, you also face geopolitical paradigm shifts that will, at best, make your work more challenging."

Have a great day!

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