Metals

macro shooting of natural mineral stone - stone of sphalerite (zinc blende) isolated on white background

Here Comes Zinc?

http://finfeed.com/mining/here-comes-zinc/20160617/ for the full article by James McGrath

Zinc is emerging as one of the 2016 success stories for base metals as last year’s hangover becomes this year’s gain.

Last year was somewhat of a downer for the zinc market – with miners shutting down production left, right, and centre.

Vedanta Resources shut down its Lisheen miner in Ireland, and MMG Limited (ASX:MMG) shut down its Century Mine in Queensland because supply had been exhausted.

Meanwhile largest zinc producer in the world Nyrstar said it would suspend its operations in the US while Glencore to 500,000 tonnes of zinc concentrate off the market – all in one way or another responses to a falling zinc price.

The price of zinc went down about 30% last year on the back of the decisions.

Zinc_price

The standard cautions about past price not influencing future performance applies here – but the drop in 2015 is writ large here.

All that lost production last year is starting to show up in the price of zinc this year, and according to recent reports from Bloomberg the Chinese smelters which produce more than 40% of the world’s final product zinc may have to cut production for the first time in four years.

As this breakdown from MMG – a major zinc producer, shows, when China is having difficulty it’s a pretty good analogue for the broader market.

MMG_zinc

In May, Goldman Sachs analysts issued a note saying that is saw zinc as the exception in the base metals space rather than the rule.

“We view zinc as the bullish exception in the metals space, and remain very bearish on the outlook for the other base metals prices, most notably copper and aluminium, where we see very strong supply growth” in the second half, the analysts were quoted by Bloomberg as saying.

“Zinc has by far the most bullish supply-side dynamic.”

It spells good news for zinc hopefuls such as locally listed Consolidated Zinc (ASX:CZL), which is currently hard at work in Mexico attempting to produce zinc onto the market in 2017.

There’s no guarantee that CZL will be able to pull off the feat or prices will continue to rise in that time – but the price rise of this year will be a fillip to the company, especially as it winds up to a maiden JORC resource in the near-term.

It would appear that zinc is on a bullish course, at least for the rest of 2017 – but whether new supply comes on or demand drops for zinc in 2017 is too far out to forecast.

In the shorter term though, stocks that are in zinc could see pricing support as the underlying commodity price continues to heat up.

Disclaimer © 2010 Junior Gold Report
Junior Gold Report’ Newsletter: Junior Gold Report’s Newsletter is published as a copyright publication of Junior Gold Report (JGR). No Guarantee as to Content: Although JGR attempts to research thoroughly and present information based on sources we believe to be reliable, there are no guarantees as to the accuracy or completeness of the information contained herein. Any statements expressed are subject to change without notice. JGR, its associates, authors, and affiliates are not responsible for errors or omissions.

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jobs2

Don’t Bank On Rate Hikes!

This past Friday, June 3rd, 2016, The Bureau of Labor Statistics released their most recent report regarding new employment data and nonfarm payroll employment which indicates that during May of 2016, it was the smallest increase seen in 28 months.

During May of 2016, there were 144,592,000 payroll jobs within the US, which was up by 1.6 percent, or equivalent to 2.3 million jobs, from May of 2015 (These are all not-seasonally-adjusted numbers).

That represents the smallest year-over-year increase that has been reported since February of 2014, at which time payroll jobs increased by 1.57 percent. The largest year-over-year increase, in recent years, was reported during July of 2015, when it was up by 2.18 percent:

jobs1

Since July of 2015, the general trend in growth has been down. This 1.6 percent remains well below where growth was during most of the 1990’s.

I am not fond of using the seasonally adjusted numbers, since they add an additional layer of ‘needless manipulation’. I do prefer to compare job growth, from the same time of year, over several years.

When I do this, I find that the job growth from April to May of 2016, was the lowest April-May growth total since 2009:

jobs2

From April to May of 2016, there were 651,000 new jobs added, which is a significant drop from that same period of time, last year when 947,000 jobs had been added. Over the past decade, this current year of 2016, in this measure, beats out only 2008 and 2009, both of which were years of ‘economic decline’. Therefore, May of 2016 was the weakest May on record, for job growth, in eight years.

The Secretary of Labor, Tom Perez attempted to blame everything on the Verizon strike. That is a nice “spin”, however, the strike does not explain the obvious ‘decline’ in the year-over-year numbers! The strike might explain why the May numbers dropped off as much as they did, however, it cannot explain the ‘trend’. It is a bit of a stretch to blame this drop from April-May of 2015 to April-May of 2016 on the Verizon strike.

Mr. Perez, however, attempted some other, even less convincing, claims as well, stating that the U.S.’s insufficient mandates on paid family leave means that fewer women are entering the work force, and therefore pushing down the jobs totals. Is this IMPORTANT? The answer is NO! These bad numbers merely reflect our current poor economic situation, today!
In any case, the overall trend should not be a big surprise, as it has always has been weak. It has been dependent on the FED and their low interest rates. In recent quarters, the FED has finally been backed into a corner and has become hawkish. Realizing that more rate cuts are unlikely to occur any time soon, the economy is not receiving the usual FED-manufactured stimulus which investors and companies have both become accustomed to. With the FED talking about the need to raise ‘rates’, who can be surprised that the “recovery” is nonexistent?

The financial news, of the past few weeks, had its cadre of regional FED Presidents attempting to sway markets into believing that the Central Bank was sure to ‘hike’ interest rates during this current month of June 2016.

The jobs report sent ‘shock waves’ throughout the entire financial system. The report printed a jobs number of just 38,000 new employees, which is the lowest single month since the height of the “Great Recession”.

What is even more ludicrous than this, is the fact that the unemployment rate fell to 4.7 percent seeing as 664,000 workers are no longer being counted and included, by the government, within the labor force.

The FED relies heavily on these ‘manipulated’ government jobs numbers, the idea of “data dependency” being used to determine when to ‘hike’ or ‘drop’ interest rates shows the incompetency of a body that supposedly employs hundreds of economists who are dedicated to discover the true state of the economy and of its’ economic data. This in turn, should provide Americans with the reality that not only does the Central Bank have any idea what they are doing, but, more often than not their policy decisions are based on ‘incorrect’ and ‘outdated’ models which have only served to make matters worse, since the “Credit Crisis of 2008”.

The majority of jobs created were either part-time or low-wage service sector oriented. You can bank on the fact that the FED is now more likely to lower ‘rates’ than they are to raise them, going forward!

Today, it is both unlikely and irrational for the FED to raise interest rates either now or in the near future, despite the Central Banks’ recent “moral suasion” on mass media, of a potential rate ‘hike’ occurring as early as this month or possibly next month. The FED continues to create policies in an attempt to protect the economy and stock markets through November of 2016 so as to “spin” the election in favor of Hillary Clinton. This is due to the uncertainty from the presumptive Republican candidate, Donald Trump, who may force the Central Bank into ending its’ mission to fuel ‘stock and housing bubbles’. I, myself, as well as many economists, are seeing the ‘Summer of 2016’ as a dangerous period of time where and when a financial, economic, or monetary ‘collapse’ could take place from any number of ‘flashpoints’. The actions that are now taking place, in the equity markets, are an indication that these ‘fears’ may very well be arriving much sooner than most analysts expect.

The economy is still performing ‘significantly’ below its’ potential:

The problem is that the FED, including other Central Banks, have waited too long and gone too far in their ‘zero interest rate’ policies and ‘quantitative easing’ programs. With all of this nonsensical talk coming from the FED, the debt default levels, especially for credit default swaps on the 10-year Treasury are NOW at their highest level since the FED raised rates by a quarter of a point, back in December of 2015.

The probability of a U.S. default of its’ debt has hit its’ highest point since the FED has hiked rates in December of 2015. This is indicated by the recent dynamics in credit-default swap (CDS) agreements. The expectations that the Central Bank may raise borrowing costs still further, in the coming months, will set off this ‘time bomb’. Since the FED has turned increasingly hawkish of their policy outlook since late April 2016, market volatility has increased, with stocks swinging between gains and losses and U.S. Treasuries sliding along slide with the dollar. “Systemic risks” stemming from the CDS transactions are rising amidst the unfavorable global financial environment. This is not only true in the U.S., but its’ counterparts are also subject to greater turmoil in the coming months, as possible FED hikes, “Brexit” concerns, U.S. elections and faltering global growth are all interconnected factors thereby contributing to the recent spikes in U.S. CDS spreads.

If things follow the FED script, I imagine that next months’ payrolls will exceed ‘tapered down’ expectations and consequently, there will be an upward revision of Mays’ numbers. Will this continue sending the market into exuberance? NO! However, the FED officials will then restart the rate ‘hike’ talks with just enough offsetting uncertainties to mislead everyone while trying to keep the market ‘bubble’ from ‘bursting’.

The financial system is like a giant game of poker with all the major player holding a seven and two off suite (worst hand you can have), yet they are all-in with their chips (money & policies) trying to bluff their way out of this mess.
Things are going to be very crazy over the next 6-12 months and beyond, but until the US large cap stocks breakdown and start a bear market expect tough trading and investing.

Find out what I think the market is doing and where its headed with my ETF Trade Alerts: www.TheGoldAndOilGuy.com
Chris Vermeulen

elliet wave-NEW

Stock Market Elliott Wave Count, Economic Cycle and Equities Cycle

Stock Market Elliott Wave Count, Economic Cycle and Equities Cycle

As you know a picture is worth 1000 words so consider this short yet detailed post a juicy 2000+ word report on the current state of the stock market and economic cycle.

The charts below I think will help you see where the US stock market and economic cycles appear to be.

The first image shows two cycles, the blue one is the stock market cycle and which sectors typically outperform during specific times within the cycle. Here you will see that during the late stages of a bull market the safe haven plays become the preferred choice for investors – Energy and Precious Metals.

Typically, the stock market tops before the economic (business) cycle does. Why? Because investors can see sales starting to slow and that earnings will start to weaken and share prices will fall, so the market participants start selling shares before the masses see and hear about a weakening economy. The stock market usually moves 3-9 months before the economic cycle change I known by the masses.

oilandgold

Stock Market Topping According to Sector Analysis

elliet wave]

Elliott Wave Count – My Educated Guess

Elliott wave theory is a tough strategy to follow. Meaning, if you gave the same chart to 5 different people you would likely have 3 or 5 very different wave counts.

Recently I have seen a flurry of EW charts on the SP500 wave count which I do not think are correct. When I do Elliott Wave counts I like to use more than just price. I look into things deeper and use the market internals, volume flows, and overall market sentiment during those times. They must all be screaming extreme FEAR in the market in order for me to count it as a wave low.

Fear is much easier to read and time than greed. So based on waves of fear and I can plot the rest of the waves. By doing this, I feel it gives a truer reading of significant highs and lows we should use in our analysis.

See my analysis below for a visual…

ellietwavecount

Stock Market & Economic Cycle Conclusion:

In short, the current market analysis, in my opinion, is still very bearish and this could actually be the ultimate last opportunity to get short the market near the highs before we dive into a full blown bear market in the next 3-5 months.

I will admit, the market is trying VERY hard to convince us it wants to go higher as it flirts with the recent highs for its second time in the past 8 months. I know it is doing its job because so many traders and investors are changing their tune from bearish to SUPER BULLISH.

I don’t see it that way JUST yet, but it could happen as the market can do and will do whatever it wants. But all my analysis (much more than what you see here) points to substantially lower prices over the next year.

To learn more and get my ETF swing trades and long term investing signals join me at www.TheGoldAndOilGuy.com

Chris Vermeulen