Headlines

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  • US first quarter growth at 0.7%, weakest in three years as consumer spending falters. Read story
  • Canada’s economy stalls as factory decline offsets housing. Read story
  • Eurozone inflation picks up to 1.9%. Read story
  • Oil rebounds from one-month low on hopes for OPEC output cut extension. Read story
  • Trump: ‘Major, major’ conflict with North Korea possible. Read story
  • Sub-prime mortgage lender Home Capital scrambles for lifeline as investors flee. Read story
  • Trump vows to fix or scrap South Korea trade deal, wants missile system payment. Read story
  • Republicans fail to repeal Obamacare again. Read story
  • Google and Facebook ‘duped’ in huge $100 million scam. Read story
  • RBS reports first quarterly profit sine 2015. Read story
  • How fewer Americans are out-earning their parents – in one chart. Read story
  • Apple’s self-driving car seen on road for first time. Read story
  • Russian ‘combat robot’ can shoot guns, lift weights and even drive a car. Read story
  • The on-demand economy is a bubble and it’s about to burst. Read story
  • Bombadier shares slide after Boeing seeks US anti-dumping probe. Read story
  • On the lighter side. Check it out!

Speculators are extremely bullish on silver, what does it mean?

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There are many factors that affect the precious metal prices. There are basic supply and demand factors, such as demand for jewelry, electronic, and medical devices. Precious metals are also investments, often acting as a hedge against geopolitical events and a loss of confidence in government.

Precious metal prices, like most commodities prices are also affected by the strength of the $US. Given that the $US is the world’s reserve currency, when the $US is strong, the price of precious metals typically declines, while a weaker $US generally sees the price of precious metals rise.

The mainstream media is full of daily stories as to why gold and silver will rise or fall, and investors make their decisions often based solely on those news reports. In the futures markets there are two main groups of investors: Large Speculators and Commercials. The Large Speculators are hedge funds who use the futures market to speculate on the price of gold and silver.

Commercial traders are producers and merchants, these are the “insiders”, the ones who are on the ground floor. While Large Speculators are trend followers, Commercial traders are counter-trend traders and are the most accurate at timing key market turns.

As we highlighted in last week’s issue of The Trend Letter, silver bulls have their rally hats on, with Large Speculators (green line in lower half of chart below) in an all-time record long position. At the same time, the Commercial traders (red line) are in an all-time record short position.

SilverCOT0423

The chart shows that when we see the spread between Large Speculators’ long and Commercials’ short position widen, we typically see the sector turn down.  The current spread for silver is at a record high, suggesting that silver prices are overbought.

When we get into a situation like this it implies that all the bulls are already in,  there are no more buyers. With the speculative bulls all in, the only new source of potential buying of any size would be from Commercial traders looking to hedge. This would only occur if prices climbed high enough that the Commercials capitulate and buy back their short positions.

Commercial traders short silver in the futures market to lock in today’s price for future production. For these traders, their short positions are backed by actual silver bullion. If prices move higher, the Commercial traders will incur paper losses in the futures market, but they are off-set by gains on their silver bullion inventories which rise in value.

It is seldom a good idea to bet against the Commercial traders, so given the extreme spread between the Large Speculator long position and the Commercial short position, caution is advised here for anyone long silver.

Stay tuned!

Is a pro-EU vote a good thing?

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France had the first round of its presidential election yesterday, and in order for a candidate to win, they would have had to receive over 50% of the votes.  If no candidates gets more than 50% of the votes, then the top two candidates move on to a run-off election on May 7th.

No candidate received 50% of the votes, and the two top candidates were a centrist candidate, Emmanuel Macron, with 23.7% and right-wing candidate  Marine Le Pen with 21.7% of the vote. It is noteworthy that this was the first time in modern history that no mainstream party made it to the second round run-off.

Prior to the election the markets were worried that France would end up having a run-off election between a far-right and far-left candidate, both anti-EU, which could have meant the effective end of the European Union as we know it.

But centrist candidate Emmanuel Macron made it to the run-off against the anti-EU Le Pen.  Current polls project a Macron victory as he is running at 69% to 31% for Le Pen. The markets tend to like the status quo so a projection of a Macron victory has sent the Euro and global equity markets higher, while gold and other “safe- haven” bets moved lower.

While the markets are ‘relieved’ that Marcron is leading the polls, we must remember that he is very pro-EU which represents the status quo, meaning continuing down the same flawed path. Einstein defined insanity as “doing the same thing over and over again, expecting different results.”

The mainstream media is hailing Macron as a pro business candidate, but we must remember that not only is Macron pro the EU, he wants the EU to have even more power.  Europe has  spent the past four decades living in an ‘age of entitlement’, with governments offering handouts every election, treating its voters like heroin addicts, their motto being “just promise them more stuff, and they will be happy.” It didn’t matter which party, they all did the same thing. The problem was they didn’t have the money to pay for all these freebies, and now we are on the verge of a massive debt crisis.

We are not promoting Le Pen as a better choice,  but we are saying that by electing a pro EU leader the French people will be sending a very dangerous message to the politicians and bureaucrats in the EU. A vote for the status quo will be seen as an endorsement by the political elite. 

As investors it tells us that should Macron get elected the problems in the EU will continue because the pressure to reform will subside. Those in charge have run the European economy into the ground, initiating monetary policies that included forcing negative interest rates onto consumers. They have robbed the seniors of any return on their savings, and have now jeopardized pension funds, which have incurred massive funding gaps thanks to low rates.

And look what all their policies have done for the young people in Europe.  These are the current unemployment rates for young people under 25 in each country. Seven countries have a youth unemployment rate of over 23%, including Spain, Italy, and Portugal.

Eurounemployment

While the mainstream media is applauding a pro- EU president for France, as investors we see it as a vote for the status quo which will delay the required reform to get Europe out of its financial mess.

European countries have deep, rich, and varying cultures, and the concept that 19 countries with vastly different cultures, could co-exist, sharing a single currency, but not a single debt, was doomed from the beginning. It puts countries with under-performing economies at the mercy of those with more robust economic performance.

A pro-EU president for France will simply delay the required positive reforms and prolong the “era of entitlement” driving the economy further into the ground until we hit the “age of consequences.”

The EU needs another smack in the face much like Brexit, forcing major reforms to how it manages its economy. A pro-EU vote will simply delay the much needed  reforms in Europe.

Stay tuned!

Malls are dying at record pace as Amazon eats up retailers

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According to Bloomberg  the demise of so many retailers has left shopping malls with hundreds of slots to fill, and the pain could be just beginning. More than 10% of US retail space may “need to be closed, converted to other uses or renegotiated for lower rent in coming years”, according to data provided to Bloomberg by CoStar Group.

Urban Outfitters Chief Executive Officer Richard Hayne didn’t mince words when he sized up the situation last month. Malls added way too many stores in recent years — and way too many of them sell the same thing: apparel.

“This created a bubble, and like housing, that bubble has now burst,” he said. “We are seeing the results: Doors shuttering and rents retreating. This trend will continue for the foreseeable future and may even accelerate.”

Year-to-date store closings are already outpacing those of 2008, when the last U.S. recession was raging, according to Credit Suisse Group AG analyst Christian Buss. About 2,880 have been announced so far this year, compared with 1,153 for this period of 2016, he said in a report.

Extrapolating out to the full year, there could be 8,640 store closings in 2017, Buss said. That would be higher than the 2008 peak of about 6,200.

retailers

Many retailers are trying to re-emerge as e-commerce brands. Kenneth Cole Productions said in November that it would close almost all of its locations. Bebe Stores Inc., a women’s apparel chain, is planning to take a similar step. But these brands who are trying to move aggressively online are having trouble trying to keep up with the growth in market leader Amazon.

The Seattle-based company accounted for a massive 53% of all e-commerce sales growth last year, with the rest of the industry sharing the remaining 47% according to EMarketer Inc.

Amazonrules

This glut of malls is predominately a US issue, as “Retail square feet per capita in the United States is more than six times that of Europe or Japan,” Urban Outfitters’ Hayne said last month. “And this doesn’t count digital commerce.”

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