Playing Another Hand of Existential Poker

by Marketanthropology

"Do the times make the man - or does the man make the times?"

If we're reading the rules correctly, at this point in this existential zero sum game of disinflation, deflation and reflation - both Xi's manifesto and Bernanke and Yellen's taper talk - trump Shinzo's Abenomics.

For those not following at home:

• The dollar has historically declined when the Fed moves to constrict extraordinary monetary policies.
• Japan has tangentially expedited disinflationary trends overseas in the past year through a weakened yen. We expect that trend to reverse. 
• China is breaking out of its long-term consolidating range. World-wide growth should accelerate, as well as broader reflationary trends.
• Commodities, commodity currencies and emerging markets should benefit disproportionately from China's reemergence.

Generally speaking, while we recognize the significance of having a commanding face to the story,  we're more in the, "Times make the man" camp. With that said, we're happy to report our better half's will soon be represented at the monetary pulpit, but will also likely receive both unwarranted praise and criticism. 

Hopefully for Dr. Yellen she get's the Volcker treatment.

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Stronger world sugar demand 'here to stay'

by Agrimoney.com

Czarnikow, which three months ago shook up the sugar market by pegging demand well above market estimates, hardened its stance, saying consumption growth may remain at higher rates.

Growth in global sugar demand, which average more than 3% in the five years to 2008, had slowed to 1% three years later – a major factor in dragging New York futures down from a 30-year high of 36.08 cents a pound reached in February 2011.

The average growth rate in sugar consumption in 2009-11 was just 1.3% a year – not much faster than world population growth which is a big driver of baseline demand.

However, this slowdown may prove a temporary hiccup, caused by the world economic slowdown and the elevated sugar prices – both of which have reversed.

'Trigger of civil disturbances'

"The global financial crisis was detrimental to consumption growth rates as economic growth slowed, but in sugar the effect was even more acute as the market entered a three-year period of production deficits and high prices," the London-based group said.

"This impacted on supply chains. In North Africa a shortage in the availability of essential commodities, including sugar, became a trigger leading to civil disturbances and the events of the Arab Spring."

However, with prices lower, and population growth alone adding nearly 2m tonnes a year to sugar consumption, "we remain confidence that the long-term outlook for demand remains positive", Czarnikow said.

"We will see a rebound in growth rates at current lower prices."

Price implications

This acceleration would appear in fact to imply support to sugar values, given their low level compared with production costs, although Czarnikow stopped short of making a price forecast.

Toby Cohen, Czarnikow director said: "With consumption growth proving robust and the world market moving back towards equilibrium the market needs to sustain production and cover total production costs as well as pay a return to shareholders.

"This remains a challenge."

Worst hit regions

The extent of the 2009-11 slowdown in consumption growth had been evident in particular in Asia, the Middle East and North Africa, the merchant added.

In Asia, the annual growth fell from a rate of 4.7%, in the decade up to 2008, to 1.5%.

In the Middle East, growth fell from around 3.6% to less than 1%.

"Had consumption continued to grow at the rates experienced from 2000-08 in these two regions alone, consumption in 2013 would today be 11m tonnes higher than it is today."

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Robusta coffee supply squeeze faces double attack

by Agrimoney.com

The squeeze on robusta coffee supplies which has lifted prices to three-month high may not last for long, given the pressure on Vietnamese growers to sell down a record harvest, and an increase in Brazilian exports due early next year too.

Robusta coffee futures on Wednesday hit £1,779 a tonne in London, for January delivery, up 26% from a three-year low reached in early November.

The price gains have been supported by a drop in supplies on international markets prompted by a decision by producers in Vietnam, the top-ranked robusta producing country, and Indonesia to hold back on shipments.

Stocks certified for delivery against London futures "have fallen dramatically from over 5m bags in November 2011 to just 766,000 tonnes in November 2013", the International Coffee Organization said in a report on Thursday.

'Exports will remain strong'

However, that discipline looks unlikely to last for long, given the strength of Vietnam's ongoing harvest, which the US Department of Agriculture bureau in Hanoi upgraded to 29.0m tonnes, in line with market expectations, but 4.2m tonnes above the department's official estimate.

"Given record production, exportable supplies will also be high," the bureau said, highlighting "limited storage capacity throughout the green coffee bean value chain".

"Despite falling prices domestically and internationally, Vietnamese coffee exports will remain strong."

The bureau raised its estimate for Vietnamese shipments in 2013-14 to 25m bags, also a record.

That is equivalent to more than 2m bags a month – representing a sharp pick-up from the 100,000 tonnes (1.33m bags) recorded in October, the first month of the marketing year.

However, Vietnam is capable of exports well above that level, with volumes in February last year reaching 168,000 tonnes.

Brazilian squeeze

Meanwhile, Brazil - which produces mainly arabica beans, but is a substantial robusta grower too - is also offering a further hope to robusta buyers, with its own hold-out against sales also likely to wane.

"Robusta coffee prices are soaring in the Brazilian market, recovering part of losses registered over the last month," Cepea, the market research centre linked to Sao Paolo University, said.

The price of benchmark type 6 robusta coffee rise 15% to 214.54 reais ($91.84) per bag last month, encouraged by a reluctance by growers to sell into a rising market.

Sellers may remain "refrained" in sales, "waiting for new price rises", Cepea added, quoting conversations with market "players".

However, a "higher volume of coffee may flow from the first months of 2014 on".

In London, robusta coffee futures for January stood at $1,704 a tonne in lunchtime deals, up 0.4% on the day.

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Natural Gas breaks out…. after creating bullish wicks on Fib support!

by Chris Kimble

CLICK ON CHART TO ENLARGE

Natural Gas created bullish wicks at rising channel support & key Fibonacci levels at (1) in the chart above, both were positive and bullish.

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Hogs face odd problem, and cattle has bullish bias

By Rich Nelson

Hogs: The hog market has a peculiar problem right now: a regular slaughter level. Instead of packers scrambling to find a single hog alive right now, their phone is ringing with more than adequate supplies. As it stands, this week’s kill is running a full 1.6% over last year. This is a tough issue to swallow when all the trade has heard about for months was how bad the PED issue would hit in December. Keep in mind there were well-known analysts discussing a 2% to 5% year over year decline in hog slaughter right now.

While we could write quite a bit about this issue, it will all be review. We have said very clearly before that trading hogs right now is no more than a 50/50 proposition. With USDA’s September HP survey and no clear way to map out potential PED slaughter impacts, we don’t have any special ability to forecast prices. IF there was no PED we have previously stated December would be at $84. If there is PED to the level we had suspected then $88 is the number. For other trades, that we have discussed but not enacted, we still like the June/February spread or just selling February. Without a good idea on potential production, we will not jump on those trades.

Cattle: Cattle country is still talking about steady to possibly higher trade for this week’s cash action. Last week’s packer purchase, at higher prices, has reignited some bullish momentum. While we are bullish on this market, for a peak expected in February or March, this market is not yet in the middle of this supply problem. It is only just entering this tight supply period. This may explain why we make good gains then see some setbacks here.

Additionally, the trade is also watching weather closely. Given that there are typically one or two storms in the Plains each winter that get the trade’s interest, many are suggesting it is only a matter of time.

While Allendale remains raging bulls for this market, the question here is squarely on demand. Wholesale beef hit $200 for two separate weeks in November but has not been able to post a weekly close clearly above that mark. This psychological resistance will remain until our supply argument is traded.

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The Complete And Unabridged History Of Gold Manipulation

by Tyler Durden

On November 1st, 1961, an agreement was reached between the central banks of the United States and seven European countries to cooperate in achieving a shared, and very clearly stated, aim.

The agreement became known as the London Gold Pool, and it had a very explicit purpose: to keep the price of gold suppressed “under control” and pegged regulated at $35/oz. through interventions in the London gold market whenever the price got to be a little... frisky.

The construct was a simple one.

The eight central banks would all chip in an amount of gold to the initial “kitty.” Then they would sell enough of the pooled gold to cap any price rises and then replace that which they had been forced to sell on any subsequent weakness.

*Statement is subject to standard terms and conditions and is not necessarily reflective of any evidence. Government entities are excluded from inclusion based on the fact that we can't really do anything about them and anyway; they could put us out of business; and it would make things really, really bad for them. Also, bullion banks are not covered under this statement because we were told to turn a blind eye; but individual investors are, and we can categorically confirm that, to the best of our knowledge, no individuals are manipulating the precious metals markets (at this time).

But, as Grant Williams explains in this excellent and complete summary of the history of Gold price manipulation, things don't always go as planned...

Human beings, when given means and motive, have rather a poor history of eschewing the easy profit in favour of doing the right thing. Governments, when faced with dilemmas, have a rather poor history of doing the right thing as opposed to whatever they think they need to do in order to cling to power. It's quite simple.

Libor, FX rates, and mortgages trades are all fiat in nature. The contracts that are exchanged have no tangible value. (Yes, technically speaking, mortgages have houses underneath them, but the houses are so far down the securitization chain as to be invisible). Such contracts can be created at the push of a button or the stroke of a pen and manipulated easily right up until the point where they can't.

Gold is a different beast altogether.

The manipulation of the gold price takes place in a paper market — away from the physical supply of the metal itself. That metal trades on a premium to the futures contract for a very good reason: it has real, intrinsic value, unlike its paper nemesis.

If you want to manipulate the price of a paper futures contract lower, you simply sell that paper. Sell it long, sell it short, it doesn't matter — it is a forward promise. You can always roll it over at a later date or cover it back at a profit if the price moves lower in the interim.

And of course you can do it on margin.

If the trading were actually in the metal itself, then in order to weaken the price you would have to continue to find more physical metal in order to continue selling; and, as is welldocumented, there just isn't so much of it around: in recent years what little there is has been pouring into the sorts of places from which it doesn't come back — not at these price levels, anyway.

The London Gold Pool had one thing in common with the rigging of the FX, Libor, and mortgage markets: it worked until it didn't.

The London Gold Pool proved that central banks can collude cooperate to rig maintain the price of gold at what they deem manageable levels, but it also proved that at some point the pressure exerted by market forces to restore the natural order of things becomes overwhelming, and even the strongest cartels groups (whose interests happen to be aligned) — which are made up of the very institutions granted the power to create money out of thin air — can't fight the battle any longer.

...The problem now is that currently there are almost 70 claims on every ounce of gold in the COMEX warehouse and serious doubts about the physical metal available for delivery at the LBMA.

Which leads us to today...

The London Gold Pool was designed to keep the price of gold capped in an era when the world's reserve currency had a tangible backing. In defending the price, the eight members of the Pool were forced to sell way more gold than they had initially contributed in order to keep the price from going where it desperately wanted to go — higher.

This time around, the need for the price to be capped has nothing to do with any kind of gold standard and everything to do with the defense of the fractional reserve gold lending system, about which I have written and spoken many times.

Gold is moving to ever stronger hands, and when the dam does inevitably break again, the true price will be discovered by natural market forces, free of interference.

This time, however, those chasing what little gold is available will include all those central banks that have kept their holdings "safe" in overseas vaults.

The Bundesbank has seen the writing on the wall and demanded its gold back. They were told it would take seven years before their 30 tonnes could be returned to them.

My guess is, this little scheme doesn't have seven years left to play out.

Everybody outta the pool!

Full Grant Williams letter here:

TTMYGH Twisted (by the Pool)

TTMYGH Twisted (by the Pool)

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