icm weekly strategic plan dec 4

8/3/2019 ICM Weekly Strategic Plan Dec 4

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ICM Weekly Strategic Plan Dec 4, 2011

Liquidity Cycle Indicator

No reliable indication of change in the Liquidity Cycle Indicator at the moment as day to day noise and

volatile price ranges obscure the view the indicator is designed to provide. The chart below shows the

indicator with a 50 day moving average centered to more closely identify bottoms and tops of cycles

longer than 50 days in duration. These used to be pretty strong evidence of trend change. The rapid

swings and sentiment changes we are experiencing now are shorter and are temporarily reducing

visibility. Extremely high correlation across equity markets and index components is also obscuring the

value of the indicator. But the indicator still is a good preview of the ECRI Weekly leading indicator

which continues to weaken but may be flattening.

The 2 year yield chart and 10 year yield chart below have lost a good deal of downside momentum. No

surprise for the 2 year as it is against the zero boundary. But the 10 yr still has distance it could move

but likely only on flight to safety rather than compelling returns. This action in yields is supportive of the

potential flattening in the Liquidity Indicator.


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The more bullish components of the liquidity cycle take the lead on the good rally days implying a

market eager to climb and anticipating stronger recovery ahead. But those same components falter

sharply on the risk off days when fear surges. European sovereign problems are the driver of direction

for the time being and traders are being held hostage to the bleatings of posturing windbags playacting

at leadership.

Traders should keep positions small and put on active positions with fixed risk or well defined stops.

Keep a lot of firepower or cash available. No yield on those two but the optionality to act and react to

sudden opportunity is worth a good deal more than a yield of 25 basis points for 2 years.

Sectors and Commodities in play and charts Chart from Bespoke Investment Group


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Commodities

Energies moved up slightly and WTI continues to climb back up toward Brent rates as the storage

shortage in Cushing is being relieved by use of rail transport and the pending reversal a pipeline

direction.


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WTI and Brent curves with 1 month , 1 week and last update charts

Prices of both markets rose this week though the shape of Brent curve has been pretty stable. WTI

keeps steepening and the front especially is pulling closer to the Brent price which has for the last year

been a better proxy for world prices.


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The volatility in front month WTI crude: Chart shows crude price, 5 day and 50 day volatility levels.

Current levels indicate some calm.

Grains

These Daily bar charts show a bit of rebound to the recent plurality of down trends. Moves were modest

excepting Oats upper right.

The following page shows the Soybean, Corn and Wheat curves. The soy price rise is evident but most

prominent is an increase in the Nov 12 through July 13 prices. The market is signaling it will pay for more

plantings for next years crop implying firm demand going into next year. Corn movement is more

modest as the front year premium declined slightly and as the next year crop also priced hgher to attract


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planting. Wheat shows the Minneapolis still gaining against Chicago and Kansas City. Kansas cit also

gained on Chicago slightly. The wheat is mostly in contango but that is shrinking. Minneapolis is

however in backwardation as supplies of that type of wheat are clearly in demand.


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Euro Sovereign 5 yr CDS which were steadily climbing got some relief from the joint central bank

intervention and eased for several days. They remain high however and should be watched closely for

early warnings of risk off behavior. Especially as we go in this week with all eyes on the proposals that

will be put forth in the DEC 9 meeting of EMU leaders. Credible plans must result from the weeks

discussions.


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Environment


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Supporting news and commentary

I am always prescient of what I find fascinating may be of little interest to others - asLyndon Johnson

once famously said to the acclaimed depression economist J K Galbraith -"Did you ever think, Ken, that

talking about economics is like pissing down your leg? It seems hot to you, but it never does to anyone

else." Steve Hinde

From BCA: This weeks actions by the worlds major central banks conrm our view that a

synchronized global reationary push is underway.1 Eventually, this will underpin risky assets. In the

currency market, it will translate into broad U.S. dollar weakness and the outperformance of

commodity-linked currencies.

Our China Investment Strategy service believes that Chinas macro policies will become increasingly

growth supportive. On monetary policy, the next step will be to cut the benchmark interest rate. Also,

scal policy will become easier. China plans to spend CNY 10 trillion on seven strategic industries over

the next five years. Havinder Kaliral, Managing Editor, BCAReaeach.com

BCA on Gold: In the end, most countries will try to secure a cheaper currency to combat deflation.

The irony is that when all countries try to target a cheaper currency, no country can permanently

devalue its foreign exchange rate. In this game of competitive devaluations, all at currencies will

probably be debasedagainst hard assets, gold in particular. We have been bullish on gold, and this

analysis seems to conrm our bullish stance. Chart 10 shows the long term correlation between real

interest rate and gold prices. As long as the Fed pursues accommodative monetary policy to suppress

the real rate, gold prices will likely move up rather than down.

Falling real rates means rising Gold -----You cant fool Mother Nature


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As the chart above shows (from my friend Lance Roberts of Streettalk Advisors in Houston), we need jobgrowth of about 400,000 jobs a month to get back to the long-term trend by 2020. This shows the

employment-to-population ratio, which has dropped by 6% since 2000, falling precipitously since the

beginning of the recession. We have never had such strong employment growth, and are unlikely to get

it as we reduce government spending, which we must do.

This shows above all else why the #1 issue for the coming elections will be jobs. The US economy is

looking more and more European all the time in terms of unemployment numbers. If the course is not

changed, it will make any real recovery back to what we think of us "normal" for the US highly

problematic. . John Mauldin

Bank of Korea Increases Gold Reserves by Massive Nearly $1 Billion or 39% in November Alone

The Bank of Koreas continued diversification of its foreign exchange reserves is a bullish factor whichmay have led to the price gains today.

The central bank of South Korea announced that it had purchased 15 metric tonnes of gold in Novemberto raise its reserve of bullion in an effort to diversify its portfolio of its foreign reserve investment and

reduce risks caused by market volatilities.

According to the Bank of Korea (BOK), it made a purchase of 15 tons of gold last month to increase thenations gold reserves to 54.4 tons worth $2.17 billion as of the end of November.

It boosted the size of its gold reserves by US$850mn in November, up a massive 39% from the previous

month. Its total gold reserves are now worth US$2.17bn.

The purchase was the central banks second acquisition of gold this year. It bought 25 tons of bullion in

June and July for the first time in 13 years.


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Thanks to the buying, the gold reserves of Asias fourth-largest economy jumped by three notches to 43rd

in the rankings of the World Gold Council.

Based on the October reading, Korea is the eighth-largest holder of foreign exchange the world behindChina, Japan, Russia, Taiwan, Brazil, Switzerland and India.

The Bank of Korea said its gold holdings account for just 1% of its foreign-exchange reserves.ZEROHEDGE

JPMorgan Early Look Sunday addition

Top Headlines

y ECB Rescue Fund? The most important news over the weekend came this morning when the LondonTimes reported that the ECB is preparing a 1 trillion cash injection for the Eurozone and also that MarioDraghi is said to be working on a plan that would pave the way for a colossal market intervention in Europeansovereign debt. The article says that the plan would only be carried out if Euro leaders can reach deals on a

broader political reform on the currency bloc, though more details could come at the ECBs meeting on

Thursday. In terms of size of the operation, the article says that It is understood that the ECB is willing to morethan double its existing bond-buying efforts if it is protected from any possible losses. [The London Times]

o For some background, there had certainly been increased expectations about the ECB taking abigger role and the potential for SMP purchases being ramped up following Draghi's comments lastThursday before the European Parliament http://bit.ly/uxl9Yh/. One of the most important factors towatch going forward is the type of agreements that Europe's leaders need to make first (recall Draghi'scomments about how sequencing was important) and whether the EFSF would insure the ECB againstlosses from the bonds (which the article says is being discussed).

y Iran & Crude: Irans Ramin Mehmanparast (a Foreign Ministry spokesman) said on Sunday that anyattempt to block the countrys oil exports would more than double crude prices (to above $250/barrel).http://reut.rs/tThcOt

y GOP: Herman Cain announced that he would end his campaign for the presidency on Saturday while anew Iowa Poll showed that Newt Gingrich has the lead with support from 25% of likely caucus participants.

Europe

y Euro-Zone: Germanys Finance Minister detailed his proposal for national redemption funds for excesssovereign debt on Saturday; Wolfgang Schaeble said that states would effectively siphon off a chunk of theirdebt to a special national fund and pay it off over about 20 years while committing to reforms to keep debtlevels on target. Schaeuble said that the fund would be >60% of countrys GDP, and $672M would need to gointo the German Fund. [Reuters] http://reut.rs/ufO63q & http://reut.rs/uVT5hP

y Euro-Zone: Australian Chancellor Werner Faymann said on Sunday that he supports changes to the EUtreaty that would create a political and economic powerhouse even at the cost of relinquishing some nationalsovereignty. [Reuters] http://reut.rs/uzcKiZ

y Italy: Italian PM Mario Monti met w/ party leaders on Saturday in an effort to gain support for newmeasures aimed at supporting public finances, helping growth, and easing concerns about the countryssovereign debt. The Italian cabinet may pass the new budgets cuts & tax increases (valued at $32B) today.[Reuters] http://reut.rs/uiOT6v& [Bloomberg]


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y IMF: There havent been discussions about the size of loans from Euro-Zone national central banks to theIMF; the talks are beginning at a technical level. [Reuters] http://reut.rs/tJ1XLa

Asia

y China: Chinas non-manf. PMI dropped to 49.7 in November (compared to 57.7 in October).[Bloomberg]

y China: Chinas Vice Foreign Minister Fu Ying said that the country cant use its $3.2T in FX reserves torescue European countries, and that China has done its part to help the Euro area with its sovereign issues.[Bloomberg] http://bloom.bg/vUaPPZ

y China: China has laid out its conditions for accepting a binding post 2020 greenhouse gas commitmentChina is requiring an extension of current pledges by industrialized countries under the Kyoto protocol after2012. [Bloomberg] http://bloom.bg/sXe4qY

y Russia: Vladimir Putins ruling party (United Russia) show their support drop in a parliamentary electionon Sunday, and an exit poll showed that the part wasnt certain of holding on to a majority of seats. [Reuters]http://reut.rs/sIwSWi

MENA

y Iran: Irans Ramin Mehmanparast (a Foreign Ministry spokesman) said on Sunday that any attempt toblock the countrys oil exports would more than double crude prices (to above $250/barrel).http://reut.rs/tThcOt

y Iran: Irans armed forces shot down an unmanned U.S. spy plane that reportedly violated Iranian airspace.[WSJ] http://on.wsj.com/s0GrYv

y Egypt: Islamist parties have received a majority of votes in the first round of Egypts parliamentaryelections; there are still two more rounds of voting in 18 of Egypts 27 provinces. [WSJ]http://on.wsj.com/vrWSos

Political Correctness

"Political Correctness is a doctrine, fostered by a delusional, illogical minority, and rabidlypromoted by an unscrupulous mainstream media, which holds forth the proposition that it isentirely possible to pick up a turd by the clean end."

Author unknown to me.


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Kyle Bass:

Global Debt Saturation: Since 2002, total global credit market debt has grown at more thanan 11% compoundgrowth rate (CAGR) from $80 trillion to approximately $200 trillion. Overthe same time, global real GDP has only grown at approximately a 4% CAGR.

We think hard defaults are imminent.

Video of Kyle Bass Interview : this is nearly an hour but it is very good.

Correlation of leading equity markets from Societe Generale

Airlines


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BBL Comment:

Preparing for this weekly letter I read through dozens of articles, research reports, and generally anythingthat might provide an insight or new information. Recent events have made that a depressing task asinformation and opinion has been grim, almost apocalyptic. But a couple of positive news items this week

were eye opening and extremely positive for the US longer term outlook.

Almost unnoticed, the US has become a net exporter of fuel products. We still are a net importer of oil.But our skills in specialty refining, and explosion natural gas reserves, and manufacturing of high qualitydrilling materials have led us to the point of being a net exporter. I was totally surprised by this data, butvery encouraged.

Source article WSJ

Furthermore Mark Perry of the CARPE DIEM web site has had several short articles on oil relatedmatters that reflect the same kind of change that has gone quietly in the past several years. I havereproduced two such charts below. The drop in net imports of oil as a percentage gdp started about thetime the production in North Dakota began to accelerate. So did the job which is not a coincidence. Thepoint being that North America is becoming far less vulnerable to the various thugocracies that control


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oil production around the world. This reduction of our dependence on oil alters the geopolitical landscape.Perhaps more importantly it works to significantly reduce the trade deficit and the supply of dollars beingpumped out into the world economy. Fewer dollars leaving the country will reduce pressure on thecurrency just as alternatives to the dollar as a reserve currency are disappearing. I certainly will not beholding a significant portion of my reserves in Euros now. The dollar is the reserve paper currency and

gold is a safety reserve and everything else is not ready for prime time.

The US economy will not be jumping back to what has been normal any time soon but it will climb backto something better. The populace is mad, tired of being lied to, and tired of the liars in Washington.Barney Frank is retiring after 17 terms, over 30 years of undermining capitalism. He is just the start. The2012 election is going to be very hard on long time incumbents because too many people know the rootproblem with our economy is and has been Congress. Huge problems exist but they have existed for quitea while. The difference this time is they are a topic of conversation among the public. The public is angryand wants the problems fixed, politicians that continue to fail to address the problems will findthemselves out office. By 2020 people will look back and wonder why everyone was so worried about

this great and resilient country. BBL


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icm weekly strategic plan dec 4

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