does the commodity futures market re-build premium & match-up better with cash markets if conditions with the virus improve within 15 days??
The financial & commodity markets are trading and pricing-in a worst-case scenario in my view…but for how long?
I think we got some of the answer today with the most recent press conference by the White House, where they outlined and released a new theme: “15 Days To Slow The Spread”. This corresponds with the idea of the curve or trendline we’ve been seeing of mortality if the virus cases are not held-down in the first 20-30 days (the chart which I’ve shared with you twice). Now, we have a more specific and detailed analysis by the White House, that, MAYBE, we’ll see a peak within the next 15 days–hopefully we’ll see a peak, I should say. And if we do, then the containment of the virus should help prevent overwhelming our health-care system, and thereby conceptually cut-down on mortality and death [my wording and thoughts, not the White House].
We see by the two maps below what I’m talking about, and more important WHY the trade continues to press lower even with the historic and somewhat fantastic/amazing stimulus being seen and also being discussed (see the update list below and how the IMF is looking to spend up to $1 Trillion in funding): The two maps below show the tallies at two different time–1:40 PM CST & 3 PM CST. Note that the Mortality Rate–when you divide the Total Deaths into the Total Confirmed–isn’t slowing much; in fact, it is remaining stubbornly high of 3.95% currently.
My Position Is This: As Increased Testing Is Done, It Is Important That More Cases Will Bring with It More “Total Confirmed”, and Will Hopefully Show The Mortality Rate Dropping, as “Total Deaths” Don’t Rise In Proportion. This, To Me, Is The Point Of The 15 Days From The White House…
while the s&P 500 held just under the trendline on the close, it will be tonight’s market that means more to me, as the pres. trump announced this afternoon that we may be contending with covid-19 until august (not springtime as i think the market was anticipating).
The Heat Map below helps show just how hard the Unleaded Gas was hurt today by additional, heavy selling in the futures market: the energies–led by the Unleaded, Silver, Soyoil, and with the Ethanol + Copper following closely behind. The Silver in particular is an interesting phenomenon, and that’s where I want to go next…
nowhere does the de-coupling between cash & futures seem more extreme or stark than with the silver market–as you see by the physical silver being out of stock at nearly all of the websites i have used in the past. what can possibly explain this divergence between physical silver being bought at an “unprecedented” rate (that was the exact word used by one of the vendors i was in contact with) vs. the fact that silver futures is now sitting at its lowest since january, 2009?? well, i can tell you, silver is not alone, as we see by all the charts i created below…
finally: what does this divergence potentially indicate, & when will this de-coupling likely or potentially end??
Let’s Take It Each Question Separately: The 1st Question I Think Is Relatively Easy To Answer. The divergence indicates that the financial market is working hard to price-in outright demand destruction, not demand being delayed or pushed-out. And it’s happening in the futures market instead of the cash because of the financialization of commodities & the index-related as well as ETF-related trading systems and asset allocation models used in today’s modern times. It is here that I think–unlike some editors of major financial newspapers–that the machines should be turned-off for a week, similar to the banking holiday done in the Great Depression. Why Do I Feel This Way? As we see from the headline below, lower stock valuations create lower available capitalization of publicly-held companies–who then have to move to their banks and lending facilities in order to tap lines of credit, including the commercial paper market, which is often used for payroll. Simply put, the negative feed-back loop is created & a short-term disruption to aggregate demand is met with financial markets becoming more de-stabilized. And how long can they put up with this historic “Stress Test”, is what I am asking myself. And this goes back to the “15 Days To Slow The Spread”…Of Financial Market Panic.
The 2nd Question Is Much More Difficult To Assess: When Could The Current Cash vs. Futures De-Coupling End? The whole point of this blog post–and its focus on the 15 days mindset set-forth by the White House–is to project a mindset or psychology the trade is totally wrapped-up in…one that is based upon health conditions worsening. And I’m suggesting here that a shift in trade psychology–led by equities, energies, and then livestock–could be likely seen in my view if, at the end of the next 15 days, we see the COVID-19 under control. Simultaneously just as important to me is the “INFLATION/DEFLATION”, and Whether We See A Return To More Inflationary Bias In The Market Return–This Would Be My Best Choice For Any Form of Confirmation Of Improving Market Conditions & The Return of Futures Premium In Commodities. What I’m Getting-at Here Is To See Gold Go Higher & The US Dollar Go Lower. And This Is Why I Am Now Going To Utilize (along with some more proprietary indicators I’d rather not share) The New Chart Directly Above: The Gold/Dollar Ratio. And The Higher This Ratio Goes, The More Inflationary The Market Is Likely Becoming [and vice versa]; and what we see in this chart is that, since late 2018, the market was becoming more “Inflationary”; but lately we have lost our “Inflationary” Bias and have started to move toward a more “Deflationary” mindset the Past Two Weeks. We Don’t Want This To Continue Past April 1…Our 15 Days Timer Is Ticking!
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