Disruptive Discoveries Journal

Federal Reserve

2016: There's Something in the Air

Chris Berry2 Comments

By Chris Berry (@cberry1)

For a PDF version of this note, please click here.

As is the case this time of year, we start to close the books on 2015 and position for 2016. While we have effectively and indefinitely moved “to the sidelines” with respect to stock picking in the junior mining space, there were some notable successes, in particular with the merger between Western Lithium (WLC:TSXV) and Lithium Americas. This combination positions the new company in a unique strategic light as electrification, underpinned by the lithium ion battery, gathers steam in 2016. Galaxy Lithium’s (GXY:ASX) restructuring is another positive development. We’ll be watching the developments with these two companies closely.

In 2015, there was very little to be cheerful about in the metals markets and to be blunt, we expect this malaise to continue into 2016. China’s RMB devaluation last summer...

Is the Fed Really Out of Patience?

Chris BerryComment

By Chris Berry (@cberry1)

 

For a PDF copy of this note, please click here

 

It would appear that Chair Yellen’s press conference yesterday in the set the stage for a Fed Funds rate increase in June or September of this year. We remain unconvinced.

 It was interesting to note how financial markets reacted to the removal of a single word (patience) from the Fed’s most recent statement. The Dow, gold, and oil all roared higher and seemingly (for the moment anyway) forgot about the increasingly disappointing economic data in the US including housing starts, retail sales, and industrial production. Export growth also slowed, and you can thank the strong US Dollar for that.

Can China Halt The Spread of Deflation?

Chris BerryComment

By Chris Berry (@cberry1)

For a PDF of this note, click here. 

 

With few exceptions, deflationary forces are likely to challenge growth in much of the world in 2015. With the global economy more tightly integrated than ever before, the risk of much of the world catching a “disinflationary” or deflationary cold is pronounced. Most commodities are trading at or near five year lows, real interest rates negative in various countries, and Central Banks are having difficulty hitting their (admittedly low) inflation targets of 2%. It’s obvious to even the most casual observer that the inflation genie is not even close to being let out of the bottle.  

Given that the global economy is generally struggling to generate “escape velocity” growth, the main question is how deflation might spread? I see three transmission mechanisms:

globalization, high debt to GDP ratios, and innovation in technology spurred by R&D.

This note discusses the first two mechanisms with a focus on China’s efforts to halt the “export” of deflation.

Q3 2014 Energy Metals and Economic Review

Chris BerryComment

By Chris Berry

 

For a PDF version of this note, click here.

 

  • To call Q3 “challenging” is an understatement. Growth momentum is increasingly absent.
  • Most metals were relentlessly forced downwards in Q3.  Gold declined .13% (almost wiping out its gains YTD), silver fell .11% (down 13% YTD), and copper swooned 4.96% (down 9.42%YTD).
  • Rather than pinpoint an “elephant in the room”, there are multiple negative catalysts including slower growth in China, a relentlessly stronger US Dollar, and excess commodity supply.
  • Geopolitical events including the downing of Malaysian airline’s MH17, the potential spread of the Ebola epidemic, and the “rise” of ISIS have not had a significant effect on metals prices. The “metals” disconnect has many analysts, myself included, puzzled.
  • It raises the question of whether or not the current downturn is structural rather than a “normal” cyclical downturn from which we always expect to recover.
  • Q4 themes and catalysts may include a stimulus package in China aimed at boosting consumption, continued US Dollar strength (negative for gold and a deflationary precursor) , an announcement of QE in the Euro Zone, and the end of QE in the US.

 

In Deflation’s Grasp?

We have discussed the inflation/deflation debate many times in the past. It now seems clear that deflationary forces are predominant. Falling commodity prices, sparked by excess global supply and muted demand, aging societies, a stagnant velocity of money, and the ubiquity of technology continue to conspire to suppress and overwhelm the Federal Reserve’s attempts to stoke inflation.