Housekeeping: Goldman sets the table for next commodity run, BOA explains what they think the Fed will break this hiking cycle, JPM says even more SPR Oil will be released, and the CTA update. And a very nice graphic at bottom clarifying why we own Gold.
Market Rundown:
Good Morning. The dollar is up 83 points. Bonds are weaker. Stocks are down between 40 and 80 bps.Gold is down $15. Silver is down 20 cents. Oil is up $1.17. Nat Gas is down 9 cents. Grains are mixed with Wheat up slightly. Crypto is trackign stocks down 80-85 bps.
Full Graphic in “Zen Moment”
RESEARCH EXCERPTS
Intro: Today there are four pieces for your reading pleasure. The one we want to focus on a little bit is the Goldman Commodity piece. It is long, it is thorough and it is a table-setter. We aren’t saying it is accurate or inaccurate. But it is important.
But they have been very good in commodities the past 2 years. And they generally set the table for their (and their clients’) next trades with quant-think-pieces like this. Finally, they frequently do these if they think there will be opportunity to make money trading from the long side on these assets.
1- BOA: Tighten Until Something Breaks
A popular argument in recent weeks is that “the Fed will hike until something breaks.” Of course something is already breaking: there has been a major tightening of financial conditions and the economy is sliding into a recession. Here we look at what kind of breakage could cause the Fed to stop hiking or cut rates…
Comment: major banks are all starting to set the table for stocks to be bought. This note follows that path. It is accurate and echoes what Zerohedge has been saying for some time into smaller pieces. Note however it is less specific than we’d like. This is the red herring so to speak.
CONTINUES AT BOTTOM
2- Goldman: Timing the Commodity Supercycle
Two years ago, we called for a structural bull market in commodities. For the first twenty months, many elements of our thesis played out, from surging household demand to shrinking spare capacity…. we introduce a four-factor pricing framework that explicitly delineates – and models – each monetary, financial and fundamental driver of commodity performance. In doing so, we can estimate the net price impact from the recent investor positioning flush, a stronger dollar, slowing growth and supply disappointments against the structural drivers of under-investment, deglobalisation and the green transition.
Comment: This is classic Goldman. No specific commodity is focused on. a framework for deciding if to buy commodities is shared with investors. While reading this think of Three commodities: Oil, Copper, and Gold. They will likely send out buy recomendations for these commodities during the next 3 months- and probably in that order. We like the analysis1.
If you are an investor, expect flows into the commodities discussed at some point as recommended by them and other banks based on this. But for now, know they aren’t recommending anything except that you read their thesis. Gold and Silver are auspiciously underrepresented here. Gold will definitely be on their radar from this. Silver is not their thing, Copper is. So if they get bullish copper, JPM will probably quietly get bullish Silver.
Look for their first buy recomendations to be in Oil when they think Fed tightening will abate. Remember buy season for all commodities starts in late November. Bone up on the concept. Until then enjoy.
CONTINUES AT BOTTOM
3- JPM on SPR SALES
The administration is now signaling that the remaining emergency sales of 25 million barrels (of the original 180 million) could be delivered in 4Q22, with 10.15 million barrels already confirmed for November and the final 15 million barrels likely to be sold and delivered in December.
CONTINUES AT BOTTOM
4- CTA Update
Gold CTAs are very short and comfortable for now. Silver is flat, but starting to get short again. Sit tight is the feel unless you are a punter who doesnt care about preserving your risk money
