Housekeeping: Hope all had a good week. Today we have the Silver Institute Slide deck (Charts), a couple excellent excerpts on metals and energy (Research), analysis of Grayscale's Bitcoin ETF NAV and the usual CFTC work
SECTIONS
Market Summary— Return of the Taylor Rule
Research— Metals and Energy
Week’s Analysis/Podcasts— How to read a report and Crypto Puff Pieces
Charts— SILVER pdf
Calendar— Wednesday focus, Holiday week
Technicals— GC, SPX, BTC, CL, NG
Zen Moment— Buffalo Snowmaggedon
Full Analysis— Gold, Silver, Energy, BTC
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1. Market Summary
If last week's lower CPI-driven rally was heaven for stocks; This week’s Fed jawboning was hell. Speakers crushed pause/pivot/slowdown believers.
There were 16 different speeches from Fed speakers this week - all with the same message: higher rates for longer; no pause or pivot imminent. The most aggressive of all was James Bullard’s. His was not only strongly worded, but put a number on it, saying rates could rise as high as 7%.
Bullard: rates could rise to 7%, and that we’ve been "burned two years in a row on inflation optimism"
This level, not coincidentally, is the top end of the range dictated by a modified Taylor rule. Bullard literally is referring to it (after ignoring it for a year) in his latest analysis.
The Fed is incredulously trotting out the Taylor rule *now* after ignoring it at its most prescient in December 2021. Keeping in mind the above chart, here’s what it looked like back in December:
The Taylor Rule suggests Fed Funds should be over 9%. Even taking into account that the Taylor Rule may not be precise, the divergence between the Black line (Fed rates) and the Blue line are at an unprecedented spread.
Turns out the Taylor rule meant something. They literally had the answer-key in front of them and chose to ignore their own rules only to re-adopt them almost a year later.
This year: Nasdaq is down over 30%, Small Caps -25%, S&P down just under 18%, and The Dow down around 9%
Sectors/ Technicals
Staples and Utes outperformed
Healthcare only other sector green, Consumer Discretionary weakest
Yield Curve Fully Inverted Now
In March, Powell also touted the three-month bill yield out to 18 months as the yield curve with “100%” explanatory power.
“If it’s inverted, that means the Fed’s going to cut, which means the economy is weak,” he said…
Directly implying that if the short end of the curve was inverted, then the economy was in need of a rate cut and indisputably in a recession. Then Powell walked back his view a bit, saying the curve could also invert if investors are pricing in “significant declines” in inflation.
Sure the back end of the curve dropping is indicative of lower inflation fears compared to now, but inversion itself means recession. We walked though all this months ago the last time they tried to dance around what an inverted yield curve means.
Commodities:
Dollar was net higher
Oil down over 10% and gold outperforming (down only 1.2%)
Silver acting more base than precious this week.
Bonds:
Entire curve is now inverted,something breaks and/or Fed eases now.
30Y yields shifted back below, and held below, 4.00%
Yield curve most inverted in multiple decades.
Crypto:
Cryptos were relatively stable this week after all the FTX fiasco.
Bitcoin and alts/crypto have notably decoupled recently with the correlation between the two crashing to -0.45 - the lowest since February.
Markets may be looking at ETH competitors and ETH itself risk now.
Precious Metals: Platinum, Palladium, Gold, Silver, and Russia’s PGM Role.
In an excellent report focused on PGMs and Russian factors we (finally) found some clear concise (no hype) Gold and Silver commentary. In fact a price projection for Silver was buried in it too. But we found it. The key for reading this was paying close attention to regional demand for Solar Silver (China), and looking for clues CBs were still buying Gold1.
The Fed has no silver bullet to fight inflation, so will likely stay behind the curve, which is bullish. Central bank buying should continue, also supporting gold…
SILVER
The silver market has rebalanced on production discipline and demand from new applications including solar panels. If more spending on solar panels comes through, silver should rally above $31/oz…
PGMs and RUSSIA
A question that has come up repeatedly is why Russian platinum-group metals have not been sanctioned. For a couple of reasons, in our view…
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Energy: On Oil, Natural Gas, and Greens
We project Brent and WTI to average $100/bbl and $94/bbl in 2023, respectively. The global oil balance should stay tight in 2023, supported by rebounding Asia demand, slower non-OPEC growth, and OPEC+ mopping up excesses. We forecast global demand growth to slow to 1.7mn b/d YoY in 2023 from 2mn b/d in 2022.
Non-OPEC supply should grow roughly 1.8mn b/d YoY in 2022 and an additional 1mn b/d in 2023. We project total US supply to rise 1.22mn b/d and 1.1mn b/d in 2022 and 2023, respectively. OPEC supplies are set to rise 2.6mn b/d in 2022 and 500k b/d in 2023 as OPEC+ actively manages balances
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Is GBTC Valued Properly?
GBTC’s website says that it holds 0.00091507 bitcoin per share outstanding. At a bitcoin price of $16,500 that is a NAV of $15.10. With a price of $8.60 GBTC is trading at 57% of the value, or at a 43% discount. What happens if they unwound?
