In a headline sure to bring out more nonsensical comments about hyperinflation, Bloomberg reports Cost of U.S. Imported Goods Rose More Than Forecast in April
Prices of goods imported into the U.S. rose more than forecast in April, driven by gains in fuel and food that may put pressure on some companies to raise prices.
The 2.2 percent increase in the import-price index followed a revised 2.6 percent gain in March, Labor Department figures showed today in Washington. Economists projected a 1.8 percent increase, according to the median estimate in a Bloomberg News survey. Prices excluding fuel advanced 0.6 percent.
Growing demand from economies in Asia and Latin America, paired with a weaker dollar, may keep pushing up the cost of goods from overseas. While businesses like Whole Foods Market Inc. (WFMI) are trying to decide whether to pass increased prices onto consumers, Federal Reserve Chairman Ben Bernanke said he expects elevated commodity costs to moderate.
Compared with a year earlier, import prices increased 11 percent, exceeding the 10 percent increase projected by economists surveyed and the biggest 12-month gain in a year.
The cost of imported petroleum increased 7.2 percent from the prior month and was up 37 percent from a year earlier.
Excluding all fuels, import prices climbed 4.3 percent from April 2010, matching the prior month’s 12-month increase as the biggest since October 2008.
Imported food was 1.8 percent costlier last month and was up 20 percent from a year earlier, the biggest 12-month increase since records began in 1977.
Costs of imported automobiles rose 0.4 percent from the prior month, today’s report showed. Consumer goods excluding vehicles showed a 0.4 percent increase after falling 0.2 percent in March.
Imported capital goods prices were increased 0.1 percent.
A quick look at the no-so-shocking details shows oil was the biggest component. Of the 2.2% advance this month, 1.6% was petroleum. In other words 72% of the increase was petroleum, and food was much of the rest.
With food prices rising worldwide, this does not seem like much news, especially since the US grows the vast majority of its food. However, hyperinflationists will be all over it.
If oil takes a huge slide, and I think that is likely, oil prices will fall to negative territory at some point later this year.
Nonetheless, I am not in agreement with Bernanke’s policy statements regarding “transitory inflation” because he and the Central bank of China are responsible once again for spawning and ignoring equity and commodity bubbles. Bernanke’s primary intent was to stabilize housing and he failed.
The Fed can create liquidity but it cannot control where it goes, or if it goes anywhere at all.
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David Banister - www.MarketTrendForecast.com
What was I thinking trying to forecast a normal “wave 4” correction in Silver without the required insider information that the COMEX was going to raise margin/equity requirements four times in a week? My pullback silver low target of $40.10 was obliterated after two consecutive days of equity requirement increases early last week, knocking silver into the low 33’s before it got off the mat and staggered around a bit. Gold followed right behind as margin calls and stop losses required over- zealous traders on the long end to liquidate everything they could find to avoid complete meltdown of their trading accounts.
That is all well and good, but now all of my subscribers want to know just one thing…what now? For starters, Silver had completed an A B C rally pattern from around $18.50 in late August to $49.90 about eight Fibonacci months later. I had written about that coming rally late last August with Silver at $18.73, so we were prepared for the opportunity. I even looked for long term targets as high as $45. That rally was pure crowd behavior in motion, and when you reach the extremes of a “C Wave” in optimism, the next leg down (Which I call the “D wave”) is extremely difficult to predict. I trade A-B-C patterns all the time, looking for that imminent “C wave breakout”, and last August I forecasted a huge move in Silver mostly because a very long B wave triangle had just about completed, and the powerful C wave rally was nigh.
Now that we ended that rally by touching the all time highs near $50 from 1980, it was clear we would have a corrective pattern, and the problem was trying to come up with a reasonable “Crowd Behavioral” bottom pivot forecast amidst the COMEX interfering. This D wave ended in catastrophe for those who were over exposed, or shall I say… “Greedy”. You know what they say on Wall Street, Hogs get fat and pigs get slaughtered. Well, for those who want to dip their toe back in the water, here is the likely path going forward.
1. I expect Silver to recover over several months and re-attack the $50 zone again.
2. Silver will get past $50 by year end and probably reach $60 before the next strong correction.
3. With three years left in the Gold and Silver bull cycle from 2001, there is a very good chance silver will be well north of $100 an ounce by 2014, but one week at a time.
I do not trade Silver or Gold futures, and never have… I just forecast direction and price as best as I can for my subscribers. Probably one of the reasons I’ve been lucky and accurate for many years is I have no bias, as I am not forecasting my own book… just what I see. Near term look for Silver to try to rally back to about $38 to $41.50 ranges, with another pullback to follow.
Gold should have bottomed at $1462 in what I call an “A wave” down, with the “B wave” currently bouncing to about $1520 if I’m right. Once this bounce is completed, I look for a soft pullback to $1489 or so, followed by a strong rally to re-test the $1577 highs. Gold should reach a minimal target of $1627 on this final 5th wave up from the January 1310 lows, with potential to spill higher than that.
Silver has tripped on itself for now, and Gold will probably move a tad smoother over the near term, but look for Silver to regain it’s sprinting abilities this summer-fall and re-take the baton from Gold and continue it’s out-performance. If you would like to have frequent updates during the week, lots of good charts, and avoid scratching your head while the action unfolds, take a look at www.MarketTrendForecast.com for a special coupon offer today, or sign up for our occasional free reports!
To be sure there has been a growing whiff of a slowdown brewing for a few weeks. The announced end of QE2 has come at a very inconvenient time. Tightening monetary policy in Europe (or the threat of it) is part of the change in sentiment. Then there is the slowdown in China. We have also come to learn that Japan, (contrary to all the initial bullish spin) is not going to be anyone’s engine for growth. And finally, we end the week with what appears to be a very significant step forward to a restructuring of Greek debt.
Has the economy hit a wall? Again? For me, this is reminiscent of last summer. That was also a period where there was evidence of a slowdown. Greenspan scared the hell out of everyone with his comment, “The economy has hit an invisible wall”.
I’m convinced that the Greenspan comment was the final push Bernanke needed for him to commit to QE2. It took him another two months of talking with the other Fed heads, but on 8/27/2010 he gave the infamous famous speech in Jackson Hole that he was going to expand the Fed balance sheet with more QE.
A friend sent me this chart that looks at the equity market and the history of QE. The pattern is pretty clear. When QE is first announced stocks catch a bid and bonds trade lower. When QE is ending the opposite has happened. Stocks work lower and so do longer-term interest rates.
The market conclusion is that without a constant dose of QE the economy (AKA the Stock Market) will sputter. Maybe the market is right this time. I’m not so sure how reliable the market “view” is this Saturday given how wrong it was last Saturday.
One thing I am convinced of: there will not be a QE3 in 2011. Not even Bernanke can flip flop that fast. Having just announced the end of QE2, there is no way the Fed is going to sneak in a QE3 over the next seven months. That’s not going to happen.
If the existence of a QE program is the necessary condition for growth in the USA we are in very big trouble. We are looking at two dead ends. One is an economy that can’t grow, create jobs and pay for the $10b a day we are spending. The other is a monetary policy that will most certainly kill the country in just a few years.
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It’s hard to tell if the mainstream financial media is paying more or less attention today, as gold wages an assault on the $600 mark, than it did a few months back when, after repeated attempts, the $500 level was conquered, bringing consternation to economists and glee to gold bugs … that was only four months ago.
Even Jethro Bodine of The Beverly Hillbillies fame, with his limited ciphering ability, could likely calculate the very impressive 20 percent gain in that short period of time (whether Jethro would be able to annualize the increase is another matter.)
And then there’s silver – on a longer term chart it appears to be going parabolic.
Fewer people are talking about it in recent days as it seems no one wants to make a fool of themselves by trying to predict what’s going to happen next.
Silver, today, is kind of like that hugely entertaining alcoholic uncle who delights family gatherings with jokes and stories. The crowd laughs so hard their eyes water and their bellies hurt, but all the while they wonder how the evening will end.
They wonder whether the entertaining, but highly inebriated uncle will conclude his merriment and sleep safely and soundly somewhere, whether there will be trouble, or whether the party will just continue through the night.
The Rush of Investors
But, gold and silver have been late comers to the commodities party – it’s been only in the last nine months that precious metals have heated up in a big way. Investors have noticed that oil, natural gas, base metals, and foodstuffs have been going gangbusters for a few years now, as noted in this story ($) from yesterday’s Wall Street Journal.
A stampede of mainstream investors into commodities is fueling gold’s rally toward $600 an ounce and also could be driving up prices for oil and other raw materials.
In a phenomenon that could still intensify, big institutions and everyday investors around the globe are adding commodities to their portfolios, hoping the bull market in natural resources will continue. Many of the newcomers are investors who use index-based strategies to, in effect, buy and hold in a field they previously found too complex and risky.
From a total of $6 billion in institutional investment funds directed toward commodities in 1999, today’s tally of over $100 billion and rising is a clear sign that the stigma once associated with investing in commodities is fading.
With prices that continue to confound many, and with more new ETF products available to make the whole process easier, it doesn’t look like things are going to slow down much, any time soon.
And, why should they?
Investors of all types have discovered an asset class that has been mostly dormant for nearly two decades. Even Money Magazine has recommended a 10 percent allocation for precious metals. Why not make a commitment to commodities?
Half of the pension funds, hedge funds and other institutional investors polled by Barclays in February said they had no commodities exposure in 2005. Most are now expanding their total commodities allocation between 1% and 10%. And because they want to diversify and use commodities as an inflation hedge, they may stay in commodities even if returns drop. (Some commodities index investments have dropped this year, mainly because of natural-gas price declines.) Roughly 40% expect to hold their commodities investments for three years or longer, and an additional 28% plan to sit tight for 18 months or more.
“The market is quite secure that the money is here to stay,” says Torsten de Santos, Barclays head of European Commodity Investor Solutions.
You hear all kinds of opinions these days, but the general tone is much different than a year ago. The rise in demand from Asia and the lack of investment in infrastructure and exploration in recent years have contributed to imbalances in supply and demand that can not be resolved quickly or easily.
About the only thing that would surely derail the commodities boom is a global slowdown, a painful recession that policymakers and central banks of the world will do everything in their power to forestall.
Further on in the WSJ story we learn of a study that can be embraced wholeheartedly. The common perception of commodity investing is that it’s too risky, but a Wharton School professor is set on debunking that theory.
Gary Gorton — a University of Pennsylvania Wharton School professor and the co-author of a study showing commodities have roughly returned the same as stocks over 45 years with less risk — says the market is getting bigger now that it isn’t considered so risky, but other economic forces are pushing the price up.” Commodities futures is a very old asset class, and it has had a stigma. A lot of what we’re seeing is just overcoming the stigma. That makes it a bigger market, but does not necessarily make prices go up,” he says.
Hmmm… the same return as stocks but with less risk – over a forty-five year period. That’s good to know.
And finally, the discussion turns to everyone’s favorite drunk uncle.
An April 3 report by J.P. Morgan Chase & Co. predicts that silver is in for a correction after mania subsides about the new exchange-traded fund. Analyst Anindya Mohinta points to what happened to gold prices when gold ETFs were launched. Prices rose as much as 12% in the 90 days before the launch, then fell by 7% to 10% in the 90 days after.
Barclays expects demand for its silver ETA to require the purchase of 130 million ounces of silver, or 12% of the global silver demand. Mr. Mohinta says that could produce a short-term, “bubble-like impact” on silver’s spot market.
There they go with a prediction, but not a very bold one – a “correction”. There are corrections about every third day in the price of silver – no, make that every third hour. It’s the magnitude and the duration of a correction that people are wondering about.
But, people wondering about the price of silver should be reminded that this is 2006, not 2004 – there’s a big difference.
The price action in precious metals and oil this past week has been breathtaking. The last time we have seen this much volatility in commodity prices was amidst the financial crisis in 2008 and the early part of 2009. Does this mean we are at the brink and risk assets are going to decline precipitously? Obviously that question cannot be answered with any certainty, but the underlying price action in the S&P 500 has been relatively strong compared to gold, silver, and oil.
Talking heads everywhere are predicting the commodity bubble has burst and pointing fingers at excessive speculation in silver and oil. Margin requirement changes in silver futures have been fingered as the primary catalyst for the nasty sell off. Silver had gotten way ahead of itself in terms of price and parabolic moves higher are usually followed by parabolic moves lower. For silver buyers on Friday, April 29 a painful lesson has been learned as their investment has declined more than 30% in 5 days.
It doesn’t take a genius to realize that we are going to bounce higher at some point. With a sell off of this magnitude it would not be shocking to see at least a 50% retracement of the entire move in coming weeks. It is also possible that this is a buying opportunity for precious metals and oil. It is too early to be certain, but a bounce next week is likely as silver went from being severely overbought to severely oversold on the daily chart in one week. The chart below illustrates the 50% retracement and the RSI reading for silver futures:
In the month of April OptionsTradingSignals members were able to capitalize on rising silver prices to close a trade that produced an 18% return in less than 5 days using a double calendar spread in order to produce outsized profits based on maximum risk. Members regularly receive trade alerts focusing on gold and silver using ETF’s GLD & SLV which have extremely liquid options.
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While silver prices have been absolutely crushed, gold prices have held up a bit better. In fact, in this selloff gold has been less volatile in terms of intraday percentage price movement and has not suffered from near the losses that we have witnessed in silver. The gold futures chart below illustrates key price levels:
Members of the OTS service received a trade alert on April 6th for a calendar spread that was converted to a vertical spread. When the vertical spread was closed on April 26th the members realized a gain close to 56% based on the maximum risk of the trade.
Recently we have received some poor economic data which has put a drag on equities the past few weeks. This morning we are seeing a strong bounce in the S&P 500 futures and if we have another light volume Friday prices tend to drift higher throughout the trading day. The S&P 500 futures spiked to around 1,370 on the news of Osama Bin Laden’s death and then sold off from that point. The chart below illustrates the S&P 500 futures rally and subsequent sell off highlighting current key price levels:
Members of OptionsTradingSignals received a trade alert on April 12th to put on a call vertical spread to capitalize on rising prices. On April 21st partial profits were taken and eventually stop orders closed out the position on May 4th locking in a total gain of around 32% for the trade based on maximum risk.
Oil prices have sold off sharply, albeit not as sharp as the downside move in silver recently from a percentage standpoint, but a significant amount of the risk premium has come out of oil prices. I continue to believe that oil prices over the long term have only one direction to go based on tightening supply / demand going forward and lower production levels in the future. Similar to silver, a .500 retracement of the entire recent move is rather likely in coming weeks. The daily chart below illustrates key price levels in oil futures:
I continue to believe that oil prices are going to work higher over the longer term for a variety of reasons, but a drop in gasoline prices would not hurt U.S. Consumers and the domestic economy. Higher oil and gasoline prices weigh on the U.S. Economy heavily so this sudden decline in price is beneficial to most Americans which could juice consumption if prices stay lower for a longer period of time.
Overall, price action in the commodity space has been extremely volatile the past week with silver and oil really getting hammered lower. Gold and the S&P 500 held up a bit better and it would not be shocking to see the S&P 500 put on a rally from here if oil prices stabilize. However, if the U.S. Dollar continues its recent rally it will force the commodity space as well as equities lower. The daily chart of the U.S. Dollar Index futures is shown below:
In closing, I am expecting a bounce in coming days and a .382 or .500 retracement of the entire move in gold, silver, and oil would make sense so I would not be too aggressive shorting. However, I would not necessarily be an aggressive buyer either. It is going to take time for market participants to digest the recent moves. In weeks ahead it will be more apparent what price action is likely to do and I would be shocked if we did not see a few low risk, high probability trades setting up.
Speaking of low risk, high probability trades, the month of April was the best performance for the OptionsTradingSignals service so far year to date. Seven total trades were opened and six trades have been closed with sizable profits. Recent returns included an 18% return in SLV, a 56% return on a GLD trade, 32% return on an SPY call vertical spread, a 12% return on a RUT Calendar spread, and a 37% return on an AMZN calendar spread. The total cumulative return in April was 155%.
Assuming a trader had a $10,000 account and risked a maximum of $1,000 per trade, the gross gains would have been well over $1,400 in April alone. The overall service is up over 15% year to date handily beating the S&P 500 return while assuming less risk. Take advantage of the special offer going on now where new members get 3 months for the price of one!
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JW Jones
by Tyler Durden
The anti-speculator witchhunt is bearing fruit: following the wipe out in precious metals, the next, and key, target of this commodity take down, crude, just went from triple to double digits, hitting a low of $99.70, with the $100 limit orders resulting in a surge in the USD and accelerating the drop in EUR. Stocks continue to be completely disconnected from this massive liquidation across all commodities, as every mutual fund knows all too well that Ben will always step in and make sure that the Russell 2000 never has a downtick. Yet this complete isolation of equities from other products merely confirms that not even the HFTs correlate stocks to other asset classes. It also means that HFTs are no longer present in stocks, which means that even the fake liquidity provided by HFTs is no longer there, and we will likely have a far worse flash crash the second Brian Sack loses control of the stock market.
Yet the move in USD-priced crude is nothing compared to what is happening to Euro-priced Brent. In a word: “total wipeout”
by Tyler Durden
The liquidation wave has arrived, as the entire commodities complex, with an emphasis on silver and crude, continues to feel the wrath of a bipolar market which from inflation has suddenly realized that the underlying deflation needs to exhibit itself before the US Central Bank has a justification for more monetization. Elsewhere, the by bar biggest bubble in the world: the dollar short, is blowing up, with the EURUSD on route to post a 300 pip move in a few hours. Basically, the tit for tat repeat of 2010 in this Anno Domini 2011 continues.
And liquidation update:
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In the week ending April 30, the advance figure for seasonally adjusted initial claims was 474,000, an increase of 43,000 from the previous week’s revised figure of 431,000. The 4-week moving average was 431,250, an increase of 22,250 from the previous week’s revised average of 409,000.
Oh, and the previous week was adjusted…. once again, up by 2,000. Unbroken we are, aren’t we?
The futures dropped instantly on that release, down about 6 handles. The dollar took a nice leg up.
The amusing part of the release was the explanation – the claim that a “new” program in Oregon was responsible. Yeah, ok. And that explains the +400k number the previous weeks too, right?
This number will not show up in the employment report tomorrow, but it certainly ought to be on your mind. We’re now three weeks solid into the “4″ handle area, and we didn’t miss a “5″ handle by much.
To those who claimed that employment is turning around: Would you care to revisit that thesis and the efficacy of the programs and policies of our government and Federal Reserve that you have cheered as “saving” the American economy?
The past few weeks we have been seeing the US Dollar slide to new lows at an increasing rate. The strong devaluation of the dollar has sent precious metals like silver and gold rocketing higher out of control sending them parabolic!
During the past 6 weeks both silver and gold have been rising in a parabolic formation. Meaning the price is going straight up with strong volume as everyone gets greedy and buys into the commodities at the same time. Most of you who follow my work already know that if the general public is piling into an investment rocketing prices higher, you better start focusing on tightening your protective stops and or taking some profits off the table before the price collapses.
Take a look at the weekly chart of Silver below:
Silver was grinding its way higher from July into March of this year. Only in the past 6-7 weeks did we start to see silver open up and run with expanding candles growing at an accelerated rate. This virtually straight up rally is a signature pattern and tells me that price action is now VERY unpredictable and anyone getting involved should be tightening their stops and or taking partial profits on price surges.
Parabolic moves can provide some big gains but most traders end of giving it all back and then some because the price can drop very abruptly as seen on this chart.
The weekly chart of gold below shows much of the same thing but without the extreme volatility that silver has.
Now, if you take a look at the US Dollar chart it’s starting to look very bullish in my opinion. The chart shows a falling wedge which typically means the selling pressure should be coming to an end soon. I’m not sure how large the bounce/rally will be. I do think a quick move to the 75 level is very likely in the near future though.
I find that metals tend to turn just before the dollar does. So I’m very cautious here on buying any stocks or commodities at the moment. The past 2 years we have seen stocks and commodities have an inverse relationship with the dollar so a rising dollar means a market pullback will take place. Sell in May and Go Away…?
Mid-Week Trading Conclusion:
In short, we exited our SP500 position this week for a nice 6% gain in a couple weeks making that our third profitable back to back index play. At this time I’m not ready to buy or short the market until all the charts line up for another low risk entry point. Things are 50/50 odds here and that’s not good enough for me.
That’s it for now,
Chris Vermeulen
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