Thursday, January 19, 2012
TMM note that with the rapidly changing policy mix in Europe from “suicidal” to “Die Hard”, making calls on commodities is first and foremost a question of how much QE there is: if the deflationary environment and crisis risk is kept at bay in Europe it isn’t as if things are going to be peachy in Europe but risk assets will run, not least of all because last time we saw this much of a policy response from November 2008 to March 2009 commodities ripped.
Now, TMM would note that if the US continues to recover with Europe at least stabilized and housing in particular continues to recover we could get to year end and be talking *gasp* rate rises and not just fiscal drag which just might turn the USD from a legally acceptable form of toilet paper to legally acceptable tender. So folks lets be honest: there’s commodity fundamentals and then there’s central banks that can do a lot to make fundamentals not matter in the slightest. So with that caveat (“all non predictions subject to global M3”) we present our Commodity Non-Predictions:
1) Platinum will NOT under-perform Silver.
TMM have covered platinum before – the macro context of the world’s largest producer here and the threat of electric vehicles to Platinum Group Metals seems to be handily suppressed which can mean only one thing – cost push inflation plus a demand recovery = this should go up. Now TMM can’t rule out Eurostupidity so we are going to offset this with Silver which is sitting at ~300%+ of cash costs unlike Platinum which is only about 50% above cash costs and which as previously discussed seems oversupplied if one discounts the tinfoil beanie brigade. Oh, and it’s a really pretty chart from the long term:
The shorter term:
And realises high teens vol versus the hi-ho silver 45% whipsaw show.
2) Copper Is NOT Going Anywhere.
TMM think that copper is in no man’s land. To wit:
- expanding supply coming online end of 2012 and 2013 (-).
- China committed to property controls (-).
- While also loosening credit (+).
- US building recovery being priced into equities (+).
- But little follow through in OECD demand yet (-).
To that end we think copper is not going anywhere exciting this year, so buying OTM anything in copper seems rather unappealing to TMM.
3) Oil Vol Will NOT Disappoint.
TMM think Oil is the complete opposite of copper this year. In TMM's minds, there are three things that could happen this year, all of which mean Oil will move a lot:
- Iran blows up, Oil goes to $150, global growth collapses.
- ECB-driven reflation, more growth, demand sends Brent back to $120+.
- ECB-driven deflation, double dip, $90 oil.
To that end while crude vols have ticket up somewhat they still look appealing at ~23% to TMM, right in the historical complacency zone.
And with that, TMM will try and motivate themselves to come up with some Equities & FX Non-Predictions.