Opening Statement from the June 2019 CCPM Forecaster
Originally published on June 2, 2019
The global economy continues to feel the adverse impact of trade uncertainty. This dynamic has been reflected in the price of commodities. Meanwhile, although the U.S. economy remains relatively strong momentum has been waning for a number of months.
Given the recommendations from within the May 2019 issue of the CCPM Forecaster, we are not at all surprised that many of the commodities we cover encountered sharp price reversals. But we generally would not treat rallies in select commodities as an accurate reflection of the longer-term trend. We believe many commodities were oversold over the short term, so the recent rally was merely a response to this.
Finally, low U.S. Treasury yields continue to pose a significant concern. With the effective federal funds rate currently at 2.42 percent, it is of no surprise that the yield on 3-month U.S. Treasury bills is 2.38 percent (as of May 31). In contrast, the 10-year U.S. Treasury Note is yielding a mere 2.14 percent (as of May 31). Therefore, investors receive a higher rate of return in addition to lower risk if they purchase 3-month T-Bills versus 10-year Treasury Notes. This phenomenon is often referred to as an inverted yield curve, although other maturities are used when analyzing this curve.
As we have mentioned in the past, the fact that the yield curve has inverted should not be taken to be particularly significant by itself, given the large and unknown distortions in asset pricing as a result of radical monetary policy actions of the past decade. Regardless, the persistently low yield seen in the 10-year Treasury remains of great concern for a variety of reasons.
As expected, crude oil sold off once geopolitical factors responsible for driving pricing beyond reasonable values faded. Crude oil is now being priced according to supply-demand expectations which are bearish. Although Brent and WTI crude have sold off back down to the trading range we previously defined based solely on macroeconomic dynamics, there’s a good possibility that pricing will head lower over the short term. It should be noted that the price behavior of crude oil has mirrored our forecasts with the highest of precision for quite some time.
As forecast, gold pricing finally broke out...
This article continues.
To continue viewing this entry please sign in to your Client or Member account.
Restrictions Against Reproduction: No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without the prior written permission of the copyright owner and the Publisher.
These articles and commentaries cannot be reposted or used in any publications for which there is any revenue generated directly or indirectly. These articles cannot be used to enhance the viewer appeal of any website, including any ad revenue on the website, other than those sites for which specific written permission has been granted. Any such violations are unlawful and violators will be prosecuted in accordance with these laws.
Article 19 of the United Nations' Universal Declaration of Human Rights: Everyone has the right to freedom of opinion and expression; this right includes freedom to hold opinions without interference and to seek, receive and impart information and ideas through any media and regardless of frontiers.
This publication (written, audio and video) represents the commentary and/or criticism from Mike Stathis or another individual affiliated with Mike Stathis or AVA Investment Analytics (referred to hereafter as the “author”). Therefore, it is only an opinion and thus should not be taken to be factual. There is always a possibility that the author has made one or more unintentional errors, misinterpreted information, and/or excluded information which might have altered the commentary and/or criticisms. Hence, you are advised to conduct your own independent investigation so that you can form your own conclusions. We encourage the public to contact us if we have made any errors in statements or assumptions. We also encourage the public to contact us if we have left out relevant information which might alter our conclusions. We cannot promise a response, but we will consider all valid information.
For investment funds and financial institutions seeking to improve their performance
Tap Into the Mind of One of the World's Leading Analysts and Traders, Mike Stathis