Have you lost count yet of the number of things in our country that are broken?
A little over a month ago just as the first news emerged of the Israel invasion, I stated that this event marked a watershed moment in global affairs – and in financial markets. Events since then have not deterred me from this view one iota. And as the Elliott wave 2 relief rally in US indexes grinds to a top, I believe we shall soon see an escalation in global tensions and even more violence on the streets as political radicals on both sides square off. This weekend, a major pro-Palestine demonstration rally is planned for London this weekend which would be a fitting arena for these tensions to boil over.
Regardless, Western politics which has been heated for some time appears to be coming to a boil with ever- strident angry exchanges. Here in the UK, the two major parties each are being pulled apart not from any internal dispute on domestic policy, but from where they stand on the Israel/Palestine conflict. It is as if this external issue is pushing the many growing domestic UK problems off the headlines (deliberately?).
And we are seeing a lot more references to the breakdowns in governments’ management of the day-to-day running of the country. “Have you lost count yet of the number of things in our country that are broken?” is now a growing theme both here and in the US. Just yesterday I took my car to the garage for replacement of broken front suspension units. The garage owner told me his work from pothole damaged vehicles had doubled this year and he can hardly keep up. And with EVs weighing three tons or more, I suspect he will get a whole lot more.
All of this is a clear mark of a general lack of pride in our work and environment and that is a mark of a pervading darker social mood that leads to the financial markets. It also marks out an ongoing loss of trust in politicians, ‘experts’, the media and so on.
Chocolate lovers won’t like this, but they will still buy
As a complete diversion from what the Fed is saying that obsesses so many traders, a year ago, I spotted a textbook setup in cocoa and put VIP Traders Club members onto this very promising campaign.
Back then, the huge wedge/triangle stood out – and I immediately perked up! This was a picture that I was suddenly interested in.
I noted the background supply/demand picture was changing from a balanced market a few years ago when prices were low to an imbalance as the first reports of crop problems in the critical West Africa region emerged.
but the remaining question was. as ever, getting the entry timing right. I sensed a huge move lay ahead. But sometimes, I find it necessary to make more than one attempt and that can test my and my members’ patience (and endurance). But I have found that the harder it is to enter a market, the bigger the rewards. No pain = no gain.
And as internal resistance levels were breached, we jumped on board. Since then, crop harvests and yields have been well under expected which has put a rocket under prices given this is the third year of production deficits. And with a looming El Nino, all is in place for even higher prices with higher deficits.
That is the power of the wedge/triangle pattern. I love them!
Already, retail chocolate prices are moving up in response. But as we know, chocolate is rather price inelastic and it would take a massive price increase to deter demand from the many global chocoholics.
Of course, the wholesale price of cocoa is a small part of the final retail price of a chocolate bar. At $4,000 a tonne, that equates to $4 per kg. Latest price of a typical 85% cocoa bar is £20 per kg making the cost of the cocoa at just over 20% of retail.
Even if cocoa futures double from here (a most unlikely event?), retail prices would only rise to about £26 per kg making a 100 gm bar cost £2.60 from today’s £2. We have seen much larger price increases in eggs, butter and many other foods last year.
Some thoughts on the financials
Late yesterday, Moodys ratings agency downgraded the US Treasury bond market from “watch” to to “negative”. That is hugely significant. They cite the ballooning debt (now at 130% of GDP and rising sharply), the sharply higher coupon payments to investors and the looming possibility of another government shut-down next week.
And last week, the latest Treasury auction of the 30-yr saw no foreign buyers to bid despite the 5% plus on offer. That is highly unusual and indicates much higher yields are required to get them to invest given the negative backdrop.
My best guess is that my favourite market the 30-yr T-Bonds is poised for one more sharp decline to new lows. This news should spur that move.
And with the Moodys Sword of Damocles hanging over stocks, how much support can US shares expect given that the bulls are relying on the Fed to lower rates as they see inflation being tamed. But now the higher T-Bond yields are doing the Fed’s work for them (as they jawbone markets to expect higher for longer) and the inflation fight is rapidly becoming last year’s war.
So even if headline inflation does not move higher and even declines, the pressure on shares from the worsening macro backdrop would swamp any lift from the inflation front.
With stocks and bonds joined at the hip, I expect sharp share declines ahead. For VIP Traders Club members, I offered a timeline last week for the short term action which is more or less panning out.
In the week before, the sharp rally off Elliott wave 1 low on 27 October was likely wave ‘c’ of what would turn out to be a textbook a-b-c three up for wave 2. In fact, the brief dip to Friday morning’s low was wave ‘b’ and the surge later that day to a new high was my wave ‘c’. So all requirements for the pattern have been met and I am looking for very sharp declines this coming week as wave 3 down kicks off.
I had pencilled in a Wednesday top for wave ‘c’ of 2 but that is now under review. If next week kicks off with sharp declines of several hundred pts in the Dow, wave 3 should be under way. But if there is a little more upside early in the week, wave 3 down would be delayed a touch.
But markets are perilously close to imploding. The push-back against Israel’s brutal invasion of Gaza could incite its many enemies to act and any successful major attack on the country would ignite the whole region – and the world. We are living in dangerous times.
A lighter moment
I believe we all need a good laugh in these fraught times, so here courtesy of US Bloomberg is the latest convoluted twist in the EV revolution story:
Stellantis’ Ram truck brand, long a laggard in the auto industry’s transition to electric vehicles, is offering a solution to range anxiety that leans into its gas-powered roots: a battery-powered pickup with an on-board gas generator to boost range and towing capacity. The Ramcharger — coming to market at the end of next year — is an EV for truck fans who worry they’ll run out of juice towing a boat or a trailer, especially on a cold winter day when battery range is degraded. The company insists it isn’t a hybrid, because the three-liter gas engine is used to recharge the lithium-ion battery, but not directly to turn the wheels.
I actually spluttered twice in my coffee (a record) when I read that little gem. Three litres! Let me get this straight – they strap on a gas guzzler to solve the climate emergency. Hmm. Jumping through hoops, indeed, to reach net zero. I’ll wager that vehicle will be exempt from all UK ULEZ zones, if it doesn’t get stuck on our narrow roads towing an enormous modern caravan.
Another hammer blow to the push to electrify everything is the ongoing collapse in Carbon Emissions (an EU market). They are down 25% from their August 2022 ATH despite the huge increase in EV sales since then, more heat pumps sold, millions more trees planted, and an increase in energy production from wind/solar.
So now have we reached a tipping point where carbon credit supply from booming EV sales is now swamping demand from the ‘polluters’ as they head into a recession/depression? And is the stuttering crude oil market telling us something similar? Or is this a massive buying opportunity?
But as I have been outlining here. the wind/solar sector is in deep trouble as they are unable to provide the cheap power that was heavily advertised as the justification for forcing us to buy EVs and heat pumps (oh, and to save the planet). They also require fossil back-up for the grid that will not disappear any time soon (see the Ramcharger item above).
Although I remain bullish on nuclear, any new electricity supply from newly commissioned plants will take many years to arrive on the grid. Thus we remain reliant on fossil for many years to come.
Also of note is the latest climate change headline proclaiming this year as the ‘hottest on record’. Of course it is, with the naturally rising trend and this year’s El Nino. The usual suspects (incl the ever-reliable BBC) are shouting this from the rooftops, but is anyone listening to their climate disaster theme? In just about every survey world-wide on the list of major public concerns, ‘climate emergency’ comes dead last.
In fact the latest US survey sees the share of the public that believe the climate change is all or mostly a result of human activity fall from 61% in 2018 to the current 49%. So much for the constant barrage of ‘climate emergency’ headlines we all see. The public just aren’t buying it.
One estimate has the earth’s temperature at 1.5 degrees above pre-industrial levels (say around 1750). So, the globe has warmed by less than one degree a century or in about one person’s lifespan.
Can anyone convince me that if on a nice spring day when the maximum temperature is 20 degrees and on the next day it is 21 degrees, will I be able to tell the difference? And if I can, will it not be pleasant? Remember, that increase has occurred over 100 years, not one day. And of course, the temperature on any one day fluctuates a lot more than 1.5 degrees anyway – as does the day-to-day temperature. So where is the ‘climate emergency’? Answers on a postcard, please.