2017 – It’s All Good (UNG,GDXJ)

Does it get any better?

 

Sure, we may see a short-lived selling wave now that this election nonsense is behind us – a chance for the bigshots to take some profits before year end and try to buy back in at cheaper prices in the New Year.

 

But it’s still good.

 

How so?

 

First, and most importantly, we’ve now begun the final wave up for the bull market that began in 1980, or, if you prefer, in 1932 – there’s no longer any question about it.  The ultimate rocket-shot higher before Kondratieff’s winter finally descends upon us like a Siberian tiger, is here.

And the signs are everywhere –

 

Consider first that the nudnicks over at Gallup, ever questioning people about everything from boxers or briefs to religious affiliations and views on alien invasions, have just recorded their highest ever economic confidence reading – in the history of the survey!

 

What?  Now!?

 

You got it.  Now.

 

Take a look –

And in case you thought it was just a flash in the pan, consider a recent CNBC poll whose results mirror those above –

The CNBC website accounts for it thus:

 

The CNBC All-America Economic Survey for the fourth quarter found that the percentage of Americans who believe the economy will get better in the next year jumped an unprecedented 17 points to 42 percent, compared with before the election. It’s the highest level since President Barack Obama was first elected in 2008.

 

And that’s not all.

 

Check this out – existing home sales have just surged to their highest level in a decade!

 

Yes, now as interest rates are starting to climb, we’re seeing a burst of new activity on the home front, as it were, with 5.6 million homes changing hands (on a seasonally adjusted annual rate) –

The chart is significant in its presaging even more activity in the months ahead.  With rates slated to rise through 2017, the latest burst is apparently indicative of a desire for many to jump now and lock in mortgages at historically low levels, before borrowing costs make buying prohibitive.

 

The latest numbers, falling as they do in the middle of a wintry cold snap, give hope to housing prognosticators that we’ll see a significant ramp up in buying activity in the year ahead.

 

Sentiment, Housing and…

 

Our third item on the docket has been the subject of considerable commentary these last two weeks, but bears another brief mention here – inflows into US equities in the last month have dwarfed those that preceded them in the previous twelve month period.

 

And that, in turn, has juiced the market higher in a manner that’s unprecedented historically.  Take a look at the chart below –

Quite simply, we’ve never seen a post-election run through Xmas of this magnitude.

 

And as you may have guessed, we’re predicting it doesn’t end here.

 

The numbers are almost too crazy to believe.  Our fellow scribbler, Matt McAbby, last week quoted TrimTabs figures, and we’re repeating them here –

  1. Some $98 billion in cash entered the equity market after the election.
  2. Over the course of all last year only $61 billion of inflows were registered, meaning…
  3. In a single month we’ve surpassed 1.5x that yearly amount.

 

And that’s just funds entering U.S. equity ETFs, not the rest of the individual stocks that trade on the exchanges.

 

Hard to believe.

 

Winners and Losers

 

Unfortunately, it’s not all champagne and caviar in the investment world.  There are sectors that are performing less well and some that are outright suffering.

 

Like the precious metals.

 

In that sector, we’ve seen selling at almost as quick a rate as the buying in the financials.

 

It’s been a bloodbath.

 

And as a result, there’s been a great contraction in the size of the world’s Gold ETFs, who’ve been forced to liquidate their holdings in line with the selloff in their shares.

 

Bloomberg indicates that “the last time ETF investors were net buyers of gold was the day Hillary Clinton conceded victory to U.S. President-elect Donald Trump. Holdings have dropped for 28 straight days, the longest run since the ETF’s creation in 2004.”

 

Take a look here –

All told, ETF investors dumped eleven percent of their holdings in the latest period, leaving the aggregate amount at 1,787 metric tons and analysts speculating on whether a further drawdown could trigger even more selling in the futures pits.

 

As the arrow at the right of the chart indicates, a proportional decline in the ETF’s holdings could certainly accomplish that, setting up a selling feedback loop that pulls gold to new lows.

 

In short, it’s bad.  And it could get worse.

This Week’s Trade

 

This week we’re looking to the commodities for our trade, an asset class that, for the most part, rises and falls as a group.  We’re talking about the intermediate to long term trend, of course.  Over the short term, weeks or even months, there can be a wide divergence in the prices of, say, copper and orange juice.

 

Our trade today, however, pits the junior gold miners against the price of natural gas.  The former, represented by the VanEck Vectors Junior Gold Miners ETF (NYSE:GDXJ), has had a stuck-pig performance for the last half year, losing a hair’s less than half its value through last week.

 

Natural gas, on the other hand, appears to have bottomed, and in anticipation of an Arctic winter blast that could last longer than expected, has shot higher in the last six weeks by better than 35%.

 

Charted against one another since the election, the two stack up thus –

In blue, you can see, some 50% lies between our commodity comrades, a gap that will be closed as the world of real goods begins once again to straighten out its creases and fall back into lock-step.

 

We expect that that will occur at some point in the next half year.

 

And with that in mind,

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With kind regards on the season and hearty good wishes for the New Year,

 

Hugh L. O’Haynew

See what people are saying...

  1. Steven Jon Kaplan

    All-time record inflows previously occurred in February 2000 for technology shares which was followed by a 78.4% collapse for the Nasdaq. The biggest-ever monthly outflows for most U.S. equity index funds was in February 2009 prior to a huge bull market. Fund flows and sentiment at multi-decade extremes are always a contrary indicator.

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