Is India’s Gold Market Recovering? – The Frank Holmes SWOT

Strengths

  • The best performing precious metal for the week was gold, off just 1.02 percent despite a Fed rate hike.  The Fed may not be in a position to continue with multiple rate hikes. Mike McGlone, BI Commodity Strategist, points out the current situation that both crude oil futures and Treasury bond yields are falling. Since 1983, the Fed has never sustained a rate hike cycle while both crude and Treasuries are falling.
  • Gold has risen from a three-week low as investors digest the latest rate hike and anticipate the probability of additional rate hikes, reports Bloomberg. Suki Cooper, an analyst with Standard Chartered, writes, “If the market starts pricing in the end to the current hiking cycle, this would remove a major headwind for gold and allow prices to breach the stubborn $1,300 threshold in a sustained move higher.”
  • Bloomberg reports that public sector investors increased their net gold holdings to an estimated 31,000 tons last year, an increase of 377 tons. This is the highest level since 1999.

Weaknesses

  • The worst performing precious metal for the week was silver with a loss of 2.90 percent.  Money managers cut their net-long by about 10 percent this past week.  For the second week in a row, gold traders and analysts surveyed by Bloomberg are bearish. This is the first time survey results have indicated two-week run of bearish outlook since December.
  • Gold futures have had the longest losing streak in three months, as investors have anticipated the Fed’s actions this week. Bullion futures for August delivery closed down for the fourth straight session earlier this week.
  • Palladium has declined after what some analysts see as an unjustified surge. The overall auto market, including the Chinese auto market, is a key demand driver for palladium, and that market is faltering.

Opportunities

  • As investors have sensed the Fed’s reluctance to continue multiple rate hikes, bullish gold investors are increasing their holdings in gold. Bloomberg reports that investors have added $675 million into the SPDR Gold Shares physical bullion ETF, taking the ETF to a six-month high. In addition, gold futures have climbed 10 percent this year on doubts that President Donald Trump’s economic agenda will make it through Congress and uncertainty around the U.K.’s Brexit plan.
  • India’s gold market appears to be recovering after the demonetization scheme last fall and with efforts to improve transparency, reports Bloomberg. Some new policies under consideration include the start of a spot bullion exchange to make the supply of gold more transparent. In addition some taxes could be reduced, such as the import tax of 10 percent and a gold tax of 3 percent versus the 5 percent that some had feared.
  • Barron’s reports that ANZ’s senior commodity strategist Daniel Hynes thinks gold can gold above $1,250 in the short term and break through $1,300 this year. Noting economic conditions and the signs of an improving market in China and India, Hynes goes on the say that the gold price may actually rise above $2,000 by 2025.

Threats

  • Capital Economics takes the opposing view that the Fed will continue to raise rates, more so than the market seems to anticipate, and that gold will fall in the remainder of the year. The firm published a note this week stating their gold price forecast of $1,100 by the end of the year.
  • Investigations into Trump are expanding to now include whether he may have attempted to obstruct justice, and exploring whether there is any evidence of financial crimes.
  • The South African government’s new regulations requiring local mines to be at least 30 percent owned by black people has spurred the rand to weaken the most in more than two months. Nomura International Plc criticizes the new rule, stating that it will deter investment at a time when the country is in an economic recession.  The controversy in Tanzania concerning Acacia Mining continues. Barrick Gold Corp., which owns 64 percent of Acacia, has stepped in to try to resolve the situation. Tanzanian President John Magufuli has demanded payment, and Barrick will help Tanzania build a smelter. Shares in Acacia surged on the news.
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Gold Trade Is Not Overcrowded Says UBS – The Holmes SWOT

By Frank Holmes, CEO and Chief Investment Officer, US Global Investors

Strengths

  • The best performing precious metal for the week was gold, down slightly by 1.47 percent. Current market conditions make it the perfect time to invest in gold, according to Heather Ferguson, an analyst at Hargreaves Landsown. “There is a fixed amount of this precious metal in the world so central banks are not able to manipulate the gold market like they can with bonds and cash,” Ferguson explains. “In the current environment of quantitative easing and increasingly extreme monetary policy, gold is highly sought after.”
  • UBS says the gold trade is not overcrowded, according to a note this week.  The group believes that Federal Reserve policy decisions relative to the metal are not as straightforward in this environment where global yields are under pressure ahead of a rate hike.
  • Citigroup is also positive on the metal, raising its forecast for the second half of the year. The group cites elevated levels of U.S. election uncertainty and stickiness of ETF and hedge fund flows into gold products, reports Bloomberg.

Weaknesses

  • The worst performing precious metal for the week was platinum with a loss of 3.77 percent. Platinum sold off when precious metals were bear raided on Wednesday, but did not get much of a bounce following Yellen’s speech on Friday.
  • “The past 48 hours have been an interesting period for gold…” writes Steven Knight of Blackwell Global. “As the metal has again seemingly fallen sharply following the liquidation of a $1.5 billion futures position over the course of 60 seconds.” According to Knight, given the amount of gold derivatives floating around, the fairness of the COMEX exchange likely needs an additional level of scrutiny. In addition, the timing of this “flash crash” could potentially be revealing.

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  • Goldcorp fell the most in six months, reports Bloomberg, on the back of retreating gold prices and the discovery of a leak at the company’s mine in Mexico. Less-than-stellar news was also reported from Kinross Gold Corp this week, as it suspended operations at a mine in Chile ahead of schedule due to a dispute involving water use (causing 300 workers at the Maricunga mine to be laid off as a result). Lastly, Orezone Gold Corp told investors on Monday that it will likely slash the gold resources at its Bombore project by a staggering 30 percent, reports the National Post.

Opportunities

  • When viewed against the aggregate balance sheet of the “big four” global central banks (Fed, ECB, BoJ and PBOC), the argument can be made if we view gold as a currency, that the metal is worth closer to $1,700 an ounce (versus the spot price of $1,326 an ounce USD), says Deutsche Bank. Over the same period that the aggregate central bank balance sheet expanded 300 percent, the bank continues, global above ground stocks grew by 19 percent in tonnage terms.
  • More than 500 million people are living in a climate of negative central-bank interest rates, according to a study by Standard & Poor’s cited by HSBC this week. This represents around 25 percent of global GDP and is a clear sign of “economic and policy desperation,” – a bullish factor for gold. Francisco Blanch of Bank of America agrees, stating that central banks “are very scared of hiking rates and that is a very good story for gold.”
  • “Although we have seen a significant rally in gold, I think investors should still consider an allocation to the precious metal,” Nick Peters, multi-asset investor at Fidelity, said. He continues by explaining that gold can function as a safe haven during times of market volatility and provide strong countervailing returns to equities.

Threats

  • The Reserve Bank announced today that sovereign gold bonds issued in February and March can be traded on stock exchanges starting Monday. Four tranches of the bonds have already been issued, with a fifth likely to be issued next month. Sovereign gold bonds provide an alternative to actual gold investing, offering investors a choice to buy bonds worth 2 grams of gold going up to a maximum of 500 grams.  The bonds are denominated in gold and pay 2.75 percent interest in physical gold.
  • Are the positive changes in the gold industry sustainable? This was the point of question from Gold Fields CEO Nick Holland during a keynote presentation on Monday, reports Mineweb.com. Holland points out that not only are companies cutting “fat,” but “muscle” as well. Stay-in-business capital (as a percent of operating expenditure) decreased from 46 percent in 2012 on a per ounce basis, to 26 percent in 2015. How can companies do this? “I believe that they have merely deferred capital that is going to come back, because if you want to sustain the business into the future, you need to spend the money,” Holland said. “That for me is a little bit of a concern.”  The Industry is going to play catch up, which could yield poor capital allocation decisions, particularly if the industry errors on the side of growing production ounces versus growing profitability.
  • In a note from BMO Private Bank this week, Jack Ablin points out that historically, options investors have been able to generate reasonable income by selling options to other investors looking for downside protection and upside opportunity. However, struggling yields have created an “outsized supply of yield-seeking options sellers who collectively outstrip buyers.”  The result is that implied volatility has declined. But just because yields are low, doesn’t mean that actual risk has gone away, the note continues.

Political Risk Building into the Gold Market? The Holmes SWOT

By Frank Holmes – CEO and Chief Investment Officer, US Global Investors

Strengths

  • The best performing precious metal for the week was palladium, up 5.49 percent.  Citigroup forecast that platinum could see a deficit of 172,000 ounces in 2016, but palladium’s deficit could be short by 847,000 ounces, thus the group is more bullish on the later.
  • Esturo Honda, who according to Bloomberg News has emerged as a matchmaker for Prime Minister Shinzo Abe in finding foreign economic experts to offer policy guidance, is opening his ears to Ben Bernanke.  In April, Bernanke noted that helicopter money, in which “the government issues non-marketable perpetual bonds with no maturity date and the Bank of Japan directly buys them,” could work as the strongest tool to overcome deflation, says Honda.
  • Francisco Blanch, head of commodities research at Bank of America Merrill Lynch, says there is political risk building into the gold market, including the Italian referendum and U.S., French and German elections. Blanch adds that in the past, gold used to be driven more by the U.S. dollar and commodity market movements, but “in this day and age, it’s a new world.” He also mentions that one-third of government bonds are yielding negative. The chart below shows that $9.2 trillion of sovereign bonds are trading with negative yields.

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Weaknesses

  • The worst performing precious metal for the week was silver, down -2.97 percent.  With silver generally more volatile than gold, a strong rally in stocks, up 10 of the last 11 days and with new record highs, had investors chasing returns in the broader market.
  • Gold traders and analysts are bearish for the first time in four weeks, reports Bloomberg. The precious metal headed for its first back-to-back weekly decline since May, with gains in equity markets and the dollar hurting prices. David Meger, director of metals trading at High Ridge Futures in Chicago, says that the dollar’s strength continues to pressure most commodities, gold in particular. “Safe-haven demand has been diminishing, obviously with equity markets moving to new record highs,” Meger said.
  • A group of armed men stormed one of Agnico Eagle’s mines in northern Mexico early Tuesday morning, reports the Canadian mining company, injuring a security guard and making off with a haul of gold and silver. Last April a similar situation occurred when armed men entered McEwen Mining’s El Gallo 1 mine in northern Mexico, reports Reuters, even though thefts within mines are “relatively rare in Mexico.”

Opportunities

  • The World Gold Council and the Accounting and Auditing Organization for Islamic Financial Institutions are drafting new standards for investing in gold to comply with Sharia law, reports an Energy and Capital article. If the proposals for the changes (expected in the fourth quarter) are accepted, a flood of new investors could help send gold prices soaring, the article continues. A similar situation took gold prices to $1,900 in 2011 when surging demand came from China following the government’s urge for its citizens to own the yellow metal.
  • With the U.S. presidential election seen as the next big catalyst, Bill Beament of Northern Star Resources believes that gold’s rally is set to endure, reports Bloomberg. He says the overall trend is up and that “the U.S. vote will have more of an impact on bullion than the U.K. referendum.” The IMF also scrapped its forecast for a pickup in global growth, the article continues, yet another positive for gold.
  • Commerzbank raised its year-end gold estimate by $100, reports Bloomberg, to $1,450 an ounce. Similarly, DBS Group Holdings says that gold is in a major bull market and could surge past $1,500 an ounce as “low interest rates buoy demand and the U.S. presidential election looms.” The long-term gold price has been adjusted higher at Numis Securities as well, up to $1,400 an ounce from $1,350 an ounce.  While it’s good to see the street starting to take their price forecast higher for gold, investors should remain disciplined as the late summer can be a seasonally weak period for prices and many of the expected price targets being raised are capitulation moves to higher price levels.

Threats

  • According to data compiled by Bloomberg, investors pulled $793 million out of SPDR Gold Shares last week, the most since November. As Citigroup’s U.S. Economic Surprise Index rose to its highest since January 2015 (a sign of an improving economic outlook), demand for ETFs backed by gold has diminished some. Holdings in gold-backed ETFs around the world fell 3.9 metric tons last week, reports Bloomberg.
  • Sovereign gold bonds issued in India were trading at a 27-percent premium over the fixed price when the bonds were first issued in November, reports LiveMint. Prices of physical gold have risen 23 percent during the same period. According to the article, “Investors get a fixed interest rate of 2.75 percent per annum on these bonds over and above the capital gains that may accrue if the price of gold rises in the spot market.” The gold bonds are part of the government’s gold monetization efforts aimed to “wean the public off physical gold.”
  •  Will gold miners maintain their capital discipline? Bloomberg reports that as the price of gold rises to its best first half of the year in nearly four decades, earnings reports could indicate that miners are preparing to ease in terms of spending. “Historically there’s been a very high correlation, almost a one-to-one correlation, between costs and the gold price, implying that with higher gold prices you will likely see costs rise at the same time,” Josh Wolfson of Dundee Capital Markets said. Wolfson added that a majority of miners structured spending based on the assumption that gold will trade between $1,100 and $1,150 an ounce.  Let’s hope the miners learned something over the prior three painful years of falling gold prices.

Gold, silver and platinum rallying – The Holmes SWOT

Frank Holmes, CEO and Chief Investment Officer of U.S. Global Investors, gives us his latest report on Strengths, Weaknesses, Opportunities and Threats in the precious metals markets as reported in global media over the past week

Strengths

  • The best performing precious metal for the week was platinum, up 6.38 percent.  Platinum largely moved in sync with gold and silver price changes, but has recently outpaced its counterparts and has now begun to play a significant catch-up trade.
  • The Bank of Japan (BOJ) opted against boosting stimulus this week, in a decision that battered the U.S. dollar and gave gold a surprise lift, reports Bloomberg. The Japanese yen also reacted to the bank’s decision, surging the most since the 2010 stock-market meltdown. On Wednesday, the Federal Reserve left its benchmark rate unchanged too, helping to boost the yellow metal.
  • According to the South China Morning Post, the Chinese Gold and Silver Exchange Society plans to set up a gold vault and office in Qianhai. This will be the biggest in Hong Kong investment in the special economic zone in Shenzhen, reports Bloomberg.  Jeremy Wrathall, Investec’s Global Head of Natural Resources, thinks that gold is likely to be the best performer among global metals and minerals for 2016, reports Lawrie Williams.

Weaknesses

  • The worst performing precious metal for the week was palladium, still up 3.93 percent, and not far behind the other precious metals (all of which closed in positive territory). Palladium was the best performer in the precious metals group last week, when it closed up 5.99 percent.
  • Commodity exchanges boosted margin requirements on more products, reports Bloomberg, sending stocks in China to the lowest in a month. “The boom in the commodity markets isn’t a good thing for stocks as that will distract some investors and divert money away from the stock market,” said Wu Kan, a fund manager at JK Life Insurance in Shanghai.
  • The metals and mining sector is the top performer in both high-grade and high-yield indexes this year, according to BI Senior Credit Analyst Richard Bourke. But has the rally in metals and mining bonds come too far, too fast? An analysis of commodity spot prices shows that they are all above consensus forecast price, and may portend a correction.

Opportunities

  • RBC Capital Markets released a research piece on its gold companies under coverage on Monday, explaining that a decline in production and growth expenditures is expected in 2016. Overall gold production of the North American companies listed in the report, is expected to decline by 7 percent year-over-year. Exploration and expenditure budgets continue to face downward pressure as well, leading to an ongoing decline in reserve lives. While this may appear negative at first glance, the forecast should bode well for acquisition activity to pick up later this year in a heated gold market.
  • HSBC has been bullish on gold since 2015 and the group believes that the strong rally this year could continue. In addition to gold’s inverse relationship with the U.S. dollar, HSBC points out that the group’s counter-consensus view of a strong euro, along with the expectation for the euro-dollar to continue trading higher.  Investors may also take a gold position to hedge against the upcoming UK vote to exit European Union membership.
  • Paradigm Capital released a comprehensive and informative research note this week, focusing on gold equities and opportunities to be found for the generalist. The group highlights negative interest rates and central banks buying gold (rather than selling it) as a few reasons why this up-cycle is different. Paradigm also states that “Producing gold is a better business than most today, one with expanding margins, yet gold equities still offer excellent relative value.”  In the chart below, this shows the long-term price relationship between gold bullion and gold mining stocks.  One can observe that the gold miner valuations are currently substantially depressed relative to the change in gold prices.

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Threats

  • Earlier this month, Deutsche Bank admitted to manipulation of the gold and silver price fix, agreeing to turn in any information about other banks’ wrongdoings over to the authorities. In an article from ZeroHedge this week, the group reminds its readers that the CFTC in 2013 closed its five-year investigation concerning these allegations, proudly stating there was no evidence of wrongdoing. Fast forward to April 22, 2016. The CFTC and its director have come out saying they were unaware of the DB story, finding no reference to it in the commission’s file of “news reports of interest.”
  • Could silver’s upswing be due for a correction? Another article from ZeroHedge this week points out that an old indicator, the commitment of traders report (COT), has been a pretty reliable gauge for precious metals’ “short-term trajectory.” However, since speculators are “exuberantly long” silver at this time, this could imply that a correction is coming.
  • Although no one is predicting a heavy fall for precious metals, a commodity specialist from the Industrial and Commercial Bank of China (ICBC Standard) thinks now is probably not the time to buy, reports News Markets. The bank pinpoints an already crowded market for this trade, as speculators have increased their long positions.

 

Gold holding its ground: Frank Holmes’ SWOT analysis for last week

Strengths

  • The best performing precious metal for the week was spot gold, up 0.84 percent. Gold held its ground, despite a second half of the week surge in the broader equity markets.
  • Gold climbed higher as the week progressed on the back of global market turmoil spurring demand for the safe haven asset, reports Bloomberg. Weaker-than-expected Chinese economic data in December added to market uncertainty, with Citigroup even raising its forecast for gold prices in 2016.
  • Data released from the Russian central bank on Thursday implies that the country added around 208 metric tonnes to its official gold reserves in 2015. This number is 21 percent higher than the 186.6 metric tonnes reported in 2014, according to a Platts news article this week.

Weaknesses

  • The worst performing precious metal for the week was platinum, still up 0.21 percent, but likely weaker due to the slack Chinese data that set the tone for trading action.
  • Greece’s top administrative court announced the annulment of the government’s decision in 2015 to revoke Eldorado Gold’s mining license. Although this news is positive for Eldorado, the root of the issue still exists. It seems the real problem here is the Greek’s belief that they own the land where the mining project is planned, along with all the gold in it, and they don’t seem keen on letting a private company exploit the state’s assets.
  • A prolonged gold slump has forced Barrick Gold Corp. to revise its price assumptions for 2016, Bloomberg reports. The company announced it may book as much as $3 billion in impairment charges, though this should come as no surprise during a challenging commodity market. In contrast to this news, Barrick became Canada’s most valuable gold miner last week for the first time in 19 months, and taking the mantle from Goldcorp as their largest gold company by market capitalization.

Opportunities

  • As a supply crunch takes hold this year, we could see the price of gold rise substantially. Thomson Reuters reports that global gold production is expected to fall 3 percent in 2016. This would end a seven-year streak of rising gold supplies (which peaked in 2015 at 3,155 tonnes), according to a Business Insider article.
  • Citigroup has raised their gold price forecast to $1,070 per ounce for 2016, up 7.5 percent, according to a January 19 report from the group. Citi analysts cite “ongoing global macro concerns” lending support this quarter, along with a “modestly more benign U.S. dollar outlook.”
  • Canadian gold companies (that have labor costs in Canadian dollars and revenue in U.S. dollars) should profit from the rising U.S. dollar, according to a Bloomberg interview with 1832 Asset Management’s Robert Cohen. Canadian-based gold companies like Claude Resources, Richmont and Agnico Eagle are performing well during this gold bear market.

Threats

  • Last year marked the fifth consecutive year of negative returns and underperformance for gold stocks versus the S&P, reports Goldman Sachs. Gold miners (GDX) were down 25 percent in 2015. Goldman doesn’t expect any positive catalysts for gold over the next 12 months, but says one key indicator will be the Federal Reserve’s pace of future rate hikes.
  • Wal-Mart finished 2015 down 30 percent, yet another sign of U.S. economy weakness. The store recently announced 269 store closures, with at least 10,000 employees being laid off. ZeroHedge uses Wal-Mart’s woes as evidence of the U.S. being “at the center of the global economic meltdown” – this might be a good time to own gold.
  • Price action in the North American gold stocks lagged behind the performance of bullion most of the past week.  It was as if someone was forced to exit their gold equity exposure (or a large player was overcome with frustration and told the street to just get them out of their position now), as gold stocks started the year strong but are now losing momentum.  Sales desk noted that Canadian generalists were seeing a pickup in shareholder redemptions.

Frank Holes is CEO and Chief Investment Officer for U.S. Global Investors

The Holmes Gold SWOT: Safe haven assets being sought out

Frank Holmes of US Global Investors latest Gold SWOT (Strengths, Weaknesses, Opportunities, Threats) Analysis for last week

Strengths

  • Gold opened the year with very a strong gain, climbing 4.02 percent, as rising sectarian tension between Saudi Arabia and Iran ratcheted up; North Korea announced the testing of its first hydrogen bomb; and twice on separate trading days, Chinese markets fell 7 percent, the maximum amount Chinese authorities allowed them to decline.  This sent shock waves through financial markets leading investors to seek out safe haven assets once again. In 2015 gold fell 10 percent, putting in three consecutive years of negative returns, its longest losing streak since 2000. Billionaire George Soros reiterated the precious metals’ status on Thursday by stating, “Global markets are facing a crisis and investors need to be very cautious.”
  • This week ZeroHedge pointed out a move in gold that many sell-side experts previously warned would never be able to happen again. On Thursday the publication shared a chart showing the precious metal finally broke out above the $1,100 resistance level, an encouraging sign going against a deluge of predictions calling for nothing but lower gold prices.
  • U.S. imports of gold jewelry rose to a seven-year high in October of last year, while platinum jewelry surged by more than 60 percent after precious metals prices dropped to multi-year lows, according to calculations from Thomson Reuters.

Weaknesses

  • The worst performing precious metal for the week was palladium, falling 12.11 percent, likely on weak manufacturing data out of China and its prospects for car sales to grow at a slower rate.
  • In Paradigm Capital’s 2016 Gold Sector Outlook, the group reviews 2015 share price performance by tiers – developers, seniors, and royalty companies.  They noted the “biggest surprise” came from the royalty companies. The report states that royalties didn’t have the best 2015, going on to explain that the recent poor performance has only happened during three out of the last 12 years. 
  • Top gold forecaster Bernard Dahdah, of French investment and bullion bank Natixis, predicts that the yellow metal will drop through $1,000 per ounce in the first three months of 2016, according to an article on BullionVault. He states the move will primarily be driven by the “expected path of interest rate hikes” from the Federal Reserve, and even believes the price could gradually decline to end 2016 at $950 per ounce.

Opportunities

  • According to HSBC’s analysis of the Federal Open Market Committee’s (FOMC’s) minutes, the median Fed projections show total PCE inflation and core PCE inflation expected to rise to 1.6 percent by the end of the year. The FOMC inflation target is at 2 percent, as seen in the chart below. The Globe and Mail outlines four specific investment regimes defined by growth and inflation: 1) In high growth and high inflation, real estate and resources do best, 2) In high growth and low inflation, growth stocks outperform, 3) In low growth and low inflation bonds shine, and 4) In low growth and high inflation most stocks underperform, but gold does best!  With so many central banks targeting higher inflation, to deflate their debts, be careful what you ask for.swot3
  • Looking back on their 2015 strategy, UBS says last year’s rise in volatility was just the beginning of a dramatic rise in cross-asset volatility. In the group’s macro-view this week, UBS stated that the large cap-driven U.S. indices, as well as Japan and European small and mid-caps, are “the last men standing” at 2015’s close. In 2016 UBS expects these markets to top out also, falling into a full-size bear market which, worst-case-scenario, would last into early 2017. UBS noted with equities predicted to roll over, investors should consider owning gold for better diversification.
  • Over the past two years, nearly 50 percent of global gold demand has come from Chinese and Indian markets – with particular buying strength on dips in the renminbi or the rupee, according to RBC Capital Markets. The group continues to look to increasing global market volatility to allow gold to regain its safe haven status. In addition, lack of exploration and capital investment spending should lead to a reduced supply.

Threats

  • This year began with a rocky start, points out BMO Private Bank, as Chinese policymakers struggled to stabilize the Shanghai Composite after disappointing manufacturing data showed economic contraction in China. According the BMO’s current market update, as we move further into 2016 “investors increasingly believe that central bank ‘puts’,” are not as effective as they once were.
  • ZeroHedge points out that 2016 marks a presidential election year (which usually have a bullish track record), but also marks the eighth year of president Obama’s term. A closer look at this cycle shows a divergence between a normal election year and the eighth year of a term – since 1920 (more or less) all eighth years of a term were amongst the worst for market performance.
  • Julien Garran of MacroStrategy Partnership believes that deteriorating private debt conditions, tightening liquidity, declining returns and slowing growth have now entered a “self-reinforcing cycle in the U.S.” As credit and returns deteriorate, Garran says corporates will no longer be able to justify gearing up to do buybacks. In 2013, 60 percent of Garran’s sample could justify buybacks, and now only 35 percent make the grade.