Physical Platinum

Blue Quadrant Research Team
0 comments
Market Commentary

Physical Platinum

We have over the past six months built up a large position in the underlying physical platinum metal itself. The rationale is pretty simple, at current prices, almost the entire South African platinum industry is generating negative cash flows after taking capital expenditure into account, a situation which is clearly not sustainable. At some point, either the Rand will have to weaken substantially further or the actual dollar-denominated price of platinum will have to improve.  

Read more

The US Energy Revolution – A Review

Blue Quadrant Research Team
0 comments
Market Insights

The US Energy Revolution

US oil and gas production is expected to increase significantly over the next five years due to the use of new technologies able to unlock vast previously inaccessible oil and gas (shale) reserve formations creating a US Energy Revolution. Increasing US energy production and decreasing net energy imports have important implications for global US dollar liquidity going forward. Increasing US oil and gas production may depress global energy prices, creating substantial risks for major ‘petrostates’. Inherent political vulnerabilities may be exposed, leading to heightened geopolitical risks and risk of major energy supply disruptions. The current disparity in pricing between US natural gas prices and global gas- and oil prices will gradually be narrowed.  

Read more

Negative Outlook for China Economy, Fixed Investment and Key Global Linkages

Blue Quadrant Research Team
0 comments
Market Insights

Negative Outlook for China Economy, Fixed Investment and Key Global Linkages

The large growth in credit over the past five years has led to a massive capital misallocation. There exists widespread evidence of a significant capital stock surplus in certain sectors, such as residential- and commercial-property. Chinese fixed investment has averaged 50% of GDP over the past five years, an unprecedented level relative to other economies both past and present. Chinese fixed investment spending has been a major driver of global demand for industrial commodities, particularly steel and iron-ore. A substantial slowing in Chinese fixed investment spending creates substantial downside risks for industrial metals Low global interest rates and access to cheap US Dollar funding has led to the large-scale use of cheap US Dollar funding to finance risky investment projects in China. Unwind of this trade could lead to systemic risks in certain key banking centres, such as Hong Kong and Singapore and Australia by association.  

Read more

Negative Outlook for SA Economy & Financial Assets

Blue Quadrant Research Team
0 comments
Market Insights

Synopsis

Supply-side structural constraints, such as a persistent power deficit and a fractious labour environment, will constrain the country’s ability to expand export capacity Current government policy favours substantial state involvement in the economy. Ill-conceived social policy and high-levels of rent seeking activity will also continue to result in substantial capital misallocation. These dynamics will ensure that the country’s two key economic imbalances, namely the fiscal and current account deficits, will remain large and entrenched as a feature of the country’s economic fundamentals. A depressed commodity price environment, with the exception gold, and higher energy prices will lead to a deterioration in terms of trade, and create additional external headwinds for the economy. Rising global interest rates and a reduction in US Dollar liquidity will make it difficult for South Africa to fund its current account deficit resulting in a sustained depreciation in the currency.  

Read more

Inflation Risks, Policy Lags, May underpin new gold bull market

Blue Quadrant Research Team
0 comments
Market Insights

Synopsis

Current consensus expects continued disinflation in the global economy. US and global labour market dynamics do, however, point to a threat of the return of sustained wage inflation over the next 5 to 10 years. A heightened risk to medium-term inflation outlook is caused by:
  1. Fundamental dynamics such as lack of infrastructure investment in major developed economies.
  2. The end of ‘Moore’s’ law and geopolitical-induced disruption to global energy supplies.Memories of the 2008 financial crisis create the risk that policymakers will be slow to react and respond to a return to elevated global inflation.
Memories of the 2008 financial crisis create the risk that policymakers will be slow to react and respond to a return to elevated global inflation.  

Read more

US Dollar Dynamics Positive

Blue Quadrant Research Team
0 comments
Market Insights

Synopsis

US current account deficit will narrow and possibly move to surplus as US energy production and net imports decrease. Accelerating US economic growth will lead to gradual rate normalization. Coupled with less global dollar liquidity and a smaller US current account deficit, the fundamental underpin for the global ‘carry’ yield trade will become progressively less favourable. These dynamics will attract capital flows back to the US, supporting sustained US Dollar bull market.  

Read more

US Housing Market Outlook 2014

Blue Quadrant Research Team
0 comments
Market Insights

Synopsis

Recent data covering the US housing sector has shown a mixed picture, with some indicating renewed weakness in new home sales and existing home sales. In this insight, we examine what is driving some of this renewed softness and detail our longer-term outlook for this key sector of the US economy.  

Read more

US income growth 2014

Blue Quadrant Research Team
0 comments
Market Insights

Synopsis

A key driver of any sustained recovery in GDP growth in the US must be underpinned by consumption growth. Consumption growth itself needs, however, to be supported by real growth in disposable incomes. Although the rate of real disposable income remains positive, it is below the median levels consistent with GDP growth above 3%. A further slowing in wage and income growth would present a downside risk to our current forecasts.  

Read more