Rules to live by: enjoy the company of a cynic but by golly don’t marry one! Luckily for me, I’m married to an eternal optimist who sees life as the glass half full (provided it’s full of either Lafite-Rothschild or Chimay) but I digress. As an admitted Facebook user, the CEO of an online manufacturing marketplace recently posted this status update, “XXXX thinks beginning a marketing email with “in times like these…” or any variation thereof should be banned.” Ha! We couldn’t agree more.
Yet keeping negative sentiment at bay remains challenging. So when we saw this article in the Wall Street Journal describe President Obama’s constant analogies to the Great Depression, we felt a deeper dive into the notion of “fear-mongering” and fear in general may go a little way to explain the state of the metals markets. But first, a look at the fear index or VIX, an index home to the Chicago Board Options Exchange. According to Wikepedia, the VIX can be understood as follows, ” A high value corresponds to a more volatile market and therefore more costly options, which can be used to defray risk from volatility.” And though the VIX appears high from a historical perspective, when examining this 5 year chart where the VIX has increased by 20% this year alone, the increase happened all on one day, on February 17. And though the news centers on doom and gloom, fear does not appear to be a driving factor.
And though much of the macro news remains less than rosy (I won’t get into the details on home sales which dropped sharply – 8.6% less than the same time period a year ago. But, inventories did hit a two year low and consumer confidence slipped from 35.5 last month to a stunning 25 this month, representing the lowest reading since the index started in 1967, we thought you may like to see some of the more subtle yet positive indicators. These indicators include several pieces of data on the metals industry. In particular: metal prices may be bottoming (we have also discussed this topic in detail) and Canadian stocks may be bottoming. Because half of the Canadian stock market consists of energy and materials stocks, any signal toward bottom there will not go unnoticed. In addition, the gold/silver ratio has fallen below 70. When silver increases faster than gold, we can attribute this as a positive signal because silver moves more based on industrial demand whereas gold tends to move when investors need a safe haven. Finally, Harbor Aluminum also mentions on their website that aluminum may also have hit bottom though we have not formally called that one.
Other non-related metals positive signals according to the Seeking Alpha article include individuals holding all-cash positions (typically a signal of a market at bottom), our trusty VIX looking stable (if not inching lower) and oil close to bottoming. We’ll continue to look for positive signs. In the meantime, keep your chin up!