People are trying to get out of the dollar. But if the dollar is in freefall and people lose confidence in the dollar, these other fiat currencies need to be backed by something. … If the dollar is going to fall, and people believe it is going to fall, they’re going to dump those bonds. Another example came up today in the as the Wall Street Journal discusses the “traditional relationship” between gold and the dollar in Gold Prices Hit Record as Dollar Drops. So, as the dollar goes down and more people want to get rid of it, So, maybe we would have to start offering 5 or 10% interest on Treasuries. OPEC also stopped supporting the oil market back in 2014, which led to a multi-year downturn, but demand was also being squeezed from the higher dollar. Now, what you will notice from 2016 to 2019 is that there was a divergence between oil and the dollar.
I’ll fill in the actual numbers once we get them, and dollar values are in billions except for per share amounts. But, over the years, the dollar has presented a very troubling headwind for oil. Many senior analysts believe that a dollar crash is coming, and if it does, MSI will have to account for losses on currency fluctuations. Mainstream media is continually wrong about the relationship between gold and the dollar.
Fortunately, the silver lining was that even with two mines massively underperforming, Cadia outperformed, and the 20% jump in the gold price picked up the slack. (Source: Company Website, Company News Release) Moving over to the company’s Telfer Mine, we saw annual gold production of 393,000 ounces at all-in sustaining costs of $1,281/oz. The white metal has since outperformed gold dramatically, causing the gold:silver ratio to fall precipitously. But as we argued at the time, the unprecedented cheapness of silver versus gold represented a once in a lifetime opportunity to buy silver. Governments are going to turn to gold.” “ … The supply of gold, ever since we’ve been mining gold, the supply increases by about 1% per year. Fundamentally, the character of both the silver and gold markets has changed during the course of this year’s rally. NovaGold’s valuation could outperform gold and gold miners that have lower quality assets, or higher costs and/or greater risk.
If the price of gold (GLD) continues to climb, NovaGold should also continue to outperform gold and even most producing miners, which it has for years. This slightly higher throughput and higher gold recovery rates slightly offset the lower grades year-over-year but were not enough to avoid a drop in production from FY2019 levels. (Source: Company Presentation) So, why bother with Newcrest after a year of declining gold production and rising costs? The significant miss was tied to a challenging year at the company’s most significant contributor to gold production, Lihir, which struggled with lower grades for most of the year. This translated to a 17% drop in production year-over-year, driven by significantly lower grades (2.38 grams per tonne gold vs. 2.86 grams per tonne gold). Barrick Gold (GOLD) also owns a 50% interest in the project.
With low oil prices and aerospace headwinds, HON’s other units can help mitigate the damage, but the company will still face profit pressure. A pick up in crude demand has seen Dated Brent prices recover from the April lows, but on the sea, this has served to worsen floating storage economics. Tanker freight rates nosedived after experiencing a floating storage bonanza in April which saw rates for VLCCs on a WAF-East voyage near record-highs of over $70/mt in early April. Oil lobbies would prefer renewable diesel over other renewable energy sources, so the adoption of renewable diesel within government mandates may increase. Fast-forwarding to the 2014-2020 oil downturn, and you can see the rise in USD foreshadowed the drop in oil back in 2014. Similarly, oil exploration activity is unlikely to return to pre-COVID-19 levels for some years. If it wasn’t for OPEC+ the last 4 years, oil prices would’ve been materially lower. Performance Materials and Technologies (PMT) has been hit by low oil prices causing companies to cut back on drilling and exploration activity.
This divergence is largely thanks to OPEC+ being created at the end of 2016 providing constant oil supply cuts to the market to prop prices higher. Much of the decline is a consequence of reduced value of oil inventories held by the company, but the rest is due to the pressured crack spread. For example, we can take a look over the last 20 years how USD has influenced oil prices. In comparison, China exported only 676,000 mt of gasoline and 1.45 million mt of gasoil in May, latest data from General Administration of Customs showed. (Source: Q2 2020 Neste Pres) In the face of the substantial decline in oil products, renewable products have been going strong. As any expert will tell you, predicting the price of oil is near impossible.
This, as the US 10-Year Treasury yield, rests on a significant level of support around 55 basis points. The headline numbers did miss Wall Street profit expectations, but revenue growth was more than six points stronger than consensus estimates projected. Since then, a total of $2.9 trillion in TSY and MBS have been purchased by the Fed in the open market. Against Wall Street’s consensus revenue expectations for FY21 of $3.96 billion (a conservative +17% y/y forecast), that would indicate Palo Alto Networks generating $1.46 billion in cash flows. The recent bearish bets in the S&P 500 complement a lot of bearish betting that has taken in the Nasdaq 100 ETF (NASDAQ:QQQ) since the beginning of July. European officials have claimed Trump’s insistence on letting Russia back in has “ruined” past meetings among the lead economic powers. Microsoft’s share repurchases represent just 1%-2% of its market cap versus 5%-7% for Apple (NASDAQ:AAPL) and 10% for Goldman Sachs (NYSE:GS) (the last 2 quarters, for Goldman).
In case that wasn’t enough, Congress is still trying to agree on another round of fiscal stimulus as the US fights off the COVID-19 pandemic. For one, thanks to persistently low inflation and the Fed’s unprecedented monetary stimulus, the 10-year Treasury yield has dipped under QQQ’s dividend yield for the first time ever. Fedcoin could also be used to “encourage” individuals to patronize “green” business, thus fulfilling Fed Chair Jerome Powell’s goal of involving the Fed in the fight against climate change. Considering also that the renewable diesel operations are being given negligible value by markets in the US as well, we’d definitely prefer their value proposition too. While the US, Europe, Japan and China had considerable flexibility for unconventional monetary policy, lower rates and liquidity programs – emerging market Central Banks don’t often enjoy such latitude.