Tension is Building and Heads Roll in Saudi Arabia

A recovery in China, the world’s second-biggest economy, would influence securities and commodities prices around the globe, said Stanley Druckenmiller. For instance, it would send German government bond prices lower, boost European exporters and lift the price of oil. Stanley Druckenmiller – BLOOMBERG 4/15/2015

I have included a link the whole Druckenmiller interview with Bloomberg. It is 45 minutes long but well worth the time. Druckenmiller is one of the greatest investors of our generation and he touches on topics including Central Bank policy, oil prices and the economy in China. Druckenmiller obviously believes that a recovery in China would have reverberations worldwide.

http://www.bloomberg.com/news/articles/2015-04-15/druckenmiller-bets-on-market-surprise-with-china-boom-oil-rise

Central banks continue to dominate the conversation. Central banks in the US, Japan and Europe are buying up bond issuance and inflating asset prices. As long as central banks maintain current policy asset prices will continue to climb. A slow down in balance sheet growth would bring slower asset price growth much as it has in the United States since last October. Investors are nervous but policy is still accommodating. History has shown that markets do not turn on a dime on the first rate hike by the Federal Reserve. It is the second rate hike that begins to slow markets. Rest assured Fed officials have made it clear that they will catch markets when they fall. We may be in a period of subdued returns as markets show signs of slowing their ascent but not turning lower. We are long but have our guard up.

Market is still stuck in an increasingly tighter range and the tension is building. The range in the S&P 500 is now 2040 -2120. Markets tend to break out the way that they came in. The odds are that it breaks out to the upside with 2200 as a target. The volume has been increasing on the downside of late but the market is holding its levels and its all important 200 day moving average. A sustained break below that area would bring out sellers but until then the trend is higher. While metrics have the market at historically high valuations we don’t see asset prices turning lower until central bank policy changes.

In our last blog post we told you to keep an eye on Saudi Arabian policies affecting the price of oil. Saudi Arabia replaced the head of its state-run oil company this week. We think that oil prices may benefit. Keep an eye on Saudi Arabia. Druckenmiller thinks China is recovering. We agree with Druckenmiller that the US Dollar will continue its recent trend and that may be a headwind for commodities but a recovery in China will take precedence. A Chinese recovery will benefit all commodities including oil, copper and gold.

I think we aspire less to foresee the future and more to be a great contingency planner… you can respond very fast to what’s happening because you thought through all the possibilities, – Lloyd  Blankfein

To learn more about us and Blackthorn Asset Management LLC visit our website at www.BlackthornAsset.com .

A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty. – Winston Churchill

Disclosure: This blog is informational and is not a recommendation to buy or sell anything. If you are thinking about investing consider the risk. Everyone’s financial situation is different. Consult your financial advisor.

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