InvestMacro

By IFCMarkets

Market Analysis provided by IFCMarkets

Note:
This overview has an informative and tutorial character and is published for free. All the data, included in the overview, are received from public sources, recognized as more or less reliable. Moreover, there is no guarantee that the indicated information is full and precise. Overviews are not updated. The whole information in each overview, including opinion, indicators, charts and anything else, is provided only for familiarization purposes and is not financial advice or а recommendation. The whole text and its any part, as well as the charts cannot be considered as an offer to make a deal with any asset. IFC Markets and its employees under any circumstances are not liable for any action taken by someone else during or after reading the overview.

By Elliott Wave International

– Many stock market investors believe that prices have already bottomed. Numerous banks, brokers and financial firms have issued statements saying as much.

Indeed, the May Elliott Wave Theorist, a monthly publication which has offered analysis of financial and social trends since 1979, noted:

On April 28, Bloomberg interviewed four money managers to answer the question of “Where to Invest $1 Million Right Now.” Cash was not mentioned.

All these professional financial observers might be right in their assessment that the bottom is in for stocks.

Then again, the stock market rise since the March 23 low might be a bear-market rally.

If so, it certainly has “done its job,” meaning, as one of our global analysts put it in Elliott Wave International’s May Global Market Perspective (a monthly publication which covers 40+ worldwide markets):

The job of [the first, big bear-market] rally is to recreate the optimism that existed at the previous highs.

One particular sentiment that the rally has “recreated” is known by the acronym FOMO, which stands for the “fear of missing out.”

A little background: Toward the end of 2019, the FOMO sentiment was prevalent. Indeed, our December 2019 Elliott Wave Financial Forecast (a monthly, U.S.-focused publication which covers stocks, bonds, gold, silver, the U.S. dollar, the economy and more) showed this chart and said:

Last week, the percentage of bulls polled in Investors Intelligence Advisors’ Survey rose to 58.1, a new 13-month extreme. … Last month we talked about the return of FOMO, the fear of missing out on stock gains; its last major outbreak occurred as stocks approached their January 2018 highs. In November, FOMO became far more entrenched. One Bloomberg commentator called it “the age-old fear of missing out” and stated, “The end of the year is coming, when investment managers will be judged on their performance. Those who are behind have an incentive to clamber into the market now, while there is still time.” In our experience, “to clamber” is generally not a sound investment strategy.

As you know, it wasn’t long thereafter that the stock market topped. The major price moves downward were historic.

Even so, the “fear of missing out” sentiment has returned — again.

Here’s an April 7 Bloomberg headline:

FOMO Overwhelms Stock Traders Who Have Begun Ignoring the Risks

Our May Elliott Wave Financial Forecast provides more insight:

According to Google News, the number of articles referencing FOMO and “stock market” increased from 227 in December 2019 to 244 in February 2020, right through the peak in the market. In March, the market’s decline was well established, still the FOMO news count rose to 267.

So, yes, the rally has indeed “recreated” the prior optimism. One might even argue that the level of optimism is now even higher.

So, should investors take the stance that the bottom is in – or, proceed with extreme caution?

Knowledge of the stock market’s Elliott wave pattern will help you to answer that question.

As the Wall Street classic book, Elliott Wave Principle: Key to Market Behavior, by Frost & Prechter, notes:

The primary value of the Wave Principle is that it provides a context for market analysis. This context provides both a basis for disciplined thinking and a perspective on the market’s general position and outlook.

You can read the entire, online version of Elliott Wave Principle: Key to Market Behavior, free!

You only need a Club EWI membership, which is also free. Club EWI is the world’s largest educational Elliott wave community and allows you to get Elliott wave insights on investing and trading, the economy and social trends that you will not find anywhere else.

This link gets you started: Elliott Wave Principle: Key to Market Behavior, 100% free.

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This article was syndicated by Elliott Wave International and was originally published under the headline Why Bear-Market Rallies Are So Tricky. EWI is the world’s largest market forecasting firm. Its staff of full-time analysts led by Chartered Market Technician Robert Prechter provides 24-hour-a-day market analysis to institutional and private investors around the world.

The Energy Report

Source: Rick Mills for Streetwise Reports   05/21/2020

Rick Mills of Ahead of the Herd asks if it’s possible to rescue the economy while also making big cuts to greenhouse gas emissions and improving overall health, and discusses one company with a large lithium deposit that could go a long way to providing U.S.-sourced material for batteries.

The pause in industrial activity brought about by the Covid-19 crisis has led us to a fork in the road with respect to the direction we as a society take in fulfilling the twin mandates of suppressing global warming and growing the economy in challenging times.

To some extent these goals are incompatible. In a world that continues to run on fossil fuels, how do policymakers wean countries off oil and gas without wrecking their economies? And from an environmental point of view, how can we continue to drive gas-powered vehicles and heat our homes with natural gas and coal, when we know emissions from these fuels add to greenhouse gases that, left unchecked, will eventually render much of the earth uninhabitable?

Unexpectedly, the coronavirus has provided a window into a future with fewer carbon emissions. While nobody hoping for a cleaner environment would wish to pair ecological progress with the worst economic slowdown since the Great Depression, the pandemic does show what happens when industrial activity abruptly stops.

As we now know, clearer skies owing to Covid-19 lockdowns have become the silver lining of the global economy coming to a screeching halt in March.

Combine stay at home orders with travel bans, business closures and the fact that demand for oil has fallen off a cliff with economies locked down, and you get global carbon output dipping for the first time since the 2008 financial crisis.

China, the world’s worst polluter, emitted 25% less carbon during a one-month period compared to a year ago, as people were instructed (and in some cases forced) to stay home, factories were shuttered and coal use fell by 40%.

The South China Morning Post reported a significant improvement in China’s air and water quality during the first three months of 2020. Limits on industry and travel upped the number of good air quality days by 11.5% compared with the same time last year in 337 cities across China.

Levels of PM2.5, the smallest and most harmful air pollution particles, dropped 18% between January 20 and April 4. The amount of nitrogen dioxide, a greenhouse gas that causes respiratory problems and cancer, was down 42%.

The country’s water quality was also much improved, shown by reduced phosphorous and ammonia chemicals.

The sharp drop in fossil fuel pollution during the month of April will result in 11,000 fewer deaths in European countries. A study by the Centre for Research on Energy and Clean Air found measures in Europe to contain the spread of coronavirus resulted in a 40% drop in coal-generated power and one-third lower oil consumption.

Madrid saw a 56% drop in the levels of nitrous oxide, a product of burning fuel, with Paris, Milan, Brussels, Belgium and Frankfurt experiencing similar reductions. In New York State, the U.S. epicenter of Covid-19, measures to contain the virus have cut air pollution in half.

So here we are, at a crossroads. In several countries Covid-19 case curves are leveling off, prompting health authorities to gradually lift social distancing restrictions and allow businesses to resume operations. As the re-opening continues, policymakers need to ask themselves: How do we return the economy to pre-virus levels, by getting people working and spending again? Is it possible to rescue the economy while also making big cuts to greenhouse gas emissions and improving our overall health?

The answer to the second question is “yes.” And the way to do it is through a massive “green stimulus” program. We are not talking pie-in-the-sky, no “Green New Deal” schemes costing trillions, espoused by twits and putting governments even deeper in debt, which as we know from a previous article, strangles gross domestic product. No, what we want to see happen is the roll-out of clean and green infrastructure that puts thousands of people to work, restores confidence in heavy industry, while at the same time cleans up the environment and provides renewed hope for a cleaner, safer, sustainable planet for future generations.

It’s something we here at AOTH have been talking about for years, and we’re not alone.

The International Energy Organization’s executive director recently said that turmoil in the oil sector caused by Covid-19 should be seen as an opportunity to embrace green energy. In an interview with Reuters, Faith Birol said lithium-ion batteries and the use of “electrolyzers” to produce hydrogen should be candidates for government subsidies and policy support.

A recent report from Oxford University cited by Oilprice.com concurs the world is at a crucial point in its history, when we either take a step forward in supporting industries that get us to where we need to go in terms of reducing our carbon footprint and cleaning up our environment, or we slide back to a business-as-usual scenario where fossil fuel use continues apace:

Given the scale of spending under consideration, then, there is a once-in-a-generation opportunity to “build back better,” the Oxford report argues. “The recovery packages can either kill these two birds with one stone—setting the global economy on a pathway towards net-zero emissions—or lock us into a fossil system from which it will be nearly impossible to escape,” they warned.

For the United States and China, infrastructure spending is a key piece of the rebuilding puzzle.

U.S. President Trump realizes he needs a strategy for playing through the pandemic, i.e., a means to pull the U.S. up from its bootstraps when, not if, the economy turns around.

At the end of March Trump took to Twitter to renew his 2016 election campaign pledge for infrastructure renewal, urging Congress to pass a $2 trillion plan for improving the country’s roads, bridges, water systems and broadband Internet:

It’s likely that Trump stole the idea from the Chinese, who have been touting their own form of blacktop politics as a way of restoring the economy, particularly manufacturing, which has been crushed by the coronavirus.

Beijing is reportedly eyeing a $570 billion infrastructure build-out, not unlike its stimulus package of 2008, to get the economy back on track.

Among the projects that could receive a huge boost in investment, courtesy of a government rescue package, are a $44.2 billion expansion to Shanghai’s urban rail transit system, an intercity railway along the Yangtze River ($34.3B), and eight new metro lines worth $21.7 billion, to be constructed in the virus epicenter city of Wuhan.

Employment creation must obviously be a factor in deciding how to restore crippled economies, given the millions of jobs losses from Covid-19.

The Oxford economists note that construction jobs for renewable energy installation or retrofitting buildings can’t be offshored, and that they are labor-intensive—for every million dollars spent, 7.49 full-time renewable energy jobs are created but only 2.65 jobs in fossil fuels.

Lithium vs hydrogen

If we accept the idea that we need to “go green,” the next question is, which technologies should be supported? Solar and wind are well-developed verticals that will continue to grow, especially as their costs per kilowatt-hour drop relative to natural gas, coal and hydroelectric power, and as renewable energy storage technology keeps improving.

While the biggest obstacle to large-scale energy storage is cost, recent analysis by BloombergNEF found that for applications requiring two hours of energy, lithium-ion batteries are beating natural gas peaker plants on price.

Vehicles are a major source of air pollution. According to the Environmental Defense Fund, the transportation sector is responsible for a quarter of U.S. greenhouse gas emissions. Passenger vehicles produce four times more greenhouse gases than all of domestic aviation.

The electrification of the global transportation system has long been seen as essential to reducing carbon emissions. The two technologies with the capability of delivering vehicles with zero emissions are battery-electric powertrains and hydrogen fuel cells.

An electric vehicle can run on either rechargeable batteries or fuel cells that convert hydrogen into electricity. Both have zero tailpipe emissions, but over the years, cars run on batteries have emerged as the clear winner compared to hydrogen-powered EVs.

There are a few reasons for this. The first is the lack of hydrogen infrastructure. Although fuel cell technology has the advantage of a fast fill-up time, minutes as opposed to the hours-long charge that batteries need, it has proven challenging and expensive to build and support a network of fueling stations that can deliver a highly explosive gas, compressed to 10,000 psi, reliably, quickly and safely.

In California, the only place where hydrogen vehicles can operate as it’s the only state with a (still unreliable) hydrogen fueling network, a goal of 100 hydrogen fueling stations by 2020 has fallen short; as of April 8, the state only had 40. Each station costs around $2 million, making them prohibitively expensive.

Compare that to 18,000 EV charging stations servicing half a million plug-in cars currently traveling on California’s roads.

Also, hydrogen isn’t all that green if the feedstock used to create it is natural gas, which it usually is. Until the electricity is fully renewable, hydrogen vehicles will always have higher CO2 emissions than electric cars.

Finally, the cost per mile favors battery-electric vehicles over hydrogen. Filling a Toyota Mirai or Honda Clarity Fuel Cell—two of only three (the other is the Hyundai Nexo) hydrogen models available—costs north of $50. Home-charging an electric car on average costs what a gasoline car would if gas sold at $1 a gallon.

The upshot is that BEVs have swamped hydrogen cars. According to The Drive, Despite more than half a century of development, starting in 1966 with GM’s Electrovan, hydrogen fuel-cell cars remain low in volume, expensive to produce, and restricted to sales in the few countries or regions that have built hydrogen fueling stations.

Meanwhile, 10 years after the first modern EVs went on sale, electric cars sell in the low millions a year globally—two orders of magnitude higher than their hydrogen counterparts.

Since 2010 1.3 million battery-electric and plug-in hybrid vehicles have been sold in the US, compared to around 8,000 hydrogen cars.

A Reuters analysis shows that automakers are planning on spending a combined $300 billion on electrification in the next decade. Meanwhile more battery factories are being built globally; demand for lithium-ion batteries is forecast to grow at a CAGR of over 13% by 2023.

All of this growth in battery plants and EVs will mean an unprecedented need for the metals that go into them. This includes lithium, cobalt, rare earths, graphite, nickel and copper.

Lithium carbonate and lithium hydroxide are key components of the lithium-ion battery cathode, making it an extremely sought-after battery ingredient.

Lithium, therefore, is expected to see a 29X increase in demand, driven not only by lithium required in EVs batteries, but in consumer electronics like smart phones and power tools, and grid-scale electricity storage.

Yet despite the rosy projections, electric vehicles have a long way to go before they make any kind of a dent in the total vehicle market, which remains dominated by cars, trucks and vans run on gasoline or diesel fuel.

In 2019 sales of plug-in passenger cars achieved a 2.5% market share of new car sales, and while that is up from 2.1% in 2018 and 1.3% in 2017, it means over 97% of global new-car sales were regular vehicles.

The biggest obstacles to higher EV market penetration are resistance to change, range anxiety and price. According to The Drive, 58% of drivers are afraid they will run out of charge while on the road, and another 49% fear the low availability of charging stations.

For many North Americans, sticker shock is a non-starter. While some EV models have come down in price, the lowest-cost Tesla Model 3 in 2019 was $42,900, nearly 19% higher than the national new-car average of $36,115.

Building a better battery

Although electric vehicles have existed as prototypes and with limited commercial production since the 1990s (General Motors’ EV1—for a great history watch ‘Who Killed the Electric Car?’), the momentum in the switch from cars equipped with gas and diesel-powered internal combustion engines (ICE) to vehicles powered with lithium-ion batteries started in 2009 by then-President Obama. Obama announced his administration was putting aside $2.4 billion in order for American manufacturers to produce hybrid electric vehicles and battery components.

Of course Tesla was a few years ahead of Obama, forming in 2003 and producing its first model, the all-electric Model S sedan, in 2008.

Electric vehicles have far fewer moving parts than gasoline-powered cars they don’t have mufflers, gas tanks, catalytic converters or ignition systems. There’s also never an oil change or tune-up to worry about. But the clean and green doesn’t end there. Electric drives are more efficient than the drives on ICE cars. They are able to convert more of the available energy to propel the car therefore using less energy to go the same distance. And applying the brakes converts what was wasted energy in the form of heat, to useful energy in the form of electricity to help recharge the car’s batteries.

EV automakers want to know: How can batteries be made cheaply enough to compete with gas-powered vehicles, and with a reasonable range that doesn’t have the driver frantically searching for a charging station in the middle of nowhere?

By 2025 the cost of a large battery pack, say 60 kilowatt-hours with a range of +200 miles, is expected to fall to $100 per kWh or less, which is the point when EV prices would reach parity with gasoline vehicles, notes The Drive.

Achieving price parity is critical. Lower prices would not only give people an incentive to buy their first EV, they would facilitate the green infrastructure build-out we and others have been suggesting could be a way out of the virus-induced economic slump.

Recently Tesla announced plans to introduce a new battery in its Model 3 sedan, in China this year or early next.

Reuters reports the new low-cost, long-life battery is expected to bring the cost of electric vehicles in line with gasoline models, and will allow EV batteries to have second and third lives in the electric power grid.

The batteries designed to last a million miles will rely on low-cobalt and cobalt-free chemistries. The California-based company with “gigafactories” in Nevada and China, is reportedly talking to CATL, the largest electric-vehicle battery maker in the world, about employing CATL’s lithium iron phosphate batteries, which use no cobalt, the most expensive metal in EV batteries.

Prices for these cobalt-free battery packs have fallen below $80 per kilowatt hour, while CATL’s low-cobalt NMC (nickel, manganese, cobalt) battery packs are close to $100/kWh. Comparable low-cobalt batteries being developed by General Motors and Korea’s LG Chem are not expected to reach those levels until 2025.

Tesla is also working on recycling and recovering nickel, cobalt and lithium, and re-purposing lithium batteries in grid storage systems such as the one it built in South Australia in 2017 to capture electricity from nearby wind turbines.

Reuters states,

Taken together, the advances in battery technology, the strategy of expanding the ways in which EV batteries can be used and the manufacturing automation on a huge scale all aim at the same target: Reworking the financial math that until now has made buying an electric car more expensive for most consumers than sticking with carbon-emitting internal combustion vehicles.

US mine–>battery–>EV supply chain

We applaud Tesla and its pioneering, though mercurial CEO, Elon Musk, for being first out of the gate with electric-vehicle technology. Being a first mover in the EV space has made Musk rich beyond his wildest dreams and allowed Tesla the capital to innovate and stay ahead of its competitors.

However, we question Musk’s strategy of rolling out his new batteries in China, which has become the bogeyman of international commerce, and getting into bed with a Chinese company, CATL.

Need we remind readers, the Chinese government undertook pernicious measures to conceal the coronavirus outbreak in Wuhan. They included destruction of virus samples, suppression of information, and delaying lockdown of a city of 11 million, allowing the virus to spread throughout China and worldwide, through airline travel during the Chinese Spring Festival, the largest annual migration of holiday travelers on earth.

The U.S., Australia and all 27 nations of the EU are demanding an investigation into whether the World Health Organization was complicit with China in concealing Covid-19 from the rest of the world for six weeks—enough time to prepare a public health response.

Shenanigans like hoarding key medical gear in a near monopoly, then profiting handsomely from sales to desperate buyers, has led to the Trump administration “turbocharging” an initiative to distance itself from China. According to a recent Reuters article, economic destruction and the U.S. coronavirus death toll are driving a government-wide push to move U.S. production and supply chain dependency away from China…

The U.S. wants to create an alliance of “trusted partners” called the Economic Prosperity Network. Participating countries include Australia, India, Japan, New Zealand and Vietnam. Secretary of State Mike Pompeo said the goal is to “prevent something like this from happening again.” (Canada, which refrains from criticizing Beijing due to fear of retaliation, didn’t get an invite.)

Pompeo is referring to how the pandemic exposed China’s tight grip on global supply chains for generic drugs and medical equipment. Although the country accounts for only 13% of active pharmaceutical ingredient (API) makers supplying the US market, it produces many APIs for widely used medicines along with chemicals used to formulate APIs. Often China ships them to India for processing into tablets.

Such medicines include antibiotics, ibuprofen, acetaminophen and heparin, an anticoagulant taken by patients with heart disease.

We like the idea of a network of trading nations who believe in free trade and open borders without harboring secret ambitions to monopolize certain sectors, as China has done with critical minerals, solar power and medical supplies, to name just three.

China has locked up the rare earths market and is the primary player in a number of critical metals markets including lithium, cobalt, graphite, manganese and vanadium.

The Asian superpower imports 98% of its cobalt from the DRC and produces around half of the world’s refined cobalt.

Last year, as part of its trade war strategy, China raised the prospect of restricting exports of rare earths, which are critical to America’s defense, energy electronics and auto sectors, similar to a 2010 Chinese ban on rare earth oxide exports to Japan.

We know from previous articles that China has been extremely active in acquiring ownership or part-ownership of foreign lithium mines and inking offtake agreements.

China produces roughly two-thirds of the world’s lithium-ion batteries and controls most of the processing facilities.

Lithium is also among 23 critical metals President Trump has deemed critical to national security; in 2017 Trump signed a bill that would encourage the exploration and development of new U.S. sources of these metals.

According to Benchmark Mineral Intelligence, the U.S. only produces 1% of global lithium supply and 7% of refined lithium chemicals, versus China’s 51%. The country is about 70% dependent on imported lithium.

To lessen U.S. lithium dependency will require the building of a mine to battery to EV supply chain in North America.

The first step is to develop new North American lithium mines.

Currently the only U.S. lithium producer is chemicals giant Albemarle. Lithium products from Albemarle’s Silver Peak lithium brine operation in Nevada are sent to its processing plant in North Carolina. This material is then loaded on ships and sent to Asian battery manufacturers, which sell the batteries to EV companies.

It’s curious how several top automakers are planning on, or are already building, electric vehicle plants and facilities without disclosing how they will source their raw materials.

In 2017, Mercedez-Benz announced plans to set up an electric car production facility and battery plant at its existing Tuscaloosa, Alabama, plant. The $1-billion expansion will include a new battery factory near the production site, with the goal of providing batteries for a future electric SUV under the brand EQ. Six sites are planned to produce Mercedes’ EQ electric-vehicle family models, along with a network of eight battery plants.

Volkswagen has said it will invest $800 million to construct a new electric vehicle—likely an SUV—at its plant in Chattanooga, starting in 2022. For more read Volkswagen to drag Tesla, making EVs in Tennessee.

Korean company SK Innovation has said it will invest US$1.7 billion in the U.S.’ first electric vehicle plant, to serve Volkswagen, in neighboring Georgia. The 9.8 gigawatt-hour-plant would be the first EV battery plant in the United States. SK recently announced a second 10-GWh plant requiring an investment of $1 billion.

GM has rolled out its 2020 Cadillac SUV, built in Spring Hill, Tenn., in a move designed to challenge Tesla.

Tesla’s vulnerability

Last year a Tesla executive said the company is worried about a long-term shortage of nickel, copper and lithium. The number of EVs are expected to multiply in coming years, but they can only progress as fast as the lithium-ion batteries can get built that go into them. In June of 2019, Musk said that in order to ensure Tesla has enough batteries to expand its product line, Tesla might get into mining lithium for itself.

That, so far, has failed to materialize, although the EV maker has signed an off-take agreement with a planned mine and refinery project in Australia.

Instead Musk seems to be going out of his way to court China, using its mine-battery-EV supply chain rather than supporting North American companies trying to develop domestic sources of EV raw materials.

Currently Tesla produces nickel-cobalt-aluminum (NCA) batteries with Japanese company Panasonic at its Sparks, Nevada, plant, and buys NMC batteries from LG Chem in China. Nothing local about that.

If Musk thinks his company can lead the world in EV sales by getting its raw materials from China, I’m afraid he is setting himself up for a big fail.

Chinese companies dominate the EV space and will do what they need to do to win market share. While Tesla in December surpassed BYD as the world’s largest electric car maker, without a safe, reliable supply chain, the company is vulnerable to a sudden supply shock that could stop production in its tracks. Case in point: in January the Chinese government temporarily shut down Tesla’s new factory in Shanghai over the coronavirus, delaying production of the Model 3 and denting the company’s first-quarter profits.

The trade war between China and the United States is far from over, in fact it appears to have entered a new phase. This week Trump said he was disappointed with China over its failure to contain the coronavirus and that the worldwide pandemic cast a pall over his trade deal with Beijing—despite a “phase 1” agreement signed in January.

Reuters reports the Trump administration is planning to deploy long-range, ground-launched cruise missiles in the Asia Pacific region, including versions of the Tomahawk cruise missile carried on U.S. warships, and the first new long-range anti-ship missiles in decades. The U.S. Air Force has also begun developing the first hypersonic cruise missile, capable of eluding detection by flying at least five times the speed of sound.

The technology the U.S. intends to deploy to counter China’s missiles uses lithium batteries and rare earth magnets. China controls the market in both.

Cypress Development Corp. (CYP:TSX.V; CYDVF:OTCQB; C1Z1:FSE)

We have an idea for Elon Musk and Tesla: how about they forget about signing battery deals with China and offtake agreements with Australia, which is a long way from Nevada, and instead look at investing in a lithium mine in the United States?

Three and a half years ago Cypress began prospecting in the Clayton Valley, Nevada, hoping to find a property that could support a lithium carbonate resource to compete with or possibly complement its neighbor, Albemarle’s Silver Peak Mine, whose lithium brine grades are declining.

Its Clayton Valley Lithium Project hosts an indicated resource of 3.835 million tonnes LCE (lithium carbonate equivalent) and an inferred resource of 5.126 million tonnes LCE. The project is ranked among the largest in the world.

Last year Cypress Development Corp. completed the first two phases of a prefeasibility study (PFS), confirming that lithium can be acid-leached and extracted at high recovery rates and successfully separating the lithium-rich claystone ores from the sulfuric acid leachate.

It is a major technical problem to separate ultra-fine clay particles (<5 microns) from a leach solution. Cypress has done it, putting the company at the forefront of lithium clay projects globally.

The U.S. now has a major source of lithium carbonate and lithium hydroxide and potentially a not-inconsiderable amount of rare earths including scandium, a highly prized metal used in aircraft components, for example.

The eagerly awaited prefeasibility study is crucial to moving the project forward, not only for proving that the metallurgical process for separating lithium from clays is commercially viable, but demonstrating that Cypress’ costs are in line with the 2018 preliminary economic assessment (PEA).

Cypress’ vision is to build a mine with the ability to extract whatever oxides they choose, from the processing plant. The project design is based on mining 15,000 tonnes per day to produce 25,000 tonnes per year of LCE.

The end result is that through by-product credits Cypress could shave millions of dollars off of their processing costs, further enriching what we already think is looking to be a very profitable mine.

Cypress is the only lithium junior in North America that has yet to sign an offtake or major financing agreement, despite its project being further advanced than nearby Clayton Valley lithium properties.

Partnering up with Tesla would make sense. Cypress needs a very large buyer for its lithium carbonate and lithium hydroxide end-products, and rare earth oxides needed for permanent magnets that go into EV motors. Tesla has to find a way to bring the cost of batteries down to $100 per kWh, which is the point when EV prices reach parity with gasoline vehicles. Cypress gives them the opportunity to buy their lithium raw materials directly from the mine, cutting out the Asian middlemen. No CATL, no more LG Chem. Surely that would bring down Tesla’s costs of production, allowing them to pass on the savings to EV buyers.

Finally, a U.S. company would have the capability of producing electric vehicles that are affordable to the average American, while also becoming the beach-head for a powerful North American electric-vehicle supply chain that could compete with China, and be independent of its critical minerals.

That would be huge.

There’s no way Silver Peak can produce enough lithium to supply American needs, especially with all of the EV battery and auto production facilities planned.

When you think about the huge amount of ore available to be mined—it’s among the largest LCE resources in the world—and the valuable products that will be coming out of the relatively easy processing flow sheet at the end, we believe Cypress may have the most important mine in America in decades.

Cypress has a very important study release coming virtually any day—the Prefeasibility study (PFS) on its Clayton Valley Lithium Project. A positive study result means CYP completes another step on its development path to building a mine.

The project is next to Albemarle’s Silver Peak Mine, Albemarle (NYSE:ALB) is the world’s largest lithium producer. Tesla is the world’s largest EV manufacturer, its gigafactory is just 200km away from CYP’s Clayton Valley Project.

Current annual lithium (LCE) supply is around 360,000 tonnes. Total lithium demand of LCE is expected to reach over 1 million tonnes by 2025 or higher, states S&P Global Platts Analytics.

The United States is about 70% dependent on imported lithium.

How will the United States, how will Volkswagen, Tesla, Albemarle, GM, Mercedes and SK Innovation obtain enough lithium for the storm of demand that is brewing?

Cypress Development Corp
TSX-V:CYP Cdn$0.19 2020.05.16
Shares Outstanding 90,077,001m
Market cap Cdn$17,114,630m
CYP website

Richard (Rick) Mills
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Richard (Rick) Mills, AheadoftheHerd.com, lives on a 160-acre farm in northern British Columbia. Richard’s articles have been published on over 400 websites, including: Wall Street Journal, USA Today, National Post, Lewrockwell, Montreal Gazette, Vancouver Sun, CBSnews, Huffington Post, Beforeitsnews, Londonthenews, Wealthwire, Calgary Herald, Forbes, Dallas News, SGT report, Vantagewire, India Times, Ninemsn, Ib times, Businessweek, Hong Kong Herald, Moneytalks, SeekingAlpha, BusinessInsider, Investing.com, MSN.com and the Association of Mining Analysts.

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5) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their immediate families are prohibited from making purchases and/or sales of those securities in the open market or otherwise from the time of the interview or the decision to write an article until three business days after the publication of the interview or article. The foregoing prohibition does not apply to articles that in substance only restate previously published company releases.

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By CentralBankNews.info

Lesotho’s central bank lowered its key interest rate for the fourth time this year and slashed its growth forecast for this year to a contraction of 5.7 percent.
The Central Bank of Lesotho (CBL) cut its rate by another 50 basis points to 3.75 percent and has now cut the rate 275 points this year following cuts in January and at extraordinary meetings of its monetary policy committee in March and April.
Since July 2019, when CBL began its current easing cycle, it has cut the rate 325 basis points.
“The rate, set at this level, will ensure that the domestic cost of borrowing and lending will be aligned with the cost of funds elsewhere in the region,” CBL said, lowering its target for the floor of net international reserves to US$530 million from $660 million.
“The NIR target remains consistent with the maintance of the exchange rate peg between the loti and the South African rand.
CBL’s rate cut was decided at a meeting of its policy committee on May 22, rather than on May 26 as scheduled. On May 21 the South African Reserve Bank (SARB) cut its policy rate by 50 basis points to 3.75 percent, its fourth rate cut this year.
Lesotho is surrounded by South Africa and its economy relies on inflows and workers’ remittances. Along with Namibia and Eswatini (former Swaziland), Lesotho is part of the rand monetary area that uses South Africa’s rand as a common currency. In 1980 Lesotho introduced its own currency, the loti, which trades at par with the rand.
“The domestic economy has generally been weak,” CBL said, adding measures of economic activity had declined 0.6 percent in March compared with a 0.2 percent decrease in February.
The labour market showed a decline in employment in both manufacturing and migration mineworkers, consistent with lower demand for some of the large firms’ products, while government employment had improved slightly, CBL said.
“While economic forecasts are likely to change, the economy is expected to contract by 5.7 per cent in 2020 mainly due to COVID-19 infection and control measures,” CBL added.
In March CBL forecast growth this year would be lower than its earlier forecast of 2.2 percent and 2021 growth of 4.1 percent.
In 2019 Lesotho’s economy grew an estimated 2.6 percent based on strong mining performance and a recovery in textiles.
Lesotho’s inflation rate eased to 4.0 percent in March from 4.2 percent in February while gross international reserves rose to 4.7 months of import cover from 4.3 months in the first quarter.

   www.CentralBankNews.info

By Money Metals News Service

In a Nutshell: The Federal Reserve instituted a policy of unlimited quantitative easing in March 2020 in response to the COVID-19 pandemic, in effect injecting trillions of dollars into the economy. But some analysts believe the consequences of that action may not be limited to stimulus checks and paycheck protection. According to Stefan Gleason, Director of the Sound Money Defense League, the Fed’s pandemic response is only the most recent manifestation of a long-standing inflationary monetary policy enabled by unbacked fiat currency. That’s why Gleason and the Sound Money Defense League advocate for returning to a limited currency backed by gold and silver to preserve the value of money and reward savers.

In March 2020, people in the U.S. began to shelter in place in the wake of the COVID-19 pandemic, and economic activity slowed considerably. The Federal Reserve pledged to put as much new money into the economy as necessary by purchasing government debt and asset-backed securities on the open market.

With that, the Fed effectively created new dollars through the issuance of credit — a process sometimes known as printing money. The Fed’s post-COVID-19 policy of unlimited quantitative easing has made trillions in new dollars available to policymakers to help protect businesses and consumers.

That sounds like a good thing — until it isn’t, according to Stefan Gleason, Director of the Sound Money Defense League.

Gleason’s Sound Money Defense League is the public policy arm of a group of businesses that includes Money Metals Exchange, a national precious metals investment company and news service with more than 500,000 readers and 150,000 customers. It also includes Money Metals Depository and Money Metals Capital Group, a lending agency.

According to Gleason, the Fed’s recent moves differ from long-standing monetary policy only in scale, not in intent. Since the creation of the fiat currency system in 1913, U.S. dollars have leaked value as the size and scope of government has increased.

What’s needed to halt this chronic inflation, Gleason said, is a return to a monetary system in which circulating currency is limited and backed by gold and silver rather than by government fiat.

“The constitution set up a system where gold and silver was the money of our country,” Gleason said. “And as we’ve severed ties with gold, it’s enabled huge deficits and massive growth of government. Gold and silver are the antidotes to that.”

Working to Reform the Legal and Financial Status of Precious Metals

Gleason came to his role as an advocate for the gold standard after more than 15 years of involvement in free-market politics.

“Some of that is pertinent to precious metals,” he said. “Since 1913, the goal of U.S. monetary policy has been to create inflation, which devalues savings through interest rates that are below the rate of inflation and thus basically steal purchasing power.”

The Sound Money Defense League works on the federal and state level in a variety of ways to promote the investment potential of precious metals and clear a path toward the eventual readoption of the gold standard.

Before the Great Depression, the Federal Reserve was required to have enough gold to back 40% of U.S. currency. But bank failures during the Great Depression frightened the public into hoarding gold, making the policy untenable. Soon after taking office in 1933, President Roosevelt ordered all gold coins and gold certificates in denominations of more than $100 turned in for other money, abandoning the gold standard and making possession legal again only in 1975.

The Sound Money Defense League supports legislation calling for an audit of U.S. gold reserves famously held at Fort Knox along with a review of the Federal Reserve itself.

On the state level, the Sound Money Defense League encourages states to remove sales and income taxes from monetary metals, hold precious metals as reserve assets, and take other steps to support sound money.

“At the state level, we also publish the Sound Money Index, which ranks and evaluates every state on its policies relating to precious metals and sound money,” Gleason said. Additional issues concern whether the states operate depositories for precious metals, whether they have laws that harass precious metals dealers and investors, and whether they invest in or hold precious metals in their pension and reserve funds. Wyoming, Texas, and Utah currently lead the index.

“We’re encouraging states to affirm that gold and silver are money as prescribed by Article 1, Section 10 of the U.S. Constitution,” Gleason said.

The rest of this article can be found here.

The Money Metals News Service provides market news and crisp commentary for investors following the precious metals markets.

By Money Metals News Service

Welcome to this week’s Market Wrap Podcast, I’m Mike Gleason.

As we head into this Memorial Day weekend and remember those who have fought for our great country over the years, those who gave their lives – the ultimate sacrifice – to protect the freedoms we enjoy, we thought it appropriate to highlight on this week’s podcast an issue and a man who is fighting for another form of freedom… that being our financial freedom.

Not long ago, I spoke to Larry Parks of the Foundation for Monetary Education. For the past several decades, Larry has tirelessly advocated for sound money and freedom from governmental repression through a deliberate, ongoing campaign of inflation and currency debasement. This corrupt system has also led to widespread debt enslavement while impoverishing many savers and wage-earners across the globe.

We hope you’ll enjoy this interview… and remember that when our liberty hangs in the balance, we must vigorously defend ourselves against those who would take away our freedoms, whether the threat be foreign OR domestic.

And check back here next Friday for our next Weekly Market Wrap Podcast. Until then this has been Mike Gleason with Money Metals Exchange, thanks for listening, and have a great weekend everybody.

The Money Metals News Service provides market news and crisp commentary for investors following the precious metals markets.

Technical analyst Clive Maund explains why he believes investors should be looking at silver right now.

By The Gold Report – Source: Clive Maund for Streetwise Reports   05/21/2020

We are now entering the final part of the endgame of the latest fiat experiment and the actions of the Fed and other central banks virtually guarantee that most currencies, including and especially the dollar, will end up totally worthless, just like in the Weimar Republic in Germany in 1923. Needless to say, in such an environment, anything that has real value like gold and silver, will soar in price, and even make intrinsic gains as everyone eventually tries to get aboard the lifeboat.

Massive deflationary forces are already ravaging the economy, with the virus scare acting as a catalyst, and already millions have already lost their jobs and millions more will as the economy comes to a screeching halt. In the face of this the Fed and other central banks have mobilized to try to head off complete collapse and an implosion of the debt markets leading to an interest rate spike, and also to protect and advance the interests of the super wealthy still further. The Fed’s balance sheet is expanding like a supernova that is starting to explode and it is set to expand at an even more rapid rate, made necessary by a severe decline in productivity and serious disruption of global supply chains. The reason that the virus was dispersed when it was is that governments feared that collapsing economies and widespread unemployment and poverty would lead to revolution, so they needed a way to keep the population under tight control, hence the lockdowns as unemployment in the U.S. and elsewhere skyrockets with the virus as an excuse.

All of this means that both gold and silver are set to soar. As pointed out repeatedly by Egon Von Greyerz, it is not so much that gold and silver are gaining in value, but that currencies are losing value due to them growing in quantity exponentially. Gold and silver, whose value is intrinsic and cannot be destroyed, are simply moving to reflect the destruction in the purchasing power of fiat.

The “writing on the wall” was and is the yawning gap between the price of paper and the price of physical gold and silver. Recently it became huge, and given what is going on this gap was certainly not going to be closed by the price of physical gold and silver dropping—instead it would be closed by the price of paper gold and silver taking off higher, and that is what we have been seeing in recent weeks, as the biggest bull market in the Precious Metals sector in history by far gets started. Already, gold has broken out to new highs against most currencies and it is likely to do so before much longer against the dollar, even if a pullback occurs first.

Another factor that we have for a long time now taken as a strong indication of an incubating bull market is the silver-gold ratio which recently reached an incredible low extreme as we can see on its long-term chart going back to 1980 below. Most low extremes on this indicator have coincided with sector bottoms, the most notable examples being at the 2008 crash low and 2015–2016 sector depression low, which were followed by major sector uptrends. Recently this ratio fell to a freak low which was a sure sign that the sector had hit bottom. Now it is recovering as silver at last starts to join the party. Gold has been rising for some time and is now starting to challenge its dollar highs and it has opened up a huge divergence with silver that will be resolved by a roaring bull market in silver.

Originally posted on CliveMaund.com at 8.55 am EDT on 20th May 2020.

Clive Maund has been president of www.clivemaund.com, a successful resource sector website, since its inception in 2003. He has 30 years’ experience in technical analysis and has worked for banks, commodity brokers and stockbrokers in the City of London. He holds a Diploma in Technical Analysis from the UK Society of Technical Analysts.

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Disclosure:
1) Statements and opinions expressed are the opinions of Clive Maund and not of Streetwise Reports or its officers. Clive Maund is wholly responsible for the validity of the statements. Streetwise Reports was not involved in any aspect of the article preparation. Clive Maund was not paid by Streetwise Reports LLC for this article. Streetwise Reports was not paid by the author to publish or syndicate this article.
2) This article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports’ terms of use and full legal disclaimer. This article is not a solicitation for investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company mentioned on Streetwise Reports.
3) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their immediate families are prohibited from making purchases and/or sales of those securities in the open market or otherwise from the time of the interview or the decision to write an article until three business days after the publication of the interview or article. The foregoing prohibition does not apply to articles that in substance only restate previously published company releases.

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CliveMaund.com Disclosure:
The above represents the opinion and analysis of Mr Maund, based on data available to him, at the time of writing. Mr. Maund’s opinions are his own, and are not a recommendation or an offer to buy or sell securities. Mr. Maund is an independent analyst who receives no compensation of any kind from any groups, individuals or corporations mentioned in his reports. As trading and investing in any financial markets may involve serious risk of loss, Mr. Maund recommends that you consult with a qualified investment advisor, one licensed by appropriate regulatory agencies in your legal jurisdiction and do your own due diligence and research when making any kind of a transaction with financial ramifications. Although a qualified and experienced stock market analyst, Clive Maund is not a Registered Securities Advisor. Therefore Mr. Maund’s opinions on the market and stocks can only be construed as a solicitation to buy and sell securities when they are subject to the prior approval and endorsement of a Registered Securities Advisor operating in accordance with the appropriate regulations in your area of jurisdiction.

Though gasoline demand remains historically weak, commuters are beginning to head back to their offices, opting for the isolation of their personal vehicles and abandoning public transit, reports McAlinden Research.

The Energy Report – Source: McAlinden Research for Streetwise Reports   05/21/2020

Saudi Arabia enhanced their commitment to OPEC+ supply cuts as the Kingdom said they’d shut production of additional 1 million barrels of crude oil per day next month. Most of the OPEC+ countries have already come close to compliance with the deal that took effect this month and cuts from non-member states like Norway, Brazil, Canada, and the US are compounding the already steep curbs on production. Though gasoline demand remains historically weak, commuters are beginning to head back to their offices, opting for the isolation of their personal vehicles and abandoning public transit.

Crude Cuts Continue to Deepen

As part of its latest efforts to reign in the global glut of crude oil, Saudi Arabia’s energy ministry ordered the Kingdom’s oil giant Aramco to reduce its crude oil production in June “by an extra voluntary amount of one million barrels per day (bpd), in addition to the reduction committed by the Kingdom in the latest OPEC+ agreement,” the official Saudi Press Agency reported.

The 23-country OPEC/non-OPEC coalition known as OPEC+ agreed to cut output by 9.7 million bpd for two months from an agreed baseline level starting May 1. These countries will also cut 7.7 million bpd between July and December and 5.8 million bpd from January 2021 to April 2022.

Under this OPEC+ deal, Saudi Arabia has pledged to cut its oil production to 8.5 million bpd, beginning this month. With the voluntary additional reduction in June, the Saudis would produce 7.492 million bpd next month, down from more than 12 million bpd in April.

Russia, also committed to the OPEC+ syndicate, saw oil output fall to 8.75 million bpd in the first 5 days of May, just shy of the 8.5 million bpd target set for this month and next.

However, as executive director of the International Energy Agency (IEA) Faith Birol recently stated, non-OPEC+ reductions in output “may well be similar to reductions that will be coming from OPEC+ throughout the year… We are not yet there but we seeing some [production cuts] already.” Cuts from non-OPEC+ partners industries, such as Brazil, Norway, Canada and the United States, the total reduction in supply could double global output curbs to around 20 million bpd when fully-implemented.

Norway, Europe’s largest oil producer, said it would cut production by 250,000 bpd in June and by 134,000 bpd in the second half of the year.

Brazil’s Petrobras initially reduced output by 200,000 bpd, which accounts for 20% of Brazil oil exports, after shutting down production at 62 offshore platforms last month. However, those cuts have been partially reversed.

The most significant non-OPEC market to watch, however, is North America where crude oil output is set to fall by 1.7 million bpd in June, which would mark a decrease of about 10% from its all-time high in March.

Analysts have estimated Canada may need to shut-in about 1 million to 1.5 million barrels of oil per day, from an average daily production of about 4 million bpd in 2019. Given the lack of crude demand coupled with low Canadian pricing and little in the way of extra storage capacity, “it is hard for us to fathom how Western Canadian crude production can avoid a ~1 million+ bbl/d drop in output in the coming weeks,” Stifel FirstEnergy analyst Michael Dunn told clients in a note.

US Energy Secretary Dan Brouillette said in April that the department expected US production to drop by 2 to 3 million bpd by year-end without any government-enforced cuts. The number of active oil rigs decreased last week by 33 rigs, according to Baker Hughes data, bringing the total to 292 — a 513-rig loss year over year. It is the fewest number of active oil rigs since late 2009.

The heaviest reductions are coming from Texas, the largest US producing-state, with 5 million bpd of output. Texas output is likely to drop by 20%, or 1 million barrels, by the end of May, Karr Ingham, executive vice president of the Texas Alliance of Energy Producers, told Reuters. “Operators are shutting in anywhere from 20% to 50%, and some more than that, based on what they think they can get to market,” Ingham said.

Signs of Life

While positive stories in crude markets have been few and far between, glimmers of hope have begun popping up around the world.

Crude inventories in China, the world’s largest buyer of oil, have shrunk in recent weeks after rising to record levels, according to analysts and satellite observations. “The trend in April was a net withdrawal driven by higher refinery runs and lucrative margins,” said Yao Li, chief executive officer of consultancy SIA Energy, which estimated inventories fell by 9.5 million barrels in April after growing by 161 million in the first quarter.

Though inventories have yet to enter a decline, the actual increases in storage have certainly begun to slow. Crude builds peaked in mid-April at more than 19 million barrels, but have since fallen to just 4.6 million barrels in the most recent week.

Shrinking inventories are even more critical than production cuts in today’s oil industry. Inventory numbers will be the primary evidence for the effectiveness of the cuts by illustrating an increasing or decreasing balance of supply and demand.

The main catalyst in April’s unprecedented oil collapse that sent prices into negative territory for the first time ever was actually lack of storage above all else. At the time, MRP wrote that the negative pricing could be more so chalked up to a short-term inefficiency in the rolling over of the May WTI contract on the crude futures market, resulting in the United States Oil Fund LP (USO), who owned 25% of all outstanding shares in the contract, not actually having facilities to accept or store physical barrels of crude as any other crude processing or storage facility were already overflowing. Therefore, the only way for the USO to rid themselves of their newfound oil barrels was to offer compensation to take it off their hands.

One of the most positive demand-side developments has been the increasing use of cars, as opposed to public transit, in the age of COVID.

Subway ridership remained about 50% below pre-virus levels in Beijing and about 30% below in Shanghai, according to data compiled by BloombergNEF, as fears of large crowds push commuters toward the relative isolation of cars.

Bloomberg writes that this pattern can be observed across the world:

In Berlin, among the first European cities to relax its lockdown, public transit use remains down 61% while the number of people driving has recovered to 28% below normal, according to data from Apple Inc., which tracks request for directions on its popular Maps app.

In Madrid, driving is only 68% below normal levels, up from about 80% in April, while use of public transport remains down 87%, largely the same level as last month.

The same is occurring in Ottawa, the Canadian capital, where driving directions on the app have recovered to 40% of normal levels, up from a decline of 60% in April, while directions for mass transit remain flat from April at 80% below normal levels.

Apple Maps data for 27 world cities shows that driving directions are recovering more quickly than directions for mass transit.

In the U.S., gasoline consumption is clawing back from record lows, rising by 400,000 barrels a day during the week ended May 1. Cities in Florida, one of the first American states to re-open, has seen fuel sales rebound to 30% below normal levels, from 50% weeks ago, according to the Florida Petroleum Marketers Association.

Oil demand will certainly not be what it was in prior years for some time, but the use of automobiles could play a significant role in drawing down gasoline inventories and allowing refiners to start processing new crude oil orders. The amount of total motor gasoline in storage, per EIA data, accounts for the largest share of finished crude and petroleum product inventories, roughly 6.5 times the size of outstanding jet fuel stocks.

Long-Term Supply Shortage?

Some may say it’s a bit early to be thinking about the long-term implications of all of these production shutdowns, but it is important to note that there are undoubtedly going to be some negative side effects to such a cataclysmic disruption.

Though Goldman Sachs is predicting a V-shaped bounce back in oil demand, supply will exhibit an L shaped recovery. Effectively, the Investment Bank expects supply to be suppressed for some time as, not only does shutting in oil wells damage their output capacity and take work to get them back online, but declines in capital expenditure and access to capital will suppress new exploration and drilling for some time. A combination of poor returns means people are unlikely to line up capital to work in this space, according to Goldman’s head of global commodities research, Jeff Currie. “Now investors do not want to hear anything about oil. They have been beaten up they are done with this space, it is going to take a lot for them to come back.”

Oilprice.com writes that investments in exploration and new production are set to be delayed because companies are looking to preserve cash and avoid cutting dividends–something oil majors Equinor and Shell just did. So, global investments and project sanctioning activity are already drying up this year.

Due to the oil price crash, Rystad Energy expected at the end of March that exploration and production (E&amp;P) companies were likely to reduce project sanctioning by up to $131 billion, or down about 68% on the year, compared to $192 billion in projects approved in 2019.

Muted investment levels and new project activity will combine with the rebound in global oil demand once the coronavirus crisis is over to swing the global oil market into a potential oil supply deficit of some 5 million bpd, according to Rystad Energy’s latest estimates. Oil prices would top $68 a barrel to balance the market, the consultancy said.

MRP continues to believe these early supply-side measures taken by oil producing nations are a sign of more measures to come, holding the market over until sufficient demand can return. We also believe that the most well-positioned firms to withstand the intermediate period will be large-scale operators with diversified, productive assets.

We will continue to track these themes with the United States Oil Fund, LP (USO) and Energy Select Sector SPDR Fund (XLE). Since we launched the theme on April 7, the USO is has unsurprisingly declined a steep 48%. However, the XLE has actually garnered a 19% return over the same period, outperforming the S&amp;P 500’s 10% gain.

This content was delivered to McAlinden Research Partners clients on May 12.
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McAlinden Research Partners (MRP) provides independent investment strategy research to investors worldwide. The firm’s mission is to identify alpha-generating investment themes early in their unfolding and bring them to its clients’ attention. MRP’s research process reflects founder Joe McAlinden’s 50 years of experience on Wall Street. The methodologies he developed as chief investment officer of Morgan Stanley Investment Management, where he oversaw more than $400 billion in assets, provide the foundation for the strategy research MRP now brings to hedge funds, pension funds, sovereign wealth funds and other asset managers around the globe.

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3) Statements and opinions expressed are the opinions of the author and not of Streetwise Reports or its officers. The author is wholly responsible for the validity of the statements. The author was not paid by Streetwise Reports for this article. Streetwise Reports was not paid by the author to publish or syndicate this article. Streetwise Reports requires contributing authors to disclose any shareholdings in, or economic relationships with, companies that they write about. Streetwise Reports relies upon the authors to accurately provide this information and Streetwise Reports has no means of verifying its accuracy.
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By CentralBankNews.info

India’s central bank cut its benchmark repo rate for the second time this year and for the 7th time in 15 months at a surprise monetary policy meeting and said it would “continue with the accommodative stance as long as it is necessary to revive growth and mitigate the impact of COVID-19 on the economy, while ensuring that inflation remains within the target.
The Reserve Bank of India (RBI) cut its repo rate by 40 basis points to 4.0 percent and has now cut it by 115 points this year following the first cut on March 27.
“The recent release of macroeconomic data, that for the first tine revealed the damage wrought by COVID-19, brought forward the need for an off-cycle meeting of the monetary policy committee (MPC) in lieu of the scheduled meeting during June 3-5, 2020,” said RBI Governor Shaktikanta Das.

RBI today also lowered its reverse repo rate by 40 basis points to 3.35 percent and has now cut it by 155 points this year.
At the previous policy meeting on April 17 the repo rate was maintained but the reverse repo rate was cut by 25 basis points to 3.75 percent to encourage banks to deploy a surplus of liquidity in the banking system to businesses following large injections by itself and the government.
“The MPC is of the view that the macroeconomic impact of the pandemic is turning out to be more severe than initially anticipated, and various sectors of the economy are experiencing acute stress” from the lockdown over the past two months, RBI said, adding:
“High frequency indicators point to a collapse in demand beginning March 2020 across both urban and rural segments.”
RBI pointed to a plunge in electricity consumption while investment activity and private consumption have “suffered precipitous declines” that is reflected in a “collapse” in capital goods production and a large retrenchment in the output of consumer durable and non-durables.
Private consumption accounts for some 60 percent of domestic demand and the production of consumer durables fell 33 percent in March and the output of non-durables 16 percent, Das said, adding industrial production shrank close to 17 percent in March, with manufacturing down 21 percent.
India’s exports suffered their worst slump in the last 30 years as the virus paralyzed world proaction and demand, with merchandise exports down 60.3 percent in April and imports contracted 58.6 percent.
Agriculture provides the only silver lining, with summer sowing of rise, pulses and oilseeds progressing well and total area sown up by 43.5 percent in the current season while the winter season promises to be a number year, RBI said.
Even though India’s government may lift the lockdown by the end of May, RBI said economic activity, apart from agriculture, is likely to remain depressed in the first quarter of the current 2020-21 year, which began April 1, and may remain subdued in the second quarter due to social distancing measures and the temporary shortage of labour.
Although there is heightened uncertainty about the duration of the pandemic and how long measures remain in place, RBI expects the economy to begin recovering in the third quarter and then gain momentum in the fourth quarter as supply lines are restored to normalcy and demand gradually revives.
“On the other hand, upside impulses could be unleashed if the pandemic is contained, and social distancing measures are phase out faster,” RBI said.
Economic growth in the current fiscal year is estimated to remain negative.
The outlook for inflation also remains uncertain but the usual spike in food inflation in April is expected to be moderate and the forecast for a normal monsoon season also portends well.
Together with low prices for oil, metals and other industrial raw materials, input costs for domestic firms will remain low and deficient demand will restrain upward pressure on core inflation.
RBI said it expects headline inflation in the third and fourth quarters of 2020-21 to remain below its target of 4.0 percent. In March India’s headline inflation eased to 5.84 percent.
In addition to past rate cuts, injection of liquidity in both rupees and foreign exchange to keep the financial system and markets functioning, RBI today announced additional measures to support exports and imports, improve the functioning of markets, ease financial stress and constraints faced by state governments.

The Reserve Bank of India released the following monetary policy statement and a statement by its governor, Shaktikanta Das:

• reduce the policy repo rate under the liquidity adjustment facility (LAF) by 40 bps to 4.0 per cent from 4.40 per cent with immediate effect;
• accordingly, the marginal standing facility (MSF) rate and the Bank Rate stand reduced to 4.25 per cent from 4.65 per cent; and
• the reverse repo rate under the LAF stands reduced to 3.35 per cent from 3.75 per cent.
• The MPC also decided to continue with the accommodative stance as long as it is necessary to revive growth and mitigate the impact of COVID-19 on the economy, while ensuring that inflation remains within the target.

By Jason Pallant, Swinburne University of Technology and Gary Mortimer, Queensland University of Technology

Wesfarmers’ decision to close or rebrand up to 167 of its 284 Target and Target Country stores should not come as too much of a surprise.

The once popular store has been ailing for years, outmanoeuvred by its successful and popular sister business, Kmart.

Up to 75 Target and Target Country stores will be closed, with the balance being converted to Kmart stores.

Its decline is due to a combination of poor market positioning, confusing product strategies, a declining middle class consumer market and too much similarity with Kmart. The impacts of COVID-19 are just the icing on the cake.

Spiralling sales and profit

Wesfarmers acquired both retail chains when it took over the Coles Group in 2007. At the time Target looked the stronger business, and Wesfarmers considered selling all or part of Kmart, or converting stores to the Target brand.

Just as well it decided to invest in Kmart instead.

Since 2012, Target’s profits and sales have deteriorated with Target realising its first loss of A$195 million in 2016.

How Target has performed since then has been obscured by Wesfarmers combining the business into a Department Stores Division including Kmart and Kmart Tyre and Auto Service. Target’s results were thus no longer reported separately.

But Wesfarmers’ 2019 annual report noted its trading performance highlighted “the need for ongoing repositioning to further elevate quality and style, expand its digital capabilities, and differentiate the business from Kmart and other competitors”.

High couture and cheap kettles

One way Target confused shoppers was to offer collaborations with high-end fashion designers like Missoni, Stella McCartney, Dion Lee and Dannii Minogue, alongside $2 kids’ tops and cheap kitchenware.

The move frustrated customers unable to secure designer pieces and disenfranchised “value-seeking” customers. Many voted with their wallets, moving to Kmart.

Wesfarmers’ plans to differentiate Target from Kmart involved focusing on higher quality apparel, soft homewares and toys to compete against more specialty and middle market offerings.

But the middle market is a challenging sector. It is now dominated by “fast fashion” players offering on-trend clothing and home furnishing. The pressures have led to the collapse of other middle market chains.

Wesfarmers was very aware of the risks associated with this strategy.
Its 2017 annual report stated:

“Target’s strategy has been reset and the business is now focused on progressing changes to the operating model to better position the business to grow earnings into the future. This journey will be undertaken in an increasingly competitive apparel and general merchandise environment”.

Death of department stores

The attempted shift in focus to a middle market department store only created more problems.

Department stores worldwide have faced challenging times in recent years. The past year alone has seen department store icons including Barney’s, Debenhams and JCPenney file for bankruptcy or close for good. Closer to home, Harris Scarfe went into receivership in December 2019, while Myer and David Jones have looked to consolidate stores.

Department stores face many challenges from competition and changing consumer behaviour. However, a broader challenge is a declining middle class that has been the cornerstone of the sector’s customer base.

Target’s strategy to move further into the middle market was always doomed for limited success.

Pandemic impacts

Adding to department store woes is the COVID-19 pandemic.

Already reeling from a weak Christmas period and the effects of the bushfires, retailers were hoping for a return to spending. Instead, they have been faced with store closures and possibly permanent shifts in consumer behaviour.

While some retailers have simply tried to survive the lockdowns, others are re-evaluating their future. For Wesfarmers, this means shifting focus from the struggling Target to the more popular and profitable Kmart.

But though the pandemic has undoubtedly had an unprecedented and substantial impact on the retail industry, in some cases it only accelerating outcomes already on the cards.

So Target is unlikely to be the last retailer to undergo radical surgery. Retailers like the Accent Group and PAS Group have flagged similar plans.

Expect further announcements as retailers evaluate how to survive.

About the Author:

Jason Pallant, Lecturer of Marketing, Swinburne University of Technology and Gary Mortimer, Professor of Marketing and Consumer Behaviour, Queensland University of Technology

This article is republished from The Conversation under a Creative Commons license. Read the original article.