(08-13-21) Steel Lords: North America to begin recovery from multibillion-dollar neglect

A week of opening and closing gaps in currencies thanks to the strength of the dollar, very strong indices overall. New airs for steel-related cyclical markets. Cryptocurrencies with a clear upward trend. Metals and oil recovering positions.

The week has finished with most of the indices in positive territory after this week's news, and with the construction sectors pushing the rest. Europe's largest companies have benefited from the approval of Biden's budget, despite the 25% tariffs on steel and 10% on imported aluminum. News of acquisitions in security companies, and positive balance sheets especially in biotech and pharmaceutical companies. Even the Asian market has benefited despite the covid cases. In general terms, the possibilities of increased consumption favor the Asian market, especially large exporters such as Japan and China. As a reference, the DOW JONES ended at 35,532 points, the SP500 at 4,466, and the NASDAQ at 14,822. The Mexican index ended at a high of 51,420. In Europe, the DAX ended at 15,977 points, the Euro Stoxx 50 at 4,229, and the IBEX 35 with a 20.4% rise, closing at 8,999 points. The CAC 40 was up 13.57% with 6,896 points and the Budapest index reached 50,378 points. The FTSE Italy All Share reached 29,212 points. The Swiss SMI maintained its upward consistency, reaching 12,454 points.

The U.S. bond has resumed July values with the news, even though the country's inflation has risen in one year from 1% in July 2020 to 5.4% this past month. It is expected to slow to 5.3%.

The week has started with the dollar gaining ground on all currencies reaching four-month highs and has ended the week as it began. The Euro (EURUSD) this week has suffered a trend decline and on Tuesday one of the biggest declines on the trading floor since March. Eurozone industrial production has slightly improved results but is still lower than needed. The yen (USDJPY) lost value against the greenback in the first few days but ended the week beating the dollar.

?The New Zealand Kiwi (NZDUSD) has also aligned in the same direction the first few days, until turning around touching the top on Wednesday, and closing the gap again today Friday; unlike the Australian dollar (AUDUSD), which, despite the bull run in Sydney and Melbourne, has held the price due to the prospects of strong recovery, and has replicated virtually the same movements as the previous one. The Reserve Bank of Australia has expressed confidence given the economic trajectory.

The British pound has been the focus of news for the positive economic results of these four months. After the big drop in value that started on Tuesday, on Wednesday it recovered value entering the accumulation zone, unloaded. It closed the gap at prices similar to those of Wednesday. Construction results and the negative balance in trade have turned out lower than expected, but an overall improvement is seen, and an increase in the number of vaccinations, which helps to support an unusually sideways price range. The Canadian dollar (USDCAD) is the only one that can be said to have been forming a shoulder head shoulder, due to the accumulation cycles initiated last week, and now, it has re-entered sideways and erratic activity is seen simply promoted by bearish institutionalists. The interesting thing has been that, in the European market, the euro has recovered points against the dollar; and the rest of the currencies have followed suit.

Many U.S. presidents have promised severe renovations to the U.S. infrastructure system. The latest to take advantage of the political pull of this: Obama, Trump, and of course, also Biden; have tried to promote infrastructure programs to prevent this country's competitiveness, future, and security from being weighed down. In the world's largest economy, according to the Global Competitiveness Report (World Economic Forum, 2019), it was positioned in second place, losing the throne to Singapore as the most competitive economy.

Especially in the field of transport, an exaggerated lack of competitiveness in the average quality of its infrastructures was highlighted. It is in 13th position, behind Europe and countries such as Hong Kong and Korea, and China is in 33rd position. Its infrastructures are a pity to see them, and they are not even in the top 10 of competitiveness in infrastructures. It is more because of the enormous amount of infrastructure that the country has than its future viability. Surprising as it may seem in the world's leading power, it's super common to have to drive on roads full of potholes, suffer railway accidents, or bridges that collapse due to lack of maintenance. That's far more than you'd expect in a country as powerful as the United States. Joe Biden's plan is far from what Americans would have liked, but as is well known, it is causing a major budget imbalance. The biggest tax increase since 1993 is being unleashed, and with this plan, they have not cracked their skulls much.

Regions such as the state of Wisconsin have 81.7% of roads in poor condition, the state of New Jersey between 2015 and 2019 trains suffered 104 derailments or 10.9 per 100 miles of railroad track. In the state of Rhode Island, 2 out of 10 bridges suffer structural deficiencies. These are just a few examples that highlight that 21.8% of road miles and 7.6% of U.S. bridges are in terrible condition. As can be discerned, this undermines the competitiveness of the country's companies. Just to carry out the necessary repairs to comply with safety requirements, 786 billion dollars would be necessary.

According to the United Nations International Merchandise Trade Statistics, freight shipments across the United States, in any mode, could climb 62% between 2011 and 2040 (US Fed. Highway administration,2013). (ASCE,2013) Rail congestion costs the country $200 billion per year, congestion costs (delays, fuel, and carrier congestion costs) in the 15 largest cities studied. It amounts to $1.5 billion in San Diego, up to $11.8 billion in New York - Newark (Urban Mobility Report 2012 - Texas Transportation Institute). The cost of congestion in 9 Canadian cities is between $2.3 billion and $3.7 billion (Transport Canada - March 2006). According to the American Society of Civil Engineers (ASCE), U.S. motorists spend $130 billion each year on repairs attributable to road conditions, one-sixth of the money needed to repair roads and bridges per day per year. U.S. infrastructure, too, is stuck in the 1970s. Not a single American is on the list of the top 25 airports. For example, New York's JFK airport in pre-pandemic conditions suffers from excessive congestion, resulting in delays and losses for airlines, and lower quality of service for passengers. China's booming construction sector has been driving up the indicators for months, and its steel mills have been producing at 92% of capacity, exceeding the usual 80-85%. In other words, this week, today's steel lords have benefited from a long-overdue deal.

Both the Democratic and Republican parties agree on how to do this. At the federal level is where the biggest divergences exist. Republicans focus on improving and building roads and highways to facilitate mobility. The Democrats focus on promoting a good rail and public transportation network. It is the war of individualism versus collectivism taken to a state of supreme ridiculousness. Because somehow Republicans consider their vehicle an icon of independence and public transportation a model of socialist control of individuals. What for others is the future of sustainable mobility. These kinds of disquisitions produce that a real budget is never endowed with sufficient funds to do something important. Everyone tries, but no one succeeds. All this adds to the fact that the development plans carried out in the '60s and '70s are the origin of most of the roads and bridges in the country. Not only this, but the states on the one hand, and the federal Highway Trust Fund on the other, are not able to cope with this type of action. They are fed mainly by fixed fuel taxes, frozen since 1993. 18.4 cents per gallon of gasoline and 24.4 cents per gallon of diesel. Since it is a fixed figure, instead of a percentage, it is half of the real tax burden according to the price and inflation level of the year in which it was created. The second situation is that, with more efficient vehicles and the appearance of electric vehicles in the market, the consumption of fossil fuels related to the number of vehicles circulating has dropped dramatically. Therefore, it is a deficit and needs to be financed by the treasury funds from the rest of the taxes. This fund was created to be self-sustainable, and resemble a pay-as-you-go payment.

Despite the large revenues received, it is not enough. The state allocates less and less money for roads and bridges. The states are left more and more on their own to handle this task. Local states collect through tolls, local and state taxes. In the end, each state does things differently. The point is that their overall spending is 135 billion a year. 50 billion is obtained via fuel taxes, 20 billion via tolls, and the federal government contributes 50 billion. In other words, the federal government contributes one-third. Nobody wants to touch taxes or pull from general revenues. And that is the reason for this whiting.

(CNBC) Finally, on Aug. 10, a $1 trillion bilateral plan has been approved, $550 billion of which will go to create new transportation, broadband, and utility lines. Which may make it easier to extend a $3.5 trillion supplemental plan without a vote.

The steel industry was the basis of industrialization for more than 100 years. It helped people like Andrew Carnegie, John D. Rockefeller, or John Piermont Morgan Sr. to become the richest and most powerful people of that time. All of this is going to cause the new steel and money lords of today to position themselves in two places in this cycle. Infrastructure and the debt market, i.e. banking. This, coupled with the Fed's policy change, is likely to give acceleration to a market that had suffered a sharp slowdown due to the pandemic. A bullish rally will ensue.

That is, mining companies that focus on iron and other metals used to create steel, such as Alcoa (AA: NYSE), Freeport-McMoran (FCX: NYSE), or Carpenter Technology Corp. (CRS: NYSE), as well as related industries and recycling, stand to benefit greatly. United States Steel Corporation (X: NYSE), Cleveland-Cliffs Inc. (CLF: NYSE), the Brazilian giant Gerdau SA (GGB: B3), the multinational ArcelorMittal SA (MT: LUXSE), or Nucor Corporation (NUE: NYSE). Multinational equipment rental companies such as United Rentals (URI: NYSE) and construction materials companies such as Vulcan Materials (VMC: NYSE) will see their accounts swell after the government's push.

(investing.com) Nucor reported its second-quarter results at the end of July and they were beastly. It has launched the stock up 74% and outperformed the SP500 by 16%. The second quarter is expected to be even better. (eleconomista.es) Mr. Buffet is relying mostly on four U.S. stocks for its corporate earnings, three of which are in the banking sector. American Express, Bank of America, and Wells Fargo. All of them were very focused on retail, that is, the Oracle of Omaha deduced months ago the change he saw coming. (eleconomista.es) According to Bloomberg Intelligence, half of the European banks already have a buy recommendation, i.e. the recovery of the covid and the push of the Fed's new roadmap, and the improvement of macro data, are expected to push this sector upwards.

Metals started the week with a boost promoted by the strong dollar. They have recovered value throughout the week, leaving Gold (XAUUSD) at $1,778.35 and Silver (XAGUSD) at $23.727. Rising U.S. consumer prices, and the forces of the bulls, have managed to stabilize their prices since they will trade sideways in the short term, although it has stabilized at a four-month low. According to Jim Wyckoff (kitco.com), "Fiscal policies should work in tandem with monetary easing to support gold because both suggest inflationary pressures ahead."

?(Cointelegraph) On a curious note, the "Bitcoin Family", a Dutch family that in 2017 liquidated all its assets, and has everything stored in different parts of the world in hidden places. This is equivalent to burying gold bullion in the backyard. They have their Bitcoin offline in cold wallets, claiming it's the only way to keep the state away from your money. According to CNBC, 74% of Didi Taiuttu's Crypto portfolio is in cold wallets, with access to hot wallets on Exchange for quick access to trading. He does not employ Banks, nor post offices as he considers them too risky, and fears they may go bankrupt. He mentions that certain companies manage centralized cold portfolio hosting, and have the concept of setup to establish heirs when the owner passes away.

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As for Cryptocurrencies, Bitcoin (BTCUSD) and Ethereum (ETHUSD) have rallied sharply this week reaching to kiss $46,726 and $3,264 respectively ending the week at $46,621 and $3,240 respectively. (FxEmpire) Mutual fund Neuberger Berman has given the green light to indirect investment in Cryptos. (Cointelegraph) Valkyrie Digital Assets fund is the latest company to file for a Bitcoin-based ETF offering indirect exposure to it via cash-settled futures contracts. (Cointelegraph) Uniswap has become on its own merits the leading Defi protocol to generate more than $1 billion in fees for liquidity providers. It is a result of Ethereum v2 and Uniswap's combination of Ethereum v2 and v3 mainnet revenue. Ethereum, since the implementation of EIP-1559, has become a pseudo-deflationary currency, as it is now able to fight the price of commissions or gas, as it can burn a portion of ETH on every trade made. In theory, this means that more ETH will be burned than is produced. After one week, $100 million has been burned.

In contrast, the cyber hacking of the Poly Network platform, which is dedicated through its Defi system to connect several blockchains for interconnection (Binance Smart Chain, Ethereum, and the Polygon blockchain). It had $613 million in Cryptos stolen from it. In response, Tether blocked 33 million, and a large number of addresses started asking for it to dole some out. It has been the grace of the week that the hackers have initially returned a third of the money claiming that they have done it for fun to demonstrate the vulnerability of the system, and then they have returned half, after realizing that they were not able to turn the money into liquid because it is not so easy to transform the stolen money in the current blockchain, and have ended up returning almost all the capital.

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Crude oil this week has continued in the accumulation range maintaining similar prices to the finalization of the OPEC+ agreement. (investing.com) According to Edward Moya, senior analyst at OANDA, "crude oil prices are coming off earlier gains, stemming from President Biden's request to OPEC for more crude oil." Demand for crude oil in Asia is starting to look worse as a result of bull runs in many countries such as China and Japan, major consumers of crude oil. According to Phil Flynn, an analyst at Price Futures Group in Chicago, "The U.S. administration added that it has not asked U.S. producers to increase production, which led the market to rise on Wednesday."

The pressure from metals and crude oil has pressured the stock market and they have partly recovered their prices, following this weekly accumulation phase started on Wednesday, ending West Texas (USOIL) at $68.39 and Brent (UKOIL) at $70.58.

?Happy Trading and Happy Friday!

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This article expresses only my opinion and under no circumstances represents an investment recommendation, but is merely an educational document.

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