"When misguided public opinion honors what is despicable and despises what is honorable, punishes virtue and rewards vice, encourages what is harmful and discourages what is useful, applauds falsehood and smothers truth under indifference or insult, a nation turns its back on progress and can be restored only by the terrible lessons of catastrophe." … Frederic Bastiat

Evil talks about tolerance only when it’s weak. When it gains the upper hand, its vanity always requires the destruction of the good and the innocent, because the example of good and innocent lives is an ongoing witness against it. So it always has been. So it always will be. And America has no special immunity to becoming an enemy of its own founding beliefs about human freedom, human dignity, the limited power of the state, and the sovereignty of God. – Archbishop Chaput


Thursday, June 19, 2014

Investors Key in on Fed's Ultra Low Interest Rates - Inflation Fears Rising (UPDATED)

Watching the ever-changing ebb and flow in these markets for as many years as I have been now doing, it never ceases to amaze me how what is of no concern whatsoever one day, can suddenly come into focus the next.

Traders have been not the least bit concerned about inflationary pressures in the economy for some time now. Based on readings of the TIPS spread and the performance of the various commodity indices, along with a falling Velocity of Money indicator, they have relegated inflationary concerns to the dark corner of the attic.

Yesterday however that seems to have changed ( for now at least) - the FOMC statement was interpreted by the market in a fashion that has produced a sentiment that is suddenly now worried about rising prices.

Macro funds have thus wasted no time in piling back into certain commodity futures with the result that the Goldman Sachs Commodity Index or GSCI, has now broken out into a three month high. While the Dollar has recently been flirting with overhead chart resistance, traders took the FOMC statement as dovish towards the greenback and once again it failed at that key resistance level centered near 80.70 - 80.80 on its chart.

The Dollar has been supported by the idea that if interest rates are going to rise anywhere, that will occur first in the United States. Apparently the Fed statement had some rethinking that idea. Pound Sterling hit a level against the Dollar not seen since August 2009 today!

Take a look at the GSCI chart. Is it any wonder that both gold and silver are performing so well today? Both metals have noticed this upside breach of that key resistance level on the GSCI and are moving higher. Remember, for gold, and especially silver, to maintain solid, sustained uptrends, they need the same in the various commodity indices. One cannot expect to see rising gold and silver prices if the overall trend in the general commodity sector is lower.

The next big step for this particular index is near 675.

Gold has penetrated tough resistance near that $1280 level and silver has managed to recapture the elusive $20 level.

The only fly I can see in the ointment today is the lack of any strong showing in Copper. Once again it is lacking in upward excitement.

Heck, even corn and wheat are higher today.

I will get some more up later on today, including an updated TIPS spread chart.


In watching these various commodity futures markets trade today, I am now more than fearful that Janet Yellen has just unleashed another round of broad-based commodity sector buying by both index funds and macro funds. The one factor that has helped consumers to deal somewhat with this moribund economy has been that the commodity futures markets have been relatively contained ( I am  speaking in general terms and not of specific or individual markets) and that strong upward price pressure on the grains especially has not been present. When you look at corn prices, which were almost 50% less than they were a couple of years ago, and wheat prices moving strongly lower, there was a ray of light at the end of the tunnel when it comes to food costs. While meat costs are at record levels, I expect them to moderate and move lower by the 4th quarter and certainly by Q1 2015. Today, with the Dollar having been undercut by Yellen in her testimony, a boatload of hot money is flooding back into the commodity markets. This is spite of the current bearish fundamentals in some of these individual markets. These hot money flows by large speculative forces now threaten to overwhelm these key markets.

Those of you who read here regularly know my sentiments towards Central Bankers and their constant interference with the natural course of markets by what I believe is reckless monetary policy. Ultra low interest rates are harmful to senior citizens, and those on fixed incomes or in their retirement years who are looking for safe, conservative places into which to park their life's earnings.

The Fed has effectively punished these people at the expense of reckless risk takers. Yellen seems ignorant of the weight that her words carry and she has fanned the flames of this rampant speculation, which had, until yesterday, been pretty much confined to the general arena of equities. If today's wild buying across the commodity sector is any indication of what we now have in store, heaven help us all.

One can be sure that whenever you see commodity markets soaring higher, in the face of bearish fundamentals, hot money flows are pouring in. This is what happens when the monetary authorities undercut their own currency. We now must monitor the overall commodity sector much closer as well as keeping a very close eye on the US Dollar. If the Dollar does not reverse course and loses support on the charts, the US consumer is going to once again be forced to deal with soaring energy and food costs.

Perhaps this is where the weakness in the equities today is coming from.


  1. Looks like the 1280 break down to 1240 was a bear trap. Seasonals do not matter anymore either I would think. It is early, but.................

  2. We need to see - and hold - WELL north of 1320 before this can be considered anything more than a flash in the pan. (1320 was seen around 14th Feb, then again in March, and will be a tough nut to crack)

  3. Dan,

    What are your thoughts on gold breaking 1280, and now testing 1300?

  4. there have been a few 1-2 week fake out moves so far. does anybody know which one will be "the" one? I don't.

    1. This is it! Final and enormous payday! Take certificates! Gots!

  5. Research released on Wednesday found that the amount of money private investors have in British shares had hit a post-crisis record. Private investors today own 11.3pc of UK listed firms, worth £239bn, within striking distance of the all-time record of £247.3bn. Capita Asset Services, which complied the data, said the fact that £3bn had poured into British shares over the past 18 months showed that investors’ confidence had finally returned.

    Guess what comes next?

    Where is the smart money going?

    Gold/miners and commodities perhaps!

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  7. Remember what I said last weekend about hedge fund big short position in silver: They either win big or lose big.

    Turns out they are short-squeezed and are losing big now.

    1. i remember.. good call rui … lets enjoy our 15 minutes of glory! bastards


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