Apparently Janet Yellen needs an on the job training program to properly school here in the art of choosing the correct words so that all sides hear exactly what they want to hear. Alan Greenspan was so good at it that market players invented a new word to define it: "FedSpeak".
Ben Bernanke took a while to get that down but by the time he left office, he seemed to have improved quite a bit in the fine art of saying things that within the same speech could be found contradicted by more things within that exact speech.
Yellen has yet to learn this - at least so far as the impact on the currency markets. She utterly decimated the US Dollar by her comments yesterday and just gave the green light to every big macro fund and index fund on the planet to pour money into the commodity complex. I find this nothing other than the mistake of a rookie who is oblivious to the fact that as the chief Central Banker, one does not have the luxury of airing their misgivings in front of the general public.
A couple of things to note here - the Gold Volatility Index just shot through the roof and the equity markets are now going to be even more jumpy than they have become, if such a thing was even possible. The LAST THING that this economy needed is RISING COMMODITY PRICES. As I wrote earlier today, the saving grace of this anemic "recovery" has been a lack of sharply rising prices in the commodity sector. That has kept the price of raw materials, food, etc., from embarking on a tear higher such as happened when QE1 and QE2 were unleashed.
It is one thing to have temporary spikes in key commodities such as crude oil that are related to geopolitical events. Such things come and go and tend to fizzle out with as much fanfare as they started. It is altogether another thing to have the chief Central Banker undercut your own currency, especially when it was looking like it was finally going to get some sustained upside strength to it. That would be bad enough but Yellen seems clueless about the impact of a falling Dollar on the rest of the commodity complex at large. One can argue that the talking down of the Dollar was either deliberate or a side affect of a novice Central Bank chief, but the fact is that if investors start thinking that the Fed wants to knock the Dollar lower, either by design or by accident, they are going to start with their "let's buy everything in sight" trading strategy in the commodity sector.
The result of this will be obvious and none of it is good. I personally had seen some real light at the end of the tunnel by looking at the structure of the commodity board and observing that traders had been looking for some significant declines in food prices later this year. That had kept me optimistic on the inflation front that the current spikes in food costs were going to be coming to an end rather soon. Now I am not sure based on what Yellen has unleashed in these commodity markets.
These hot money flows could care less what any fundamentals might or might not be in the markets into which they pour. The buying orgy, (and that is how to best describe these damned funds) obliterates all the bids in its way and destroys any trader who might get short based on their analysis of the fundamentals in the markets that they are trading. In other words, Janet Yellen just injected another round of more extreme volatility into a sector that had begun to show some semblance of becoming a bit more well behaved.
The reason I know that this is a round of hot money is through the action of the spreads in the markets that I primarily trade in. The spreads have been blown to kingdom come today.
I am including a chart of gold here to show the annihilation of the shorts thanks to Ms. Yellen's comments. When the bulls were able to regain $1280 this morning, many of them began getting out. When $1300 was tried on the first round, some selling emerged but the market barely retreated. That give some strong longs the signal to begin pushing and push they did. Out went more shorts as the market kicked through $1302 and then it was almost a vertical shot north to $1317 as wave after wave of shorts' buy stops were nailed.
You can see the next resistance zone noted on the chart -if the bulls best this, things are going to really heat up. Can they do it?
Again, as a trader I have to play with the cards that are dealt, but that does not mean I have to like the hand. If this is the start of a new trend/strategy among the big funds, and it is unclear if this is a one day wonder or something more, trading for a living just got even more difficult than it already was. Thanks Yellen - can you please just keep your mouth closed for a while?
"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
Trader Dan's free work will soon be available at www.traderdan.biz