A Little Dab will Do Ya

Years ago there was a men's hair care product (okay - let's call it what it really was and do away with the euphemisms - GREASE) by the name of Brylcreem. Boys and men slathered this stuff between the palms of their hands and then rubbed it into their hair. The result was that you could make that hair so stiff it would stay there all day no matter rain, fog, or gloom of night. Problem hair? No problem! Grease it into obedience!

In watching the price action in the S&P 500 this morning I am reminded of that commercial (Yeah I know - my brain thinks in weird terms!). The index had the audacity to become like a problem hair - uncooperative, unruly and generally out of place in the minds of the monetary authorities idea of what is supposed to be a beautiful head of hair.

So what to do about this? Why send the boyz out to the microphone and "grease" this thing back into compliance.

Note the price chart and you will see what I am talking about. For the first time this year the S&P had fallen BELOW the techically significant 50 day moving average. That is a gigantic "NO-NO", as it signifies a market moving toward a bearish posture.

Why, miracle of miracles, out trots New York Fed President Dudley with his comments fanning the hopes of those wishing for more QE, and "Voila!", back goes the S&P 500 through the 50 day moving average! Problem solved; hair greased back into place; now let's go play Dodge Ball!

The "Dudley" Rally

New York Fed President William Dudley apparently supplied both the gasoline and the match to the "risk asset" fire this morning as his comments sparked a strong rally in both equities and in commodities. Interestingly enough, the markets were relatively flat after the gain in unemployment claims as traders began fearing that the pop in the payrolls numbers of late was about to become a thing of the past.

Dudley reversed all of that when he stated that it was too soon to say the US economy was out of the woods. That was all that traders needed as their brains are already preprogrammed into interpreting all such comments as: "HERE COMES THE NEXT ROUND OF QE".

It was fascinating to watch copper in particular go from treading water following its 5 day collapse in price to shooting sharply higher when the Dudley comments hit the wire. It is now over 2% higher on the day; as is silver which is nearly 3% higher.

Forgotten are the woes about Spain, Italy and the rest of the other "problem" nations of the Euro zone; woes which I might add had been responsible for knocking the stuffing out of both equities and commodities recently when the risk aversion trades came back on in full force.

The lesson from all this is simple - in the minds of today's modern trading community, especially the monolithic thinking hedge fund managers, Quantitative Easing will fix anything that gets in the way of rising markets.

Those of us who have a bit more sense understand that this is not true but like any drug addict, another fix does do away with the withdrawal symptoms for at least a little while. It never cures the patient but makes him or her feel better which is now the name of the game among the monetary authorities.

The problem is that the worse the addiction, the more resistant the patient becomes to getting high as his system begins to develop a type of resistance to the effects of the drug. What this means is that each successive dose of QE will have shorter and shorter lasting effects before it wears off once again.

For the time being however, the result has led to US Dollar selling which is fueling a rush of hot money flows back into the commodity sector today. That is leading gold higher and has put it back within striking distance of tough resistance at the $1680 level once again. This is the top of the recent tighter trading range that has contained the metal for some time now. Bulls must take the price up and through this level and KEEP IT ABOVE $1680 if this thing is going to have any additional legs to it.

Trader Dan on King World News Weekly Metals Wrap

Please click on the following link to listen in to my regular weekly radio interview with Eric King on the KWN Weekly Metals Wrap.

http://tinyurl.com/7764elv

Pre-Easter Weekend Comments

Today's Payrolls number for the month of March came in at 120K, far less than the market was expecting. The response of those futures markets which were still open for trading was swift and immediate - Emini S&P 500 futures dropped sharply while the US long bond staged a nearly two point rally.

So much for notions that the economy is performing well enough that the QE3 option is off the table.

The markets will not interpret this abysmal number as the start of a new and lower trend in employment but it will serve to squelch some of the uncalled for and certainly undeserved euphoria about the state of the US economic recovery that we have been treated to of late by the spinmeisters and various talking heads.

Some might try talking up the insignificant drop in the unemployment rate to 8.2% but that is another cute statistical gimmick brought about by the fact that the participation rate fell once again. Fewer people in the overall work force tends to push the unemployment number down masking the true condition of the chronically out of work who have simply given up looking for work.

Some are going to wait for the next month's numbers to see if this one was a one-off but for the time being, it should at least serve to stop the mouths of those pooh-poohing the notion that another round of QE is not going to be considered at some point. The economy may be plodding along but it is certainly not setting any records as far as increasing growth goes.

One other thing to consider here - not only will job growth need to do better than 250,000 month to get people excited, it also has to be growing fast enough to provide jobs for new additions to the work force - namely college grads and high school seniors who will be graduating within the next two months. Exactly where are they supposed to find work? It is one thing to have an economy growing at a rate fast enough to bring back into it those who have been unemployed and looking for work for more months than they can remember - but what about these new graduates also?

In the meantime I thought I would post a couple of charts detailing the Custodial Accounts for Foreign Central BAnks at the US FEderal Reserve.

Take a look at these and you can get a bit of an idea about foreign central bank appetite for US government and government agency debt.

I am quite curious as to whether or not these Treasury holdings have reached a plateau. They have remained under the $2.75 Trillion level for some time now. Have we reached a point where they are saying "NO MAS!" ?

If so, then will the Fed step up its purchases of US TReasuries to make up for the fall off in demand? All very good questions that we need to monitor as they will serve to show us whether or not our foreign "bankers" are willing to finance further our profligage ways.

Happy Easter to all my Christian readers and a Blessed Passover to my Jewish ones.

Weekly Gold Chart

Gold did not have a good week falling below chart support at the 50 week moving average for only the second time since the bottom made way back in late 2008/early 2009. As you can see, since then it had only violated this important chart level once and that was the very last week of trading in 2011. You might recall that funds were then dumping longs, booking profits before year end and moving out of commodities over fears of European sovereign debt meltdowns.

The start of the new year brought with it expectations of increased liquidity coming from Western Central Banks to deal with the fallout from that sovereign debt crisis and the deflationary impact it would necessarily have on global financial markets. As the new year unfolded, funds increased exposure to the commodity sector in general and to gold in particular, that is until Uncle Ben and his merry band of dollar creators decided to try talking down the commodity sector and herding these pesky funds into the equity markets instead.

Seeing the importance of this chart level now violated, it is imperative that bulls push the price back up through it before the end of next week's trade. Two consecutive weekly closes below this level would not augur well moving forward.

As long as gold holds above the red lines shown on the chart and labelled as chart support, it will be okay as it still remains in a very broad range defined by a top at $1800 and a bottom down near $1535 - $1530.

Central Bank buying has been quite strong down at that latter level and I would expect that to continue should price indeed move down towards that level.

As far as any upside momentum goes for the metal, it is going to have to firmly clear and hold the $1680 level before it can generate the least bit of excitement.

Swiss National Bank intervenes to undercut Franc Strength

While the Swiss Franc is lower today against the Dollar (as is the case with all of the European  majors), it has been gaining against the Euro as nervous investors in Europe weigh further escalation in the region's ongoing sovereign debt crisis.

Note the following ratio chart or the cross I have created to give you an idea of what has been happening with that particular cross. The Swiss Franc has been the beneficiary of investor preference going back to the beginning of the Fed's stimulus party in late 2008.

European sovereign debt fears then further contributed to increasing gains in the value of the Franc against the Euro as investors on the Continent began looking for a safe haven alternative to US Treasuries. Apparently that has led the Swiss National Bank to once again intervene into the foreign exchange markets. They are determined to prevent the Swissie from rising any further against the Euro.

This is an interesting development since it may serve to preclude any further investor flows from Europe into the Franc leaving them with one less safe haven to run into in the event that things begin spiraling downhill once again over there. With issues now arising related to Spain and Italy not out of the woods yet, this is the sort of thing that has the potential to give rise to a series of investment flows back into gold on the Continent.

If that is the case, EuroGold will begin to move higher and that will work to steady the US Dollar price of Gold.

The jury is still out on this but it does indeed bear watching.

Food Inflation back in the News

Reuters is carrying an article discussing the rising cost of food ( By the way, the US monetary authorities all tell us that is not true as their parrots have trained them to repeat the words. "there is no inflation; inflation is subdued") in an article that I have linked to.

Eric King and I have been discussing this on our recent KWN Weekly Metals Wrap interviews but it seems to have gone unnoticed by many in the financial press until now.

While the Continuous Commodity Index ( CCI ) has been moving lower again, this is more a function of the outflow of hedge fund money from the sector as they jam into the equity markets, the obedient lapdogs of the Fed that they are. The rest of them have been too busy getting whipsawed to death in the commodity markets.

With current stocks of both corn and soybeans tight, and energy costs remaining stubbornly high, it was just a matter of time before those at the final end of the pipeline had no choice but to pass on those costs to the consumer if they wished to remain in business.

Keep in mind that high gasoline and diesel prices impact the cost of food from a transportation viewpoint ( trucking them to market ) and from a planting point of view ( running tractors and other farm equipment requires fuel).

I am of the opinion that the rise in the broad US equity markets is more a case of paper asset inflation than anything connected to a true signal of strength in the underlying US economy. After all, that freshly printed money has to go somewhere and why not into stocks. In an ultra low interest rate environment, the Fed can easily herd their lapdogs into stocks to prop up that all-important "economic indicator".

As it becomes more clear to others that the need for continued accomodative monetary policy is the only option left for the Fed ( let them even hint at trying to remove it and watch what will happen to their beloved equity market rally), gold will get its legs back under it and stabilize prior to making another leg higher.

Food inflation seen back on the table as prices rise

 

Wed Apr 4, 2012 6:01pm EDT

* Strong correlation with high oil price* Corn, soybeans gain on physical markets in March -FAO data
* U.S. soybean futures jump in March on tight supply concerns
By Svetlana Kovalyova
MILAN, April 5 (Reuters) - World food prices are likely to rise for a third successive month in March, and could gain further beyond that, with expensive oil and chronically low stocks of some key grains putting food inflation firmly back on the economic agenda.

http://www.reuters.com/article/2012/04/04/food-fao-idUSL6E8F42J520120404

A Happy Ending News Story - Dogs RULE!

Those of you who are dog lovers as I am, will be absolutely edified by the following story detailing the heroics of Man's Best Friend. A cat would have probably run and hid under the sofa...

Pit Bull Shot In The Head Trying To Protect Owner, But Miraculously Survives

'Kilo' Didn't Take Too Kindly To Gunman Pushing Into Staten Island Home

April 4, 2012 11:01 PM

http://newyork.cbslocal.com/2012/04/04/pit-bull-shot-in-the-head-trying-to-protect-owner-but-miraculously-survives/