"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


Tuesday, June 17, 2014

Upcoming FOMC spooks Gold Bulls

Gold went one way today ( down ) while the mining shares went the other ( UP). Traders cited concerns over the upcoming FOMC meeting where the fear is that Yellen will strike a more hawkish tone.

Reinforcing that was today's CPI number which showed a big jump in the index of 0.4% in May from the April reading. That was the biggest rise since 2013. The index jumped 2.1% from a year earlier and that in particular is what caught the attention of some traders since it would indicate that the Fed's goal of an inflation rate at 2% has been reached. The YoY data brought in some buying to push the gold market back above some initial support at the $1260 level.

There was also a headline on another news site detailing the sharp rise in meat prices which are at an all time high. This should come as no surprise to readers here at this site since I have been remarking about high protein prices for some time now due to the fundamentals that currently exist in the cattle and hog markets.

However, and I think this is important to note - I expect meat prices to begin falling off in the 4th quarter of this year and especially by Q01 2015. I have been warning hog producers in particular to get some downside hedge coverage in those hog contracts in which they have expected production coming while they also secured feed coverage.

I am hopeful some of the hog producers who read this site did just that. Q04  2014 and Q01 2015 hogs have plummeted over the last two days.

What I am saying here is that readers ( and grocery shoppers) should expect to see continued high meat prices for this summer and into the fall but as winter rolls around, meat prices will come down.

Combine this with the fact that the price of all three major grains/oilseeds, wheat, corn and soybeans, are also dropping off sharply now due to traders expecting large harvests this year, and consumers are going to catch a most welcome break in food costs later this year. In that regards, while the CPI numbers are important to note, that index is backward looking by its design and not very good for anticipating what is coming further down the road.

When it comes to the energy component of the CPI, one wonders how much of the move higher is due to geopolitical concerns. Remember that crude caught its first bid higher due to events in Ukraine as traders put in geopolitical risk premium into its price. Now, within the last week, the Iraq events have taken the place of that Ukraine risk premium which was bled out.

Further complicating the energy picture is the demand side of this equation. We keep getting drawdowns or less than expected builds in the EIA data. I have mentioned this previously that I like to monitor both crude oil and copper prices to get a better sense of trader sentiment towards the economy.

Here is my quandary ( and I think that of other traders/investors as well). Is the strength on the demand side of the crude oil market related to actual crude usage that would indicate a stronger and growing economy? If so, then copper prices would tend to confirm that by moving higher. The problem is copper prices have been retreating and while stable above the $3.00 mark, they do not seem to be moving up with any great sustained momentum.

In other words, like so much of the current economic data, that which we are getting is cloudy and difficult to decipher. Strong crude oil usage is not indicative of an economy barely muddling along; then why are some of the other indicators weak?

The one constant has been a rather mediocre rate of job growth and that slack in the labor markets is the one thing that has been keeping the Velocity of Money from moving higher.

I said all the above to say this, traders are going to be watching very closely for any signs of Fed movement on the interest rate front. If they get the sense that the hawks are winning the argument at the FOMC, markets are going to get nervous.

I am also noticing that the CPI number actually put a very firm bid in the US Dollar as the number spooked Dollar bears. Traders do not want to get too aggressive ahead of the FOMC release preferring instead to wait and look at the comments but the big jump in the CPI has more and more traders thinking that perhaps the Fed has gotten behind the curve when it comes to raising interest rates. That number will certainly embolden the hawks at the Fed and could very well be the kicker to take the Dollar through overhead chart resistance.

Either way, this is friendly towards the Dollar with its main competitors unable to move interest rates higher due to the lack of inflationary pressures being seen in their respective economies. I am speaking mainly of the Eurozone and  Japan. Depending on what we get out of that FOMC meeting, we could very well see a sharp move in the Dollar. STay tuned on that front.

Switching briefly to grains due to time constraints once again - all of them are weaker today with old crop beans leading the move lower. At this point, it does not appear we are going to get a squeeze in that July contract but we are not yet there for the delivery period so I want to reserve final judgment until we get into the actual process.

I am also noticing the Australian Dollar, the "Aussie", has once again failed to extend past the top of its 6 week trading range near the 94 level. It has subsequently retreated and is now below the midpoint of that same trading range. The Aussie tends to be a decent, not always perfect, but a decent indicator of the overall strength of lack thereof in the commodity complex because of the nature of its export-dependent economy where a substantial portion of those exports are raw materials.

So far it has not given evidence of an upside breakout but we will want to keep one eye on its price action. Like so many other markets out there, it is rangebound.


  1. Dan you are awesome and your thoughts are so very much appreciated.

  2. Inflation has been quashed. Permanently.

    Proven by the fact that the graphs of the Fed Balance Sheet, the amount of private and public debt outstanding, amount of student loan debt, etc. look like hockey sticks going into Outer Space.


    Deflation and rock bottom interest rates, with the Federal Government able to finance infinite deficits as far as the eye can see.


    In the event any specific item rises too fast in price (except stocks and junk bonds of course), the Fed Heads will simply start "jawboning" to immediately cause a selling panic in that particular item, whether it be hog futures, soybeans, sugar, oil, gold, whatever.

    We now live in an era where inflation has been banned.

    Because any rising commodity can be slammed with paper contracts, threats out of the Fed, or any number of "policy tools" now used by the "Central Planners", LOL.....

    We are now living in the "Glory Age" of central banking and economic planning.

    Never before has it ever been this good.

    Want proof?

    Just watch the action in EFTC, AMTD, SCHW today, as speculators cannot wait to jump into the stock market again after hiding in cash all these years.

    1. All the above tells me main street is getting crushed check insurance, food and fuel costs at the same time net GDP and asset loss is causing deflation. If the FED cannot get inflation soon it will need to do the unthinkable and start buying Gold so as to find something to devalue the US$ against because blowing bubbles in the DOW and big indexes cannot pickup GDP and inflation in the real economy. US GDP plus inflation less borrowing costs are not covering the balloning US Government deficit so the problems are getting bigger. Of course they could stop the taper, all the above is good for Gold, hold and accumulate.

  3. Poor Richard Russell may be losing his marbles.

    Says we are in a primary bear market.

    Last time I looked, all major indexes in the U.S. are way , way, way above the 2007 highs.

    Some sectors like consumer discretionary had the biggest, steepest runs in recorded history since 2009.

    Oh well, I guess that's the way it goes.

    When you are wrong you start making all sorts of excuses.

    1. Mark;

      This is beyond bizarre... where did he say that?

      By classic definition, a bear market exists whenever a market falls over 20% from a peak high. We are no where near especially considering that the equity indices have been making all time highs....

      Wow... I wonder if he recognizes that gold is currently in a bear market?

    2. at your favorite site Dan, kwn of course. and your other buddy turk has some lame thoughts as usual. pathetic I think is the proper description.

    3. I just read the Jun 17 Russell missive on KWN; one must be careful NOT to misquote or quote out of context. This is what is stated in that missive.
      "...The bear market in the US economy is continuing to this day....".

      He does not say the bear market in the stock market is continuing today.

      I am not a fan ( or the opposite ) or follower of Russell but I am definitely NOT a fan of anyone who may mislead or misquote.

    4. Wolf;

      Thanks for that clarification although I must admit, that is a very strange adjectival phrase used to describe an economy. I have heard "sluggish, mediocre, sub-par growth, slowing, etc.," to describe the overall economy but I cannot recall ever seeing that sort of phrase to describe an actual economy.

      I think he would have been better served to make a distinction between the action of the US stock market and some of the economic data regarding the US economy if you ask me because I really have no idea what might be meant by a "bear market in the US economy".

    5. Wolf, the old boy said a "primary bear mkt in the economy AND stock mkt began in '07". Since he does not go on to say they have ended, it is clear that he means we are still in a primary bear mkt. It is that simple, and he gets foggier and more disjointed all the time. sad

    6. Thanks

      Quite honestly, I have some doubts that these missives are actually being ponned by a 90 year old Russell himself ; perhaps this guy is in excellent mental and physical shape.

      I wonder if KWN ( Mr. King) used poetic liberty to edit and embellish the inputs he receives from his contributors. I do not have any inside knowledge of the inner working of KWN. is it a one man show ?

      The one positive ( unintended consequence ) of reading his blog is it led me to your blog. I will let you be the judge if that is a good or bad thing. ! As far as I am concerned it has been useful to my understanding though i must admit some folk are getting too emotional on this blog.

  4. The Inflationists vs Deflationists are examples of the growing polarization in the society. Interesting observation is that both camps can find real world example to bolster their cases. BOTH are right: PCs, HDTVs etc. are going down while
    meat, fish, vegetables, home Insurance, property Taxes and college tuition fees are going up. I guess.
    Inflationista view: http://www.moneyandmarkets.com/experts/mike-larson
    Deflationist view: go to Prechter's http://www.elliottwave.com/

    This creates nice trading opportunities in bonds and precious metals.

    1. Sorry I had the wrong link for the Inflationista view from Mike Larson:

      Again I am not on either side of this debate; just use it to trade.
      Made a few good bucks last two weeks on mining stocks like IAG, SA, HMY,etc which I highlighted on these blogs before the moved; sold 80% of most of them ( I always keep 20% of shares as my reward, if the trade is profitable).
      My brokerage a/c does not allow for philosophy or opinions:just offers a few options like: BUY, SELL and a few variations of the two.

  5. Offered without Comment




    1. Postcolonial; be careful with the Bulgarian Bullshitter at Zerohedge, as some of his sources are garnered at the checkout stand in the grocery store.

  6. This comment has been removed by the author.

  7. "OFFERED WITHOUT COMMENT" steve, so yes I agree - always better to call people names right off the bat rather than bothering to read the articles (the first of which was not from Zerohedge, the second of which was based on the NY Times and the third quoted Ron Paul). These pesky Bulgarians get everywhere these days, and you can't trust them - still Commies, most them, and if you need proof of their pinko-liberal credentials, why, you need look no further than the fact that they have the temerity to question the actions of The Exceptional and Indispensable Nation

    Here's another one of them I caught at it just a few moments ago -


    written by some double-barreled talking head who is probably a paid Kremlin shill and foreign to boot

  8. I'll have to say that Tyler Durden is pure genius.

    Zero Hedge started in January 2009.

    He's posted on average 20 "shock" articles per day claiming how the financial world is on the brink of a crash. On the weekend, he scales it back to 12 a day.

    Through today, that's about 1,962 days, for a total of 34,755 posts.

    And the entire time, the stock market has gone up, with very few interruptions, except for the EuroZone crisis.

    At the same time, specific sectors such as the Transports and Retail stocks have had the biggest, longest, steepest bull runs ever recorded.

    Yet despite the extraordinary strength, he gets 1.8 million views per year according to QuantCast, and his site is chock full of banner ads.

    I will say that the reason that 80% of the hedge funds have failed to keep up with the S & P 500 the last 5 years is the direct result of too many sucker fund managers reading Zero Hedge every day and buying their bear market hype.

    So not only has Tyler Durden been able to become a millionaire living in a foreign country knee deep in hookers and escorts,

    He has also been directly responsible for massive fund underperformance the last 5 years, perhaps causing billions in trading losses and thousands of job losses among money managers.

    Hats off to Durden, he pulled off one of the greatest bamboozle schemes ever.

    1. So Mark, when Postcolonial and
      Tyler get married, who is going to be the flower girl? Richard Russell or Egon the Great? Whatever will James Turk be doing? I will be drinking and you will be laughing, as usual, right? lol>?

    2. This comment has been removed by the author.

  9. Dan, mabye stagflation is starting to take hold. That's why indicators are mixed and confusing. In stagflation you have inflation without rising wages.

    Stagflation also explains falling money velocity which basically just means rising money supply relative to GDP. It doesn't mean the actual number of dollars being exchanged is decreasing. Or am I wrong?

    Mainstream economics indicators won't predict a stagflation scenario because the economists who designed them use the false premise that such episodes are aberrations rather than real economy driven reversions to the mean during a slow collapse of a fiat currency..

  10. Ok ok ok - i must have got out of bed on the wrong side today! Either that or I am being particularly stupid! Anyhow, thanks to you guys for being so understanding & patient & all - please bear with me while I try to figure this one out

    Ok, so I get the bit about Tyler Durden and supermarkets and hookers and flower girls, and I now somewhat belatedly (duh!!!) see how that's REALLY important to bear in mind even when referring to articles not on Zerohedge, or based on articles from the New York Times or statements from Ron Paul, but thicko that I am, I'd be really grateful if someine ciukd spell out for me whether all if that truly vital information means that Donald Rumsfeld and Dick Cheney really are a pair of War Criminals, or not....

    I mean, I am with you alk the way about the evils if distracting Hedge Fybd Managers from their noble cause, but aren't Blair and Bush and their cronies in an altogether different league? Or was it Tyler Durden all along who razed Fallujah to the ground, set up Abu Ghraib and waterboarded people with impunity? I'm fascinated to find out - and if all he got for it was a few lousy mill from banner ads, then my opinion of him just sunk even lower. You can get that kind of cash just by being Chelsea Clinton and getting an internship, you don't need to go the whole Hog and do the full genocidal Bulgarian Hooker thing

  11. Let's keep this blog about the markets everyone. All the back and forth with this conspiracy mumbo jumbo may leave newcomers to this site with the wrong impression of the collective IQ around here. I know you guys are having fun for the most part with the hyperbole, but it gets so thick at times it comparable to Alex Jones! I leave my tinfoil hat off when I log into Dan's blog, and I'm not chiding anyone with this comment so please don't misunderstand my intention.

    1. John, I have to laugh to keep from crying about what is happening to this country; hang loose, as today we get words of wisdom from Janet and her cohorts. Like I always say, "Audit the FED and then blow it up!"

  12. Gold traded below the highest level in three weeks before the U.S. Federal Reserve concludes a two-day policy meeting today, while investors weighed tensions in Iraq and Ukraine.
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  13. The content you shared is worth to read against Gold for Gold Trading Calls .Gold trading range for the day is 26410-27118.

  14. Gold traded near the highest level in three weeks as the U.S. Federal Reserve trimmed its outlook for economic growth and said interest rates will remain low, boosting demand for bullion as an alternative investment.
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  15. Dan,
    You are a rare, gifted thinker and teacher, so I hope you will continue writing. You are the best guide to the markets that I know. Hopefully your writing can be structured so that it enhances your life rather than detracts from it, and accruing income from it might be helpful so you can continue writing and teaching permanently.


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