Fed Slogs On, Traders Flinch

Just to be clear, a bear has lots of fur, claws, big teeth and is - well - bearish. A bull has horns, powerful shoulders and delivers a heck of a kick. 

So, what today could possibly be interpreted bearishly in the FOMC after-statement? "There is not as much downside to the economy," seems to be the answer. If there were more downside, we'd be sliding into a new round of recessionary pressure. We're mired, stuck, slow, feet stuck in the mud. But we 're not headed toward a recession. we're looking at plodding, slow growth. 

What truly matters is that the Fed decided to keep on course with tapering. Gold traders seem to have gotten lost in that simple fact. And, one again, the move to keep QE3 intact was voted for overwhelmingly with only the ideologue from Kansas City, Esther George, who wouldn't give a cup of dry corn to a starving child. 

Also important is that the Fed restated that decisions would be conditioned on economic performance and in particular on data from the job market. 

The Fed's statement did not directly allude to the government shutdown, but it said once again that "fiscal policy is restraining economic growth." And, in another two months, we will begin facing the fiscal irresponsibility of elected officials once more. 

Stock markets in the U.S. are down. We'll have to wait till tomorrow to see how Europe and Asia react. Oil is down again and this is beginning to be worrisome because crude is a canary in the coal mine. Yes, supplies and production are up, but the price decline stems from a slackening of demand. 

Meanwhile, silver quietly had a very nice day, up about 1% for the trading sessions. 

As to financial markets and commodities, we are beginning to see some general resistance at current levels.

"People are looking at it and saying, 'OK [the Fed stance] is about what we expected, so there's no real upside, and we've traded it up, so now let's back off a little bit,'" Brad McMillan, chief investment officer for the Commonwealth Financial Network in Waltham, Massachusetts, said today. 

That's an answer to at least another $170 billion in stimulus and more likely another 340 billion? "We've traded it up" already?

Some analysts are saying now that tapering could begin in December based on what was said today. That has spooked other analysts and traders, but we believe cooler heads will prevail once the real statements are dissected and fully grasped. Most of this speculation is based on the removal of a phrase from the previous statement release last month. 

The statement that was removed referred to the notion that tighter financial conditions could slow improvement in the economy. Those tighter conditions are based on the rise in interest costs, both prime rates and mortgage rates, which now have evaporated. Bond yields have tumbled from summer highs and mortgage rates seem relatively stable. So we drove around the block once on interest rates and are back where we started. 

More fallout will drop out of the sky on this FOMC meeting release. And, peering over the horizon, let's not forget that nominee Janet Yellen is considered a more dovish leader than Mr. Dove himself, current chairman, Ben Bernanke. Perhaps the votes will get closer when the new term begins next year, but it's a long way from 11 to 1 votes in favor of QE and 7 to 5 votes to taper. At least five doves must put the talons of the hawks on. 

Wishing you as always good trading,