A Day To Remember

You can celebrate if you’re so inclined: today is Milton Friedman’s birthday (1912 – 2006).

Today we witnessed the equities markets in a virtual meltdown. Equities have now given back the gains of 2014. What predicated this dramatic selloff? Also a perplexing question is why we did not see any flight into the precious metals in unison with today’s dramatic decline in equities.

We are all awaiting tomorrow’s jobs report, which will probably reinforce the thinking we saw, expressed in the FOMC statement issued yesterday. Job growth will be strong, but not in overdrive. We are estimating 215K to 240K new jobs. Whether the unemployment rate will tick down is anyone’s guess. Labor force participation has become a major trickster.

While much of the FOMC statement was completely predictable, we are wondering when the commentary on fiscal policy (or lack thereof) will grow more strident. It is a reality that the lack of meaningful action on the part of Congress – its inability to harmonize the fighting factions – is absolutely hurting the U.S. economy. For instance, as people interested in markets, what are we to think of the House plan to sue the president?

The Fed encapsulated its sentiments in the opening of the statement:

“However, a range of labor market indicators suggests that there remains significant underutilization of labor resources. Household spending appears to be rising moderately and business fixed investment is advancing, while the recovery in the housing sector remains slow. Fiscal policy is restraining economic growth, although the extent of restraint is diminishing. Inflation has moved somewhat closer to the Committee’s longer-run objective. Longer-term inflation expectations have remained stable.”

The entire statement can be read on the Federal Reserve site:

http://www.federalreserve.gov/newsevents/press/monetary/20140730a.htm

As markets continue to fully digest the FOMC statement, and as they await the jobs report, investors turned negative in early trading in both gold and silver.

We are watching how strongly the international tensions in Gaza and Ukraine shore up precious metals prices. Unless more bad news comes from those trouble spots, we think the twin crises are baked into gold and silver prices, for the most part.

Oil from the Middle East and gas from Russia are two canaries in the coalmine. So far, prices have been tumbling. Supplies are high, demand is weak, new production prospects are rosy.

As traders begin to attempt to recover from today’s dramatic meltdown in equities what will tomorrow’s jobs report bring to the table. More importantly how much more volatility can be added this week, hopefully we have seen the majority today.

Wishing you as always good trading,