Despite More Fed Extramural Chatter, Markets Come Into Fundamental Focus Free Of Rate Concerns

Investors’ eyes and ears are turning toward the actual functioning of markets, even as we hear continual proclamations from various Federal Reserve members regarding a rate liftoff.

Crude oil is a good example of how the focus has been re-oriented.

A seriously deep fundamental factor for West Texas Intermediate crude is that there is $1.5 trillion in uncommitted investment dollars out there waiting for oil to go back above $55 per barrel. Without that pricing level, the money stays on the sideline or, (naturally), goes into other investments.

By now we are all familiar with the OPEC strategy to keep prices down until interest in oil extraction elsewhere in the world magically disappears. Of course, for OPEC, led by the Saudis, this is a damned-if-you-do-and-damned-if-you-don’t strategy. Once the price does rise – and it surely will – above $55 and into the $65 range – the pumping and processing will begin again in the U.S. and Canada with a vengeance.

One of the ironies the OPEC nations will discover is that during the period when unconventional wells have been pulled out of operation, the extracting companies have been furiously working to find new efficiencies in their processes. And, no surprise, they have found them. When the unconventional wells (and marginal conventional wells) come back onto the playing field, they will do so in a stronger position. In brief, once the price hits $55, give or take, U.S. and Canadian crude will come pouring into the market.

In another area that bears scrutiny and will get it in this long, funny season of presidential politics, Hillary Clinton weighed in on a 62-year-old pharmaceutical patent that was purchased by an investor who raised the price of a dose of the drug from $13.50 to $750.00 each.

Big pharma companies don’t like scrutiny (even though the patent purchaser was a venture capitalist type) because it immediately brings up a huge question Americans have been chafing against for decades. Why do citizens of the U.S. pay two, three and four times more for many drugs than do, say, Canadians, Mexicans, and most Europeans?

This kerfuffle saw Clinton hammer the drug companies on the campaign trail, speaking about “gouging,” a magic word. Given her status as a high-odds winner of the election next year, that drove down many pharma stocks and depressed the biotech sector. Healthcare also was tripped up by the conflict. Clinton said she was going to issue an outline of a plan for dealing with this kind of issue on Tuesday.

Gold lost its post-FOMC-announcement mojo due mainly to the bullying strength of the U.S. dollar. The greenback was up almost a full percent today as European and U.S. rates diverge. Dollar strength pushed gold down to the low 1130s, even though there was a modest gain via “regular” trading.

Fundamentally, gold bulls have to find their reason to believe. Although the interest-rate scenario and the robust dollar are working against gold, there are a few possibilities on the horizon that very well could jump start higher prices.

The possibilities are: 1) a serious stumble in the equities markets, 2) a surprise jump in U.S. or European inflation, and 3) some large meltdown in international matters.

We feel that #2 is the most likely catalyst, although #1 is not entirely out of the question. Of course, we hope that gold bulls don’t have to rely on #3.

Wishing you as always, good trading,