The Fed Dog That Didn't Bark

Almost everyone was expecting clearer communications from the Fed today. What we got instead was a bit muddled. And, most investors and analysts tend toward accepting the gloomy side of things until upward momentum is a given. (And we stress "most.")

One bright spot, however, was that Chairwoman Yellen said that the unemployment rate gauge that affects judgements about raising interest rates is now fluid. This means we are going to see some fluctuations as the rate falls and rises. They would best serve us if they said "when the 6 month moving average reaches such and such, we will reconsider interest rates." A one month measure means little or nothing.

We have been saying for some time that the reduction in QE3 bond and securities buying is good for gold. It doesn't look that way today, but it will in short order. In a nutshell, this is because as the need for those purchases declines the actual easing declines and positive volatility is injected into all markets. Volatility is good for safe-haven investments. That is the simplest rationale we have to offer without writing a long pamphlet on the matter.

"It was exactly what we expected, but clearly markets reacted a little bit," said Todd Hedtke, vice president of investment management at Allianz Investment Management.  

"What didn't occur was a little more accommodative stance. With the China (economic) numbers recently and maybe even Ukraine and some softer data, there was a certain faction of folks in the market who were expecting to see that accommodating verbiage a little stronger."

Mr. Hedtke is right on the money, even if that expectation wasn't warranted. A good question for today is: "Where did all the money go today?"

Equities were down, gold and silver were down, bond yields were up modestly, oil too, was up modestly. Is the money sidelining? Is it headed for real estate? Is the dollar a shelter?

As always, wishing you good trading,