The Flying Tiger

The dollar was up against the euro, yen and British pound today, the tiger uncaged continuing its late-summer rampage.

That sent just about everything but equities down, although the NASDAQ was off a bit today.

Crude was down yet again. Yields on the U.S. 10-year bond were down. The entire precious metals complex was down, with silver taking the hardest hit. That is down 3.5% at mid afternoon in New York.

But the dollar had a little help from regular trading today in pushing down gold and silver. Of the approximately $9.00 loss on the day, $2.00 of it is coming from simple selling. At that, gold is up off its lows around 1213 on the day.

Much is being made of the FOMC statement after this week's meetings. Somehow, the tea leaves are being read as saying that the Fed rate will increase sooner and faster. We're not in that camp.

We think that once QE3 has completely ended, more, not less, pressure will remain on the Fed to keep benchmark rates low.

We feel that what we're seeing is a long, slow march back toward normal conducting of business as usual in the U.S. We have not seen that in Europe, certainly, nor in Japan and the enigma that is China seems to be growing increasingly impenetrable.

When an economy as large as the U.S. machine grows by 3%, it sets off a huge chain reaction. That means output/income growth of roughly $500 billion. That is dwarfing Europe's growth without argument. And, if we take into account China's exaggeration of both current economic size and its growth rate, the U.S. is whupping China as well. Japan is still stagnating.

Additionally, we think that the key in the FOMC press release concerns its balance sheet. Ever so slowly, the Fed has to lighten the load. Natural aging of instruments will help, but some of it will stay on the Fed's books for years, if not into the next decade.

One way to hand off the load is to market some of those securities. Some of it is "bad," although not terminally unmarketable. But, it can't be marketed at 4.5 or 5%. No one will want it. So, baseline interest rates must stay down. If the fed wants to sell these assets, it has to allow the buyers to make money when they turn around and re-sell or bundle the assets for sale. The question is, then, what is the spread? The bigger the spread, the better for everyone - including just about the whole world.

Leaving aside, too, the Fed's avowal that unemployment has to reach X and inflation has to be around Y, there is a problem with raising rates, which pushes the dollar higher. It ads an unwanted premium to U.S. export of goods and services.

The last thing the current Fed wants is a mini recession on its hands.

Finally, if anything, the next FOMC in 2015 will have more dovish members than this one in 2014. We will see - except for the sworn doves - the consensus move toward the middle, and away from hawkish sentiment.

However, all of the above is contingent on what happens to the U.S. economy in real time. And no one can predict that except possibly through technical analysis.

As always, wishing you good trading,