Gold And U.S. Equities Essentially Even

Oil-producing nations in and out of OPEC are beginning to rattle their sabers again about production cuts. That helped oil rise about 3.50% on the session.

We’re all familiar with central banks talking their currency up or down for self-serving reasons. Think of oil as a currency and ministries of oil as something parallel to a central bank in petro-states.

The rise in oil certainly did not have a positive effect upon U.S. equities, although declines were modest, staying around 0.10% to 0.25% off.

Gold in mid-afternoon action is even while silver is up a small fraction. Dollar strength, which drives gold prices down, cancelled out grains made in regular trading.

We think that long-weekend traders and investors are keeping volumes down, not just in precious metals but in equities and currencies, as well.

Equities are stalled for a similar reason. Shorter work weeks are a norm in the summer in New York.

"I think people are keeping their powder dry for two reasons: we're getting more consumer-oriented companies reporting this week and we're getting retail sales data," said Kim Forrest, senior equity analyst at Fort Pitt Capital, adding that "it could be that nobody is at their trading desks. It doesn't feel like there's a lot of volume out there.”

While we sense some importance regarding retail sales, we are wondering if the return of job growth, as witnessed in the Department of Labor’s data dump last week, is going to push the Federal Reserve to raise rates in September. (Or at least we wonder if that is a major concern of traders and investors.) We think the concept has given traders pause.

 We have a real concern with consumer spending and it goes something like this: Those who have come out of the recession intact have a spending curve that is reaching an apogee very slowly. That is to say, they are spending, but modestly, and so can’t add much to higher growth.

The poor are getting relatively poorer, meanwhile, or at least mired in income stagnancy. All income growth is located north of the 25^th percentile of earners.

In order to have more retail growth, we either must have a larger pool of earners at the low end, or significantly for the current low earners. One way to fulfill either/both prescriptions is for the federal government to get off its duff and enact infrastructure improvements up and down the spectrum. Bridges, roads, high speed Internet, smart grids, ship-building and so forth. Monetary policy will not keep us out of a recession nor get us out of one, should we stumble.

The Nikkei was up the most of all indices in the world today on a weaker yen and the prospect of putting more into infrastructure by the Bank of Japan’s cheap money policies. Hong Kong was strong as well.

Europe rose on a middling to barely up session. Although going up incrementally, the London FTSE is at a fourteen-month high.

A quick return to the crude oil situation. Bulls face a long-term, practically unsolvable set of problems. It boils down to this. If crude breaks out of its current range and goes, say, to $65 per barrel, the North American industry will immediately jump in with production from shale, coal tars and so forth.

There is a torrent of oil waiting to be released by the U.S. and Canada. Unless some sort of very disruptive event occurs, oil will dive back down.

OPEC has put itself in a very precarious position and taken other producers with it. Who will the “odd man out” be? Our bet is Venezuela, which needs income desperately. Russia could come second.

Wishing you as always, good trading,