Hello Chaos My Old Friend

We won’t go as far as to call in the elite fractal experts from the math department at the University of Chicago in order to clarify the recent markets in terms of chaos theory, but let’s admit that right now everything seems topsy-turvy.

Oil is plunging like a rock dropped off a giant skyscraper. Barrels of West Texas Intermediate and Brent North Sea now selling in the $31.50 price range This is – because Wall Street is filled with so many conventional thinkers – weighing heavily on the equities markets.

Never mind that the average driver saved $900 on gasoline last year with which he or she can do myriad things besides give most of it to assorted foreign and often hostile dictators, potentates and oligarchs.

The news lines are fairly burning up with reports that this year the U.S. could see gasoline dip to the $1.00 level, or close enough for grins. Let’s say you use about 1000 gallons of gas per year – roughly 20 gallons per week.

That means on average, many people would be saving another $750 per year. $1650 in savings per driver per year is no small potatoes for a family. Imagine every person who drives getting an average yearly salary increase of $1650. People would be dancing in conga lines down every Main Street in America.

The party doesn’t seem to be finding many attendees, at least in financial centers. Traders will smarten up soon.

One thing that further declines in energy prices will not generate is inflation.

In fact, it will keep prices down. Way down. The inflation picture is probably what led Atlanta Federal Reserve Bank President Dennis Lockhart to say today there may not be enough fresh data on inflation to support another U.S. interest-rate hike by March.

Well, there will be plenty of fresh data, but not any supportive of raising rates. It should be noted, however, that Lockhart is not an FOMC voting member this year (term).

Alrighty… China… maybe it is time to bring in the chaos theorists. China has been fudging economic data for decades. And like all builders of big Ponzi schemes, the central planners in Beijing understood that the bigger their promises, the bigger the body of believers and the more profound that emotional belief would be.

Now we are in the midst of a reality check. More like a reality slap in the face.

The main Shanghai index was down another 5.30% today. That dragged the Hang Seng in Hong Kong down about half as much. The Nikkei only stumbled a little and remains Asia’s bright spot these days.

The seriously negative action in China pushed down stock prices in Europe and in New York, too. Those economic regions are not displaying the same depressive demeanor as Shanghai, but there is a little dinging in their hulls every day, it seems.

We feel that the crude oil debacle and poor performance in tech stocks initiated by some jitters about Apple are what is driving U.S. equities.

There mustn’t be any huge concern about the future, if we judge by the price of gold, which has backed off its haven rally of last week. Most of the drop today was due to regular trading, but a stronger U.S. dollar also helped push the yellow precious metal down.

In the precious metals department, platinum and palladium came in for a beating. It seems one or the other is being taken to the woodshed almost every day. Platinum is down 4.00% on the day. Palladium is off 3.5%.

Worldwide, bonds were flat, another indication that safe haven is not foremost in investors’ minds, although one can scarcely say they are operating in a risk-on mode.

Wishing you as always, good trading,