Permazero Fiddles While Crude Oil Burns

West Texas Intermediate crude fell over 3.00% today while Brent North Sea cratered by almost 3.70%. Both drops in price are signs that oil is about to test its recent (August) lows, and that prices could perhaps go lower.

This should come as no surprise to those who read our newsletter on a daily basis. We have been saying for at least a year that there is no fundamental reason why oil should rise. It could be that, in fact, it is in a death spiral and could be headed into the mid-$20 range.

We think that the market has gotten away from the Saudis. That is an enormous danger sign for an economy that is a one-trick pony. The Saudis could be facing concrete political problems should oil get into that ultra low range.

As we have pointed out before, the U.S., Canada and Mexico are all waiting in the wings to produce more crude should the price start heading back up. And Iran is champing at the bit to get its oil unto the marketplace. Russia will not back off of its record-high production. No one can, except the North American companies, which live in diverse economies for which oil is only one relatively small component.

Nevertheless, the continuing decline in oil prices truly hurt U.S. exchanges. The Dow, the S&P 500 and the NASDAQ are off well over 1.00%. The Dow and S&P, indeed, are off 1.40% at 4PM New York time.

The U.S. dollar slipped a little again today. Don’t expect the weakness to have legs. Expect the opposite, as a matter of fact. The Fed rate hike looms too large and the stimulus programs sweeping the rest of the world’s major economies make the dollar’s strength seem inevitable.

The greenback’s temporary weakness helped gold today, but not enough to offset altogether negative “regular” trading on the floor. However, as we slide past the 4 o’clock mark with less than hour left in trading, the dollar dip is helping gold even more. That is bringing gold closer to break even for the session.

Silver and platinum are also on the losing end, but it is palladium that has been really taken to the woodshed once again today. Palladium is down 2.45%.

Unlike gold, U.S. Treasury bonds served as a safe haven today, as they have all week. A strong debt auction (30 year bonds) went well.

There might have been even livelier action except for one fact. Six – count ‘em, six – Fed officials were set to make public appearances on today.

Earlier in the day, St. Louis Fed President James Bullard repeated his support for the Fed raising interest rates. However, that came with a side effects warning.

"Should we find ourselves in a persistent state of low nominal interest rates and low inflation, some of our fundamental assumptions about how U.S. monetary policy works may have to be altered," Bullard said in a speech titled "Permazero," which was delivered at the archconservative Cato Institute’s conference on monetary policy.

Wishing you as always, good trading,