A Quiet Mutiny From Stern To Bow… Eyes Open Everyone

A Quiet Mutiny From Stern To Bow… Eyes Open Everyone

The trouble with hedges against inflation is that they need inflation. Sounds obvious, but the message doesn’t always get through to investors and traders.

Today, the ECB kept interest rates unchanged at record lows as expected and lowered its forecasts for inflation and economic growth, citing a slowdown in emerging markets and weaker oil prices.

Given the softness in U.S. inflation data, the slowdown in Asia and problems in emerging economies, where is gold’s permanent place? (As currency for ISIS? Now there’s a short-term possibility if we ever saw one.)

In mid-afternoon trading, the yellow precious metal is down over $9.00.

Crude oil and U.S. equities were involved in an intricate dance that sometimes involved the dollar and sometimes played out without relying on currency fluctuations.

There is a good deal of uncertainty in equities at the moment, no matter where you roam looking for a steadfast index. After the debacle that seems to have been brought on by China volatility, analysts and investors are in a wait-and-see mode. Everyone seems worried about jumping back in too early, or for too long. Thus we are seeing lots of testing of the water and quick-move profit taking in stock markets.

This reluctance to commit seems particularly strong in the Asian markets, most specifically on the Shanghai composites.

In our fundamentals letter, we seem to hammer oil fundamentals almost every day, regardless of the direction it’s trading in. How can we not? Is oil leading the race to the Consumer Price Index bottom? We should look more closely at this possibility and we should also start looking at inflation as it affects all people, not just a very narrow slice of purchasers of certain, carefully chosen goods.

In the end, we’re all waiting for the Fed meeting, which draws closer like the drumbeat of an invading army.

"The fact that we're not seeing extraordinarily wider gyrations out of Asia is also a plus for the market," said Peter Cardillo, chief market economist at Rockwell Global Capital. "I think oil prices right now are the best indicator for equity markets until the FOMC meeting."

Yes, indeed, Mr. Cardillo. But watch the dollar, bond prices and a possible return to volatility in China. And don’t forget that Japan is looking like a limp rag.

How many eyes do we need to have these days? Many, many.

Wishing you as always, good trading,