Seize The Phrase

Fastening their claws onto one short phrase of the Fed in the FOMC minutes released today, some traders read it as a sign that interest rate hikes will arrive sooner rather than later.

The phrase was:

...The recent improvement in labor markets and the cumulative progress over the past year had been greater than anticipated and... labor market conditions had moved noticeably closer to those viewed as normal in the longer run.

The traders failed to notice the degree of concern about part-time workers, poor wage growth and how the unemployed are dragging down the consumer side of the economy. The investors in gold also failed to notice the wording about low federal, state and local expenditures, virtually a permanent drag on the employment picture.

Apparently equities traders had a very different take on the minutes, trading the S&P close to a record high (+ 0.38%) and pushing up the Dow by almost as much. The NASDAQ was also up, though barely measurable.

Bond traders seemed to straddle the middle. Yields were up 0.025%, a flea-flicking amount.

Perhaps, though, some traders were pushing prices down in anticipation of what is expected to be the expression of more dovish sentiment at the Jackson Hole symposium this weekend.

"The FOMC minutes are telling us about what happened three weeks ago, and Jackson Hole, given its precedent for signaling meaningful policy shifts, has taken on this very elevated status," said Jeff Greenberg, senior economist at J.P. Morgan Private Bank.

Some more textured examination of other factors in the economy has to be taken. Commodities prices are soft and futures look even softer. That's a bet on lower growth. Housing, even though new starts improved recently, is still struggling. And, take notice: state-level leaders no longer crow with delight when a new big box store opens with low-paying jobs. State officials are now almost always talking about high-wage jobs with staying power.

Inflation, after a spike in the second quarter - one based almost entirely on higher fuel prices - has settled back into its low-go pace. Does the Fed really want to strike at "The Phantom Menace"? While the national economy could take a few months of higher inflation, what would even a slight contraction mean and how would it be perceived worldwide? No one wants that on their watch.

And that's before we even get to global weakness, international crises and cyclical factors, which cannot be far off anymore.

We'll stick to our guns on two things.

A rise in Fed interest rates is more than a year away. Let's be precise and say September of 2015.

These are times when good traders in gold and silver trust technical analysis while reactionaries trade on shadows and mirages.

By the way: the strength of the dollar is accounting for all the weakness in gold today.

As always, wishing you good trading,