They Went That Away. No This Away. On Reconsidering, They Actually Went Both Aways

Let’s set the scene. The markets have been unsettled to say the least. The gradual weaning off easy money – heck, the mere thought of weaning – has driven equities, precious metals, the commodities in general, and bond yields absolutely bonkers. One moment, the U.S. is the world’s last, best economic hope; the next moment the U.S. is a giant debt-soaked cesspool ripe for invasion by the Russians, Chinese, Brazil and maybe Ontario.

Today, new jobs in September, as measured by the U.S. Department of Labor, deeply disappointed the markets.

Market say: “Me plunge on bad news.”

Then Market say: “Me think Fed no raise rates. Too risky. Mmmm. Easy money good for stock prices.”

Markets zoomed back up to trading in positive territory. All three major U.S. indices are in the green for the day, albeit it modestly. Certainly the smart money today is looking at a farther horizon for rate lift off and that is a positive signal to stocks.

Crude also rose, lending equities in New York a boost. That was based on a report of a sharp decline in the U.S. oilrig count, which was not surprise news, but rather the concrete quantification in published form of known facts. (Makes you wonder how well traders do their homework.)

Helping U.S. equities too was a strong recovery in the pharma sector, which had been oversold on the moral crisis over renewed charges of price gouging by drug makers large and small.

Gold rose about 2%, but it is really palladium and especially silver that stole the show today. The former is up over 3%, while silver is up more than 5%.

Yet, the tangible problems in the market, (aside from a lumpen, do-nothing Congress thwarted at every turn by anti-government zealots), stem from uncertainty within the Federal Reserve regarding rates.

Stanley Fischer, Fed Vice Chairman, although not commenting directly on the interest rate question, did say, “Banks are well capitalized and have sizable liquidity buffers, the housing market is not overheated, and borrowing by households and businesses has only begun to pick up after years of decline or very slow growth.”

Fischer is also worried about weakness in the regulation of banking and investment, which is making the hairy ride the markets have been on all the more scary. “I remain concerned that the U.S. macroprudential toolkit is not large and not yet battle-tested. That does not imply that I see acute risks to financial stability in the near term,” he said.

We read that to mean that since there are no real bubbles, that still gives the lazy Congress time to devise new financial safeguards.

Other members of the Fed also spoke out this week.

On Monday, San Francisco Fed president John Williams said, "I am starting to see signs of imbalances emerge in the form of high asset prices, especially in real estate, and that trips the alert system."

But New York Fed chief William Dudley, speaking on Monday as well, said, "I don't see anything right now that suggests that those financial stability risks are particularly high."

We’re not ready to go out on a limb just yet but we’re getting closer to predicting that the incipient interest rate hike will be pushed into 2016. However, we’re not ruling out a “surprise” jump in October.

After October, it seems that December with all of its end-of-year overtones is not likely for timing reasons. And that, my friends, leaves us with the New Year.

Wishing you as always, good trading,