When Anxieties Have Anxieties Because Of The Fed

Are Investors, analysts and traders acting like big babies? We think so. Even at its much easier-going mid-20s levels, the VIX is reporting that back to us. It’s absurd.

Even though strong fundamentals are in place for many, many equities sectors, prices are struggling because of the Fed’s upcoming meeting that will certainly discuss a rate rise but will more likely than not skip it for this session.

The only sector we see suffering badly is energy, meaning crude oil. It can’t seem to get traction on price and we’re beginning to think we could be looking at a very long-term downturn once we get through the early part of Q4. How bad could the price depression go? $25 per barrel perhaps. Now – warning – this is solely based on fundamentals without even a glance at farther-out technical outlooks. But, fundamentals will not be denied their place at the table.

We wonder if the Saudis and their loyal followers in OPEC have not got a tiger by the tail now that they cannot let go lest it turns around and eats them. We’ve elaborated on the factors for so long, they’re like a mantra: overproduction, lower demand, huge stockpiles, less reliance on fossil fuels in general, U.S. frackers perched on their heights ready to swoop, Canada nowhere near capacity on oil sands, Mexico trying to modernize PEMCO, and Iran itching to get back into the game, which it will do with a bang. Add to that, Russia’s stout refusal to curb its production to boost price (it can’t afford not to produce).

In mid-afternoon trading West Texas Intermediate is down 2.5%, while Brent North Sea is down 1.5%. We don’t normally comment on nat-gas but it’s noteworthy its price is down more than $1.00 on the year. There is a lot of energy everywhere and less and less demand.

(Without going into this deeply today, the world as a whole is entering a low-consumption, post-industrial phase that is millennial in scope.)

Even though the dollar is down ½ of a percent on the day, gold and silver could not profit from pressure on the greenback. The precious metals are quite paralyzed by the looming FOMC meeting’s potential rate hike fallout.

Haven? Not a chance. If interest rates do rise, the opportunity cost of holding gold will go up in relation to holding bonds, for instance. The only possible casualty we see that might get hurt more than gold on a rate-hike move is housing, unless bankers simply ignore the Fed rate and don’t pass it through to consumers except on a basis-point-by-basis point level.

If the Fed stands pat for this month’s meeting, then great interest will stay focused on equities and other risk-on investments. Standing pat might also mean no raise in rates until next year. What’s that? Some important voices are saying a raise in December, given all the end-of-year settling and realigning that usually pops up, is not prudent.

That’s the really big money talking. No curveballs while we’re counting up the year’s profits and calculating… bonuses!

Wishing you as always, good trading,