Gold

Amidst welcome analysis from Bank of America that claims “the next big thing” in stimulus is going to be “massive” infrastructure investment, as well as other positive signs operating, markets tried to turn higher in slow trading today.

While Monday is not an “official” trading holiday, look for traders in New York to treat it as such. Junior crews will be working the desks while senior traders take a three-day weekend. (Schools; courts; most, but not all, banks; and other federal and state offices are closed in New York, New Jersey and Connecticut.)

Some of the markets we are most concerned with (oil and the S&P500) started the day higher, then faltered on news of turmoil regarding the election of a new Speaker of the House in the U.S. Congress. Then the Fed released its minutes from the September FOMC meeting and things got very interesting. (Gold played its own game today, rising briefly and then falling back on the Fed minutes.)

One would think that in the day and age of computers, apps, continuous information feedback loops and other electronic means that keeping track of domestic U.S. oil supplies wouldn’t be that hard. At the very least you would believe that the estimates might be within 3–4% of reality.

Not so fast.

We think U.S. stocks have the right idea. Watch out!

A run up near $50 per barrel for West Texas Intermediate crude is perhaps a good sign for the future of oil prices as is a Brent North Sea pricing level over the magic $50 level.

Can higher energy prices be one of the keys to kick-starting the equities markets? It seems so. At 3 PM in New York, West Texas Intermediate crude is up 1.8%. Part of the uptick in crude, however, was due to an unexpected drawdown in gasoline inventories, which we believe is merely seasonal as many regions switch from summer to winter blends.

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.

We are witnessing an imperfect storm, or two storms, or perhaps even three. Let’s try to unwind the interwoven, swirling winds and see if we can make some sense of what is going on, and hopefully derive a sound fundamental analysis of affected markets.

Markets for the most part took a breather from taking their daily beating today. They were led higher by opportunistic buying, short covering, hopeful players betting the slide is over and, when trading opened in New York, reliance on a robust private jobs-creation number by ADP. Oil and gold were the exceptions, heading lower.

Let’s open with the overproduction of crude oil and use that as a factotum for all commodities. The world is not producing too little but too much of almost everything. (The exception might be pharmaceuticals, health services and housing materials.) Thus, we have low or declining prices in most raw materials.