Post Fed Mood Shift
“You've lost that bullish feeling, now it's gone, gone, gone.”
To give an idea about the mood down in the trading pits after the last Fed meeting of the year, well let's just say the pits cleared out faster than frigid Soldier Field at the halftime in that blowout Bears Patriots game. It was almost as if the trade was looking for more confirmation from the Fed to continue with this commodity buying spree. Of course, it was not as if the Fed surprised anybody that when they said that they would continue expanding its holdings of securities as announced in November and that they would not waver from their plan to purchase $600 billion of longer-term treasury securities by the end of the second quarter of 2011 at a pace of about $75 billion per month.
Yet after the announcement, the market seemed to lack the passion that the commodity markets had leading up to this announcement. Is it possible that now the commodity bulls are going to pack it in for the year and start to book profits? Or perhaps there are concerns that rising yields could lead to a rising dollar which would take away a lot of the value for commodity prices. With yields rising it also take away some of the attractiveness to use the volatile commodities as a risk aversion play.
As I have pointed out before, the value of many commodities - not just gold - has been used as a safety play. As the market lost confidence in a global economy backed by paper and printing presses, physical things that you could hold or actually eat or use became a lot more attractive than paper that has a diminishing value. Now with recent improving economic data such as yesterday's stellar retail sales numbers and a Producer Price Index that seems to be pulling back from the brink of a deflationary death spiral, confidence in the economic recovery story may reduce the desire to be long anything commodity.
The other reason is that the holiday is right around the corner. It is possible that the end of year commodity buying frenzy has already happened and commodity bulls may pull in their horns and start focusing on finding that GI Joe with the proverbial kung fu grip.
This might be good news for what seemed to be my ill fated prediction that gasoline prices retail won't hit $3.00 a gallon ahead of the holiday. We saw a big drop in gasoline demand and it wasn't just because drivers were stuck on the roads in Indiana. Barbara Powell at Bloomberg News reported that according to MasterCard Inc. SpendingPulse report, U.S. gasoline demand at the pump slid 2.7 percent last week as retail prices rose to the highest level in 25 months. The $3.00 a gallon national average continues! Let's hope those exports come in! The API Also helped the gas stay down overnight as they reported that gas stocks increased by 2.4 million barrels, distillate stocks also increased by 2.0 million barrels and crude off by 1.4 mb.
Dow Jones News wires reports that, "President Barack Obama, who has long derided Republicans for wanting to give tax breaks to millionaires and billionaires, on Tuesday met with America's two richest men: software mogul Bill Gates and investor Warren Buffett. Mr. Obama invited Gates and Buffett to discuss ways to boost the economy, make the U.S. more competitive and how to improve U.S. education, a White House official said."
So let me get this straight, he is talking to a college drop-out to get ideas on education. Maybe that speaks volumes about our education system already. Of course, I could give Mr. Gates some advice on how to help fix the economy. You could spend some of the billions of dollars you have made and figure out a way to keep my windows computer from crashing. While you're at it include some virus software that I don't have to buy on my own to protect my data from the holes in your software. Perhaps we could take the wasted hours rebooting our computers and put those hours to more productive use. Am I bitter?! Well maybe just a bit because I didn't hit save on my report! Sorry Bill! Just Kidding! Then again, maybe not. Just reboot and have a nice holiday.