On the rest of the commodity front – the Brent / WTI crude spread reversed today and is currently near $15.75 with both markets moving higher. Brent does not seem to want to move below $100 and WTI seems to have found a floor at $84. What I find very noteworthy is the push higher by gasoline today which has continued to make new 29 month highs time after time this week. It certainly looks to be getting ready to put in a very firm close on the weekly charts and if it holds its gains for another week or so, on the monthly chart as well. On that chart, it will have registered a breakout to the upside. Based on what the futures markets are telling us, consumers had better get ready for an expensive driving season this year.
More and more we are getting reports about monetary officials from various parts of the globe expressing growing concern over the relentless rise in commodity prices, specifically food prices. That engenders chatter about the need to raise rates. Here is the problem for those monetary officials in the West – they need to hike rates if they are going to dry up the liquidity that is sloshing around the planet and making its way into the food markets. However, they cannot seem to hike rates because the “recovery” is still too fragile. So they basically sit and do nothing. Meanwhile, inflationary pressures continue to build in an environment of ultra low interest rates creating the perfect environment for gold in which to thrive.
Equities – well they do not care about anything except for all the funny money that is being created by the Federal Reserve – not the sheer overwhelming amount of debt that is swamping the US, not the protesters in the streets in Wisconsin, not the protests that are spreading to other states such as Ohio, not the fact that these protests are due to the fact that the states are out of money, not the fact that even the Fed officials are telling us that the labor markets are going to be stuck with mediocre growth for as far out as a minimum of 5 years and not the fact that the commodity markets continue moving sharply higher pushing input costs up for business across the board, etc. Nope – nothing matters except the punch bowl. “Drink up me hearties” as Jack Sparrow might say.
Along that line, China was once again forced to hike bank reserve ratio requirements in an attempt to cool down their overheating real estate market. I get the visual picture of a guy standing with a garden hose shooting water onto his house which is engulfed in flames whenever I see the battle that they are having over there with inflation. Negative rates of return on savings, a direct result of this roaring inflation, is what keeps feeding gold demand from China.
Bonds finally moved lower today in the face of a stronger equity market, but even at that, they have not fallen apart yet. Apparently there is enough Fed related buying coming in that the bears cannot pull the rug out from under that market for the time being. You can see it day after day by watching this market trade tick for tick. In come the bids every time it looks as if it is ready to break down. Even at that, this is a market living on borrowed time which is going to break down as the year progresses. How much newly created money the Fed is going to waste on propping it up we will wait until they are done to calculate.
This is also the reason I have no patience for those who claim that any of us who believe that the US monetary authorities are constantly manipulating and interfering in the markets, particularly in the gold market, are a bunch of nuts. For crying out loud – they are publicly manipulating the bond market in the face of the entire world to behold! Oh but that’s the bonds – gold doesn’t count. Yep – that takes care of that argument now doesn’t it? Imagine Chairman Ben sitting in front of the Congress testifying with a straight face that there is no inflation problem with a gold price over $1500!
