Market Talk

Off to a slow start this week, but mulling over a couple things from this morning, including St. Louis Fed President James Bullard’s appearance on CNBC. Didn’t see the segment but read a write-up. Spoiler alert: there’s no Hoenig-like straight talk to be found here. Instead, we get this (from Dow Jones Newswires’ Mike Casey):

Asked whether the quantitative easing program, which has been dubbed “QE2,” was a factor behind the strong gains in commodity prices, he said the gains were most likely led by normal demand and supply factors and saw “no evidence” that Fed policy was behind it. However, he did say the relationship would need to be studied.

That “no evidence” part catch your eye, too? Thought it might. Reminded us of proclamations from certain Fed officials five or six years ago that there was no evidence of a housing bubble. Just like when the Fed says something’s “contained,” it probably isn’t; when they say “no evidence,” there’s probably conclusive evidence circulating. Why else would he admit the relationship between QE2 and commodity prices needs to be “studied”?

Meanwhile, Bullard maintains that gains are more likely led by normal supply and demand. We’re not buying that. The FOMC statement itself continues to highlight — meeting after meeting — “low rates of resource utilization and subdued inflation trends.” This suggests ongoing slack demand and adequate supply, so why should commodities be on such a tear?

Take oil, for instance. Not much sign of tighter supplies lately. As Newswires’ David Bird noted last week, inventories at Cushing Okla., the delivery point for the Nymex oil futures contract, were up 2.8% in week ended December 10 — standing at 35.911 million barrels, highest since Aug 20, and 5.2% above year-ago levels. Yes, inventories up more than 5% vs a year ago, but prices also up…almost 21%. Smells like some evidence to us.

Bullard seems to have his head in the sand on another topic, too — state and municipal finances. Again, from DJ’s Casey:

Bullard rejected the notion that the debt problems in state and municipal finances could become as big a crisis for the U.S. as peripheral countries’ debts are in the euro zone, arguing that the states’ debt situations are not nearly as serious.

I guess he didn’t watch “60 Minutes” last night, with the Illinois comptroller admitting the state’s a “deadbeat.”

“It’s fair to say that there are tens of thousands if not hundreds of thousands of people waiting to be paid by the state,” paymaster Dan Hynes said on the program. Worth a watch…and a wonder if, as Mr. Bullard assures us, that states’ debt situations aren’t nearly as serious as those in Europe’s periphery.