Market Talk

It’s almost embarrassing to watch the contortions the Federal Reserve is engaging in to absolve itself of any role in fueling the run-up in commodity prices since the end of August.

The latest comes in the form of an “Economic Letter” from San Francisco Fed economists Reuven Glick and Sylvain Leduc. That’s right, who better to objectively state that the Fed’s policies aren’t pumping up commodities…than a branch of the Fed? This four-plus pager, best I can tell, rests on the conclusion that the Fed’s QE measures aren’t to blame for the spike in commodity prices because “commodity prices actually tended to fall” following Fed announcements on large-scale asset purchases.

Sounds as if Glick and Leduc aren’t familiar with the old adage “buy on rumor, sell on news.”

For my money, the only “announcements” that mattered were Bernanke’s late-August Jackson Hole speech, which got the whole commodities complex (not to mention stocks) a-running, and the fait accompli announcement November 3rd with the program details. And whether or not commodities dipped on those days — or any other LSAP announcement days — is irrelevant because the trend has remained higher since Jackson Hole.

While some Fed officials have been more frank about the role of QE II in pushing up commodity prices, others have dismissed it out of hand, instead placing the blame squarely on supply and demand and surging growth in emerging markets. Indeed, that’s the official story from the central bank, as if that global growth trend only became obvious seven months ago, coincidentally at the same time Fed chair Bernanke first suggested QE II was a real possibility.

We’ve taken issue with the Fed a few times before (here, here and here) over this “don’t-look-at-me” attitude, pretending its free-flowing liquidity measures aren’t affecting commodity prices. In some cases, like cotton, we’re sure there are legitimate supply and demand issues. But we’re not buying that story for every commodity across the board.

Silly exercises like the one from the San Fran Fed are wholly unconvincing and, as we’ve noted before, only serve to further undermine the central bank’s credibility.

US stocks essentially flat, with the Dow industrials showing a bit of life on a sleepy Monday.

DJIA adds 23 (0.2%) to 124000 and while the move isn’t much, the close about 12391 triggers a Dow Theory buy sign. S&P 500 adds less than 1 to 1333, Nasdaq Comp eases less than 1 to 2789. NYSE volume’s stronger than last week (still a bit weak, though.)

It’s the Dow’s highest close since June 5, 2008, and the gain makes a winner out of 10 of the past 13 sessions, basically ever since the G7 stepped in and arrested the yen’s rise.

Crude oil futures climb above $108/barrel; most think the economy can handle that, but we have our doubts.

Bernanke speaks tonight, and while he isn’t expected to make any news, one never knows.

Meanwhile, our colleague Tomi Kilgore makes note of the buy signal set off today:

It’s official — DJIA’s close above the Feb. 18 high (12391) produced a Dow Theory buy signal. A key tenet of the century-old theory is both the DJIA and the Dow Jones Transportation Average need to exceed previous peaks to confirm the continuation of a primary uptrend. The shorter the time between new highs, the stronger the confirmation. The DJIA rose 23 to 12400. The DJTA broke out to a new high on Friday, and rose 8 to 5379 today. There is a caveat, however. Another Dow Theory tenet is volume should expand in the direction of the trend, but today’s buy signal occurred on declining volume.

University of Maryland economics professor Peter Morici takes both parties to task over the issue of budget reform, saying neither side is facing up to the reality of the situation and the challenges. His last line is actually the most telling (we journos would say he buried the lede): “Americans really need adults to govern but few can be found on either side of Pennsylvania Avenue.”

Ain’t that the truth?

The Budget Follies: Demagoguery and Sophistry Reign

Federal finances are in shambles, and Americans should be amused if not disgusted by the explanations and solutions both political parties offer.

The President’s budget plan issued in February projects a $1.6 trillion deficit for 2011 and a cumulative shortfall of $11 trillion through 2021.

Things may get worse, as additional revenue and cost savings from health care reforms don’t materialize and the 4 percent growth assumed by the President’s budget for the next four years proves Pollyanna.

Time and again, House Democratic Leader Nancy Pelosi and President Barack Obama have demagogued the problem, blaming two wars and tax cuts instigated by President Bush and the Great Recession.

To set the record straight, in 2007, the year before the financial crisis, with wars in Afghanistan and Iraq at full tilt and Bush tax cuts in place, the federal deficit was only $161 billion. In 2011, with the economy in its second year of recovery and TARP money returning to the Treasury, the deficit is ten times larger and greater than $1.4 trillion notched in 2009, the pit of the recession.

Continue reading…

Apologies for the light posting. I’ve been consumed with the launch of the live version of the Markets Hub, which started Friday. Hopefully we’ll settle down into a rhythm that’s somewhere between harried and frantic. I guess that’s what live is all about it.

Anyhow, here’s today’s show, with George Stahl, Brendan Conway on the markets and Dan Stumpf on oil, which climbed above $108/barrel today.

If you’ve got the time, here’s the link to Friday’s show.

After a second straight week of solid advances, US equities are looking slightly higher to start the last week before first-quarter results begin rolling in, following generally small advances overseas.

S&P futures are up 2.30 points, DJ futures up 15. No US economic data are on the docket today, so trading could be quiet in the Treasury pits. Ten-year yield down slightly at 3.43%, while the dollar is also near late Friday’s levels against other currencies.

Commodities — notably oil and food — are also continuing to march higher, keeping potential pressure on economic growth in the process as well as inflation worries.

Nymex crude moves above $108/barrel.