Bazooka Ben

As gold and other commodities were losing key support levels on Monday, I couldn't help but think of the Fed.

Many thoughts came to mind. What will the Fed do?  Isn't a prolonged move down in commodities exactly why the Fed has been involved in market operations?  Why do they keep mentioning the unemployment rate as a target for determining their exit?

I recently read The Art of Contrary Thinking by Humphrey Neill. (By the way, it's damn a good read.)

One of the best takeaways from the book is a bit on psychology's law of diminishing returns.  Just in case you're unaware of it, the idea is to sustain momentum over a long period of time you have to continuously add more force.  In the Fed's case that means more QE.  A LOT more.

We are seeing the most significant breakdowns in Gold, Copper and Oil in the QE era.  I also find it VERY interesting that this move in commodities is occurring with the U.S. unemployment rate falling.  It seems absurd that QE expectations (therefore commodity prices?) would be determined off of the unemployment rate.  However, this is what the Fed has telegraphed; isn't it?

Maybe this is just smoke and mirrors to appease congressional and/or public ears.  However, we know many companies are cutting back employee hours and hiring more workers, therefore putting a dent in the unemployment rate.

With commodities falling; conventional wisdom leads us to believe that Bernanke has to bring back his super hero alter ego, Bazooka Ben, to drop the hammer with more QE to prevent excessive deflationary forces.

If that's the case, when does the Fed become concerned enough to act?  This is the million dollar question.  I'll go out on a limb and say Fed statements are going to quickly regain significance; starting with the next FOMC announcement on May 1st.  



Thanks for taking your time to read this.  I'd love to hear some thoughts as we are approaching a very interesting and important time in the history of QE.  Have a great next trade!!