Commodities Taken to Woodshed In Election Bloodbath

Equities have put in one of the worst days they’ve had in months today on the news that Barack Obama survived his recall vote yesterday.  Tax rates on dividends and capital gains are likely to rise and the fiscal cliff is approaching rapidly.  The truth is that there was little substantive difference between the two candidates, only some superficial ones which would shift the burden of increased taxation and regulation to different sectors of an economy that is about to get overwhelmed by a tsunami of debt and cross-linked worthless derivatives that will make Lehman Bros. look like Glitnir. [1]

In the face of that commodities were pummeled by traders.  West Texas Intermediate Crude was off $4.10 per barrel to $84.62 as of this writing.  Brent Crude went down along with WTI and traded at $106.32, preserving the nearly $22 spread between them.  Copper was off $0.05 to $3.45 per pound but Corn and Wheat prices rose along with Gold.  Inflation assets in short supply continue to see strong support.

Oil will recover once the FOMC begins wearing out the ctrl and p keys on their keyboard as it always does once the QE begins in earnest.  Since the rest of the world has begun their QE while the E.C.B. and the Fed play chicken over who is going to blink first, the WTI/Brent spread has widened from around $18 per barrel to the aforementioned $22.    More money out there chasing barrels of oil around.

It’s pretty simple really.  Watch for TIPS yields to drop further from here.  Once the 10 year yield dips again below -0.80% that will be the signal that the Fed is flooding the world with paper.

 

[1] – cf. Iceland’s 2007-8 banking crisis for the reference.

Tom Luongo – who has written posts on "LiveWire" Stock Market blog..
Tom is a professional chemist and self-taught economist who has been following and trading stocks for nearly 12 years. He has no formal ties to the financial industry and considers that an asset in his analysis of the interplay between monetary policy and capital markets.

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