The Closer Commentary 7/31/14 - We Don't Need No Justification

The below is an excerpt from tonight's edition of The Closer, sent to Bespoke Premium and Institutional clients each night along with graphs, analysis, and timing models for both single name equities and the market as a whole.

It’s rare that you see a day where the following financial assets trade lower simultaneously: large cap stocks, small cap stocks, Treasuries, oil, credit (CDS indices), gold, silver, platinum, palladium, and copper.  Virtually the only asset class that didn’t have ferocious volatility selling today was the USD, which was essentially flat versus EUR, JPY, CAD, and CHF.  The action today simply didn’t make sense from a technical or fundamental perspective, and the explanations we saw trotted out made even less sense.

One culprit that has been discussed: inflation has edged up as of yesterday’s GDP report to 2.0% annualized, as measured by core PCE.  But this pace of price growth, while to the upside of leading indicators received during the quarter, is still an incredibly benign level, and is totally unthreatening in terms of both harm to the economy (runaway inflation) or in terms of kickstarting a Fed tightening.  The Fed has stressed repeatedly that not only is its inflation target symmetric around 2.0%, but further it will not be fooled by an economy that has printed higher inflation in recent memory (Q1 2012 had a 2.1 core PCE print).  While higher inflation could be coming, it needs to be sustained before it will impact the thinking in FOMC meetings. 

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