With the announcement of QE3, a lot of uncertainty has been taken away. I think just about everyone - maybe even the Ben Bernanke were getting tired of waiting. So, with QE3 announced we saw a brief spike higher in mid-September, but since then, we're starting to slide.
CRB - commodity index
CRX - commodity related equity index
With the fed now buying $40bn of MBS a month, and due to launch $45bn of (unsterilised) long dated T-bonds in January, we certainly have to consider the issue of 'is this inflationary?'
For the moment, I'd say most certainly..no. Two reasons, first, the velocity of money is still falling, and so long as this is the case, even if the new money does leave the banking system into the hands of the sheep, it moves around so slowly as to not be inflationary.
see: link for data on velocity of money
The second reason why I believe the 'new money created from nothing' is not yet inflationary, is that the banks are still hoarding the digital dollars. There is no doubt bank lending is still relatively muted -relative to their cash reserves, and along with other general corporate balance sheets, there is a huge amount of cash out there, but it ain't being spent!
So, for the moment, we have a lot of new money being created, but its just not filtering out there to the dumb ignorant sheep. So long as that remains the case, I don't see any general 'rampant' inflation as likely any time soon. I'm not saying there isn't any inflation out there, but in the bigger picture, we sure aren't seeing the hyper-inflation that some have been touting since the Fed started QE. This general deflationary view is especially the case when you consider that house prices and the general economy are still weak.
A special reminder on WTIC Oil
WTIC Oil remains my second red flag warning I am waiting to see achieved this month. I am seeking a weekly close <$90 sometime within the next few weeks, I think that is pretty likely, especially when you consider the underlying MACD cycle, which is due to go negative cycle no later than the end of next week.
Those looking for a late 2012/early 2013 deflationary wave - both in equities and commodities, need only look to the Oil charts. WTIC is looking very weak, and I'm most definitely looking for a weekly close <90 within the next 2 or 3 weeks.
As for Wednesday. We have ADP jobs data, and ISM non-manufacturing data. Both could easily be used as an excuse to rally..or drop hard. Its really hard to guess lately, but what I do know is that the daily charts are sporting some very clear bear flags - now 5 days long, and we're still set for a test of 1420/15 in the next few days.
Goodnight from London