Live From N.Y., It's Fed Week

It finally feels like Summer in Chicago. It was in the mid 80s yesterday. That means different things to different people (for me it means a lot of SPF45), but from a trading standpoint things have a tendency to slow down. There have been plenty of exceptions to the "slow" summer rule (2011 fireworks) but the first part of this week I would expect to be particularly lackluster ahead of a big FOMC meeting.

As such I'll just point out a few things of interest in advance of the Fed. Set an alarm for 1pm central with a press conference to follow. The correlation between internet searches for "taper" and "volatility" are worth noting.

Here's how the BRIC's equity markets have performed in 2013 -- I believe there is a connection between them and commodities in general.

Is last week's bounce the start of something new in Brazil/China/India/Russia or a brief respite? Time will tell.

Here's the most recent Commitment of Traders report for Bonds.

It's a little one sided on the Bonds right now, and I (for one) believe the "Taper" talk is way overdone, but at some point the Bull market in Bonds will be broken....It's gone on for 30 years. As a reminder, here's the US 10-year through time.

Moving on to the Metals -- they (at least the "Precious" Metals) have been absolute dogs since October of 2012. Sentiment is historically heavy in both Gold and Silver. Hedge fund positions in Gold (long) are around 59,000, while Silver longs are at close to ALL TIME LOWS at 3,700 contracts. Net Long positions in Silver as a percentage of open interest is at ~4%. From my perspective that's stunning, but there have been few catalysts for the Metals in the past six months.

Gold and Silver short selling.........(be careful if Bernanke and Crew come off as slightly more Dovish than expected).

And here is your FOMC Voting makeup for 2013 as well as next year.

And while they TALK a lot about Tapering......here's what they are actually DOING.

Finally, looking out 3-9 months I believe Silver looks cheap RELATIVE to Oil (WTI). Right now it takes about 4.5 ounces of Silver to buy a barrel of WTI Crude. If that ratio gets up to 5, I will find it particularly compelling (Syria could be the spark for the 5:1 ratio).

Things changed in the Precious Metals in August of 2010 (Jackson Hole QE2 announcement). The Metals crested during the intense volatility of Summer 2011 (European Sovereign Debt/US Downgrade). Since then, and particularly since October of last year the Metals have lagged (both other commodities and the broad market).

In fairness, prior to the 2008 crisis the ratio of Silver (or Gold) to Crude was significantly higher. However, the race to debase placed a greater premium on "alternative" currencies, so I doubt we go back to a situation where it takes 7 - 9 ounces of Silver to buy WTI in the next few years.

Here's A Longer-Term Visual

I would consider out month (December 2013) spreads tailored to your particular risk appetite that express the belief that Silver could gain relative to Crude oil.

Go Hawks!