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Here's my Fed commodity trade

The Federal Reserve's dual mandate is supposed to be about inflation and job growth but it seems to have expanded to include keep asset prices stable and don't let any foreign economy collapse.


A Shell Oil facility in Carson, California
Mike Blake | Reuters
A Shell Oil facility in Carson, California

China's PMI number, a gauge of manufacturing activity, came in weaker than expected — and on the heels of a volatile trading session in the U.S.

So, the Fed's reasons for not tightening have intensified a bit. It's my belief that those who are still hoping for a 2015 rate hike are going to be disappointed. If the Fed needed any additional reason to hold off, they may want to look at a long-term chart of copper, crude, silver, gold — heck, even throw in cattle and corn if you want to convince yourself that there is no inflation.

As a matter of fact, inflation isn't what we should be worried about. Another leg down in these commodities and deflation will be the only "flation" we will be talking about.

So, sadly, the Fed can't tighten despite the fact that keeping rates at historic lows is having only mildly positive impact on the economy. The Ben Bernanke Fed made it clear that the issue causing stagnation in our economy doesn't have much to do with monetary policy. Unfortunately, addiction is hard cycle to break and timing is everything.


However, I do think commodity prices may have seen the worst of the flogging and that there will soon be a buying opportunity. The obvious thesis being a Fed shift away from hawkish rhetoric. My plan is to establish a long position in crude after it shows a little more strength. A trade of 47.75 will be sufficient to show me that it intends to go higher.

Commentary by Jim Iuorio, managing director at TJM Institutional Services. Iuorio is a veteran of financial markets, where he has traded and provided analysis for large institutional clients for nearly 30 years. Much of his focus has been on rate policy and its effects on equities, commodities and U.S. Treasurys. Follow him on Twitter @jimiuorio.