Market Intelligence

Any real commodity trader or analyst knows that watching the “term structure” of commodities can offer substantial insight into whether the trend in that commodity is turning bullish, or bearish. The term structure of natural gas has become significantly “backward-dated” in that the current month’s prices (for January delivery) are trading higher than February’s price. Prices for February delivery are trading at a higher price than March delivery, and this lasts all the way out until June 2014. Term structures can be an important indicator of physical demand for a commodity, and as the backwardation in natural gas implies, we are seeing a systemic increase in demand for natural gas—not just a temporary uptick in demand due to cold weather to start the winter. And, that is potentially bullish not just for natural gas, but for natural gas producers. Read More

I want to again point out that, although I’ve heard the opposite lately, both stocks and interest rates can rise together going forward.  As I pointed out about two weeks ago, the key difference between this recent rise in yields and the May-August rise in yields is that this time, the “short end” of the yield curve hasn’t sold off (it has actually risen).  And, that implies the market is more comfortable with the idea of higher interest rates, and that this recent rise in rates, and subsequent steepening of the yield curve, isn’t a “rally killer” for stocks.  Read More

IOER, or “Interest On Excess Reserves,” refers to the interest the Fed and other central banks pay banks on their excess money (reserves) they keep in those central banks. So, if I’m a large bank, and I deposit more money than is required at any Fed bank, I get paid 25 basis points on that money. As of the latest Fed release, in October there was more than $2 trillion in “excess reserves” on the Fed’s balance sheet, earning 0.25% annual interest.