What Drove Today's Trading?

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July 3 (Bloomberg) -- J.P. Morgan Funds Global Market Strategist Andres Garcia-Amaya, McAlvany Financial Group CEO David McAlvany and Performance Trust's Glenn Schulz discuss today's market action on Bloomberg Television's "Street Smart." (Source: Bloomberg)

We will continue on that commodities clean and take you out to chicago.

If we will take you straight to our street fighters.

We're joined from colorado and andrea garcia, and i am still in new york.

I said chicago but i meant colorado.

There are a lot of moving parts to this short week.

Gold is down, oil is up -- what do you make of it?

When you look at oil, you have to be aware of the tensions in syria or more broadly syria, iran, turkey and now i'm clued egypt.

If you're looking at supply and demand, we are well supplied but demand may be lacking.

In terms of the fundamentals, you could argue for lower prices and broke that critical $100 level on west texas.

That is an indication of all that is in the political fray in the middle east.

That is your support and gold found its seat after seeing lows this past week of $1,178. we closed at $1,250 this week, finished strong with all things considered.

It is still on its back with a lot of recovery if it does recover from these levels.

Buyers are finally stepping in.

We have continued to see major buying in the physical market.

Silver is a little hesitant, below 20. in the bigger picture, what do you make of this move and oil and gold?

People would be surprised to the second-biggest supplier is of oil.

The united states.

That is incredible.

In the world?

Yes, it used to not be the case a couple of years ago.

What is happening with diffracting an oil and natural gas is changing the game.

We are early so short-term above $100 oil might create some momentum.

I think demand eventually will continue to increase it especially in places like the united states which should keep oil at current prices or lower.

We want to bring in glen schultz.

We are talking about these moves in the oil and gold.

What do they say to you?

And terms of the move in oil, i'm not that concerned.

The u.s. is the second-largest producer of oil and what we are seeing is that the geopolitical risk especially in the middle east is somewhat limited in terms of impact because people are looking at the supply of oil as a kind of buffer against a big spike in oil prices related to supplies.

I am not too concerned about those types of things.

When i look at the economy going forward, my focus is really on whether the federal reserve will continue to engage in quantitative easing and when or if it will taper.

I think that will be driving financial risk assets as well as commodities as we go into the third and fourth quarters.

Don't you think we have gotten over it?

May 22, we heard about tapering and everything hemorrhage to.

Aren't we getting over it?

I don't think so.

If you look at what the market is telling you, is handicapping the tapering of quantitative easing at about . 375 was the high end the 10-year note.

Just before the tsunami in japan, it was higher.

The market is trading 245 right now so that tells us the market is that positive data will be to a selloff but-data will not get as much lower than $225. i think most of it is really in front of us.

Does this change how you see the markets for the rest of this year?

If the fed starts to taper off and eventually they raise interest rates, this is a good thing for the dollar.

If you think about commodities, they are dollar denominated so they have an adverse relationship.

We talked about gold earlier and even after the huge fall -- if the dollar continues to fall, ben bernanke is tapering so you are not flooding the market with dollars.

Absolutely, commodities have this headwind of a strengthening dollar that could continue for more than a couple of months into next year possibly.

That would be good news.

Realistically, can the fed tapir when you look at 100% of the mortgage-backed securities market being purchased by the fed today and about 87.5% of new issue treasuries going to the fed, a radical rise in rates, you are seeing a major dropoff in mortgage applications with this last spike in mortgage rates.

If you want to create headwinds for the u.s. economy, handicapped housing.

Handicap what is a core component of the recovery story.

We can talk about tapering off by doing it is something different.

That's what we will have to watch is the actions versus the words.

They can talk all they want but i don't think they can afford to.

The rise in rates would be more headwinds than the israeli economy could handle.

The way that i think about rising rates is housing has been about the supply side, not the demand side.

People not getting a mortgage -- it is cheap as it is so if they move up a little bit, it will not take the match that of the equation banks were not really wanting to issue mortgages at a 30-year fixed at 3.75%. it moves up to 5%, they're likely to lend to more people.

Will it hard landing?

The banks say we don't want to write those loans.

They have raised their lending standards there is not that much incentive for them.

If the 10-year continues to rise -- we don't want any panic move and higher -- but they gradually improve, that as an incentive for lending.

There are circumstances where you have mortgages sitting on the balance sheets of banks.

All they are doing is collecting and origination fee and passing it on.

If you look at the bottom of loans being made today, they are conforming loans and being passed on very quickly.

The support from the fed through fannie mae and freddie mac that represents a volume in the mortgage securities it rising rates is not going to increase the amount of volume done.

We are seeing the exact opposite argument up one percentage point and mortgage applications are falling off a cliff.

Most of those are re-fi.

That is a huge part of this market which is refinancing.

The fed will be most concerned about organic demand for housing and the trajectory for home prices.

That will stimulate builders to begin to put on the project.

We sought the builders index hit its highest reading since the second quarter of 2006. it is about 50 and that is what the fed is concerned about because construction these jobs which leads to employment.

The federal reserve is more concerned about the fundamentals of the housing market in terms of finding a floor on pricing than having organic demand come back to the housing market, more so than they are concerned about whether or not 50% of the market is refinancing.

I don't think that falls into their equations.

It is really the fundamental strength of the housing market.

You have been good enough to weigh in on this.

Before we say goodbye, is there one key thing that we should remember that you are telling your clients?

? after the second quarter, averaging sold off for the first reaction by many investors is i will go to cash.

In the short term, that is the easy solution but we found if you look at the last 10 years, the worst performer asset class was cash.

1.7% annualized.

Is a panic button.

Do not change your strategic asset allocation in times of panic.

In the long term, you have to stay long see you can achieve your long-term goals.

That makes sense.

Thank you for joining us.

This text has been automatically generated. It may not be 100% accurate.


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