Nov. 20, 2006 — December copper closed 1.65¢ higher on short covering in front of the weekend. The Federal Reserve Board obviously is locked in an ivory tower, oblivious to the fact that their obsession with inflation is going to push the U.S. economy into recession. An inflated dollar only hurts U.S. consumers purchasing goods from overseas manufacturers. Can that be a bad thing? It most certainly would offset the cheap labor products that are permeating the U.S. consumers’ daily life. It has never had, as far as I can recall, an impact on the price of a loaf of bread. Unless, of course, it is baked in Italy.
Copper
December copper closed at $3.0575 per pound, up 1.65¢ on short covering in front of the weekend. Inventories at the London Metal Exchange warehouses rose by 4,025 metric tons to 155,975 and that was a factor in the early selling. We continue to favor the short side and would now take profits in the previously purchased puts and we would roll into closer strike prices. Copper should sell off down to $2.25 to $2.50 in the near term and possibly below $2.00 in the intermediate term. Stay short and add on rallies.
Interest rates
March Treasury bonds closed at 112-26, up 16/32 after reports this week indicated a slowdown in housing. Friday we got the report that the October housing starts were the lowest since 2000. I have been touting the negativity of the housing and auto markets on the U.S. economy for some time and will continue to do so. Stay with the Treasuries — long and short term.
Stock Indexes
The Dow Jones industrials closed at 12,342.56, up 36.74 points, which was another record close. It was up 1.9% for the week. The S&P 500 closed at 1,401.20, up 1.44 points and up 1.5%, while the tech heavy Nasdaq lost 3.20 points to close at 2,445.86, but it was still up 2.4% for the week. We continue to view the equity markets has having a huge black hold under the market and a major correction is expected to take place in the near future. The rallies are currently tied to expectations that the bad news will force the Fed to cut rates in the near term.
Currencies
The U.S. dollar declined on bad economic news indicating the possibility of lower U.S. rates in the near term making dollar investment unattractive. The March U.S. Dollar Index closed at 0.8498, down 9 points against an 18-point gain in the March euro to 1.2887, a 12-point gain in the March Swiss franc to 0.8120 and a 25-point gain in the March yen to 0.8625. I still prefer the long side of the Swiss franc from here. The other countries are more reliant on the U.S. consumer, and a weakening U.S. economy and unemployed consumers spell economic problems for those countries.
Energies
December crude oil closed at $55.81 per barrel, down another 45¢ and fast approaching my target range of $40 to $45. The January contract gained 40¢ to close at $58.97 as traders started rolling their long positions into January.
Precious metals
December gold closed at $622.50 per ounce, up 80¢ after selling off early in the session on the sell off in crude oil. December silver closed at $12.80 per ounce, down 14.5¢ after trading as low as $12.60 during the session. Platinum prices went for a “roller coaster ride” with prices down as much as $50 per ounce before rallying back to close slightly higher. January platinum closed at $1,192.10, up $2.80 per ounce after trading as low as $1,137. December palladium lost $4.30 per ounce to $317.95. We suggest the sidelines in metals.
Grains and oilseeds
December corn closed at $3.55-1/4¢ per bushel, up 3-3/4¢ with March gaining 4-1/2¢ to close at $3.70-12. Speculator buying after selling dried up was the main feature. We prefer the sidelines in corn. December wheat closed at $4.74 per bushel, up 5-1/4¢ on short covering after Thursday’s weakness. We see wheat staying in a range for the time being and would stay out for now. January soybeans closed at $6.60-1/2 per bushel with the March contract closing at $6.7-3/4, up 4¢. December soybean meal gained 40¢ to $190.40 per ton with December soybean oil losing 5 points to 28.28¢ per pound. The wide spread long liquidation in commodities has been affecting grains through the past few sessions.
