It would appear that the $700 Billion bailout will be approved, much to my disdain, since, it represents a drop in the bucket. With more than $2 trillion in mortgages outstanding, many of which were initiated under less than traditional circumstances, it would appear to be a lesson in futility and a postponement of the inevitable. It will not help a single unemployed family stay in their home. Repeating my admonition of nearly a year already: those without jobs will in fact lose their homes; those with jobs who were seduced into buying homes with little or no money down at substantially below prevailing rates can only be saved by a moratorium on upward rate adjustments. Congress has it all wrong in my opinion, and we are awaiting word of international banks joining the ranks of the troubled entities. This problem developed originally by then Fed Chief Alan Greenspan and President Bill Clinton and was exacerbated by brokerage firms packaging bad loans with good loans, securitizing them and selling them globally. I am sure the U.S. banks and brokerage firms are not alone in this crisis and I am awaiting word of the financial virus spreading globally.
Interest rates: December Treasury bonds closed at 11714 up 21.5/64ths on a slight recovery from Thursdays losses when it was announced that congressional leaders had agreed to a framework for the Paulsen program to proceed. While a “honeymoon” will be forthcoming in equities with the expected passage of this bailout funds will probably move again from Treasuries to equities. Investors use treasuries and precious metals to park their capital and hedge their risk. A formula for financial disaster in our opinion since it is like “day trading” large sums of money and the timing must be perfect, a rare occurrence in my opinion. If bonds sell off precipitously, I would view it as a buying opportunity
Stock indexes: The Dow Jones Industrials closed at 11,143.13, up 121.07 on Friday tied to the anticipated weekend resolution of the $700 billion bailout, which led to short-covering in the financials carrying to the broad market. We continue to view equity markets as extremely fragile based on the current economic situation. The burgeoning labor problem remains my major concern as to how the economy can recover when millions of consumers are no longer in a position to consume anything. The producers of those products that consumers cannot consume will be next in the unemployment line. The S&P 500 closed at 1,213.27, up only 4.07 points and the Nasdaq gained only 10.85 points to close at 3,943.74. For the week the Dow lost 2.15%, the S&P 500 lost 3.33% and the Nasdaq lost 3.38%. After any jubilation at a bailout passage, I see another equity market collapse. Hedge large positions. Feel free to contact me personally with any questions relating to hedging programs.
Currencies: The December U.S. dollar index closed at 7704.50 down 6.5 points against gains in the Euro of 20 points to 14823, the Swiss franc 4 points to 9222, the British pound 39 points to 18381 and the Japanese yen 30 points to 9503. With U.S. bank failures and the possibility of foreign banks following suit, we prefer the sidelines in currencies.
Energies: Crude oil closed at $106.89 on Friday, down $1.13 after trading in a range of $108.11 and $104.25. The uncertainty of the $700 bailout bill kept traders from putting on positions since the impact on the dollar will translate to price movement in crude. We would avoid any dollar denominated commodity until the “smoke clears”.
Copper: December copper closed at $3.0745, down 6c per pound tied to dollar price action and concerns over the U.S. economy. A weak housing and auto industry precludes demand for copper and we have been suggesting shorting copper with put options. Add to long-put positions on any rally. Inventories at the London Metal Exchange warehouses fell by 350 metric tons Friday to 211,175 tonnes. Comex warehouses were unchanged at 9,921 tons.
Precious metals: December gold closed at $888.50, up $6.50 after trading high during the session. Profit taking in front of the weekend and the uncertainty pertaining to the U.S. $700 billion bailout prompted traders to take profits. Since gold is tied to the dollar conversely, we would await further developments as to the bailout and any further unforeseen news relating to bank failures in the U.S. and abroad. December silver closed at $13.5030, up 22.8c per ounce with January platinum losing $68.10 per ounce to $1,123.10 and December palladium losing $16.95 to $225.50 per ounce. Losses in the white metal are tied to the auto and oil industry as they are used in the production of catalytic converters in autos. Stay out of metals since they respond to dollar price movement and that remains a question.
Grains and oilseeds: December corn closed at $5.43 per bushel down 15 1/4¢ tied to concerns over the U.S. economy. Dollar denominated commodities are awaiting further news relating to the U.S. financial crisis. December wheat also sold off in front of the weekend and the all-important decision as to the financial bailout. December wheat lost 20 1/4¢ per bushel to close at $7.16. November soybeans closed at $11.64 per bushel, down 19c on speculative selling and a bearish sentiment tied to the U.S. financial crisis and its impact on the dollar. Once again, while I am reluctant to recommend any positions on dollar denominated commodities, it would be imprudent to try to second guess the impact of the bailout one way or the other.
Rather than repeat myself in the commentaries for soft commodities, I will respond to emails after the decision on the U.S. economic bailout.
John L. Caiazzo
www.acuvest.com
futures@acuvest.com
