Overview
Turmoil in the Middle East as Hamas continued to fire rockets into Israel resulting in Israel retaliating. The tumultuous situation could prompt further conflict and protests globally and affect some financial centers and precious metal prices. We do not feel traditional commodities will be impacted unless the U.S. dollar is targeted for its close relationship with Israel.
Interest Rates
March Treasury bonds closed at 141-05, up nearly three handles, as continued concerns over the current recession is resulting in the movement of funds to the relatively safe haven of U.S. paper. With the market closed early on Wednesday, Christmas Eve, and closed on Christmas Day, brokers decided to extend their weekend to Monday leaving skeleton crews in attendance. Volumes were light across the board in commodities as well. With interest rates now at the bottom basis the Funds rate, we expect further declines in 10, 20 and 30 year yields and that is another factor pushing prices higher. We had suggesting taking profits after have been bullish on treasuries for some time and our stance now is neutral.
Stock Indices
The Dow Jones Industrials closed at 8515.55, up 47.07 points on light volume Friday with much of the emphasis on General Motors financing arm qualifying for government funds which may or may not put off bankruptcy. We doubt it since the terms of the bailout as I mentioned last week include the company “turning around” by March. We think “turning over and playing dead” through bankruptcy is imminent for both GM and Chrysler. Look for another wave of long liquidation in equities and the ramifications of the Bernie Madoff situation to emerge piece by piece. Once again, we suggest strongly the implementation of hedging strategies for large equity portfolio holders.
Currencies
The U.S. dollar sold off on Friday closing at 8117 basis the March contract against gains in the March euro of 97 points closing at 14041, the March Swiss Franc 97 points to 9386, the March Japanese yen 15 points to 11057. The March British pound lost 30 points to close at 14650 and the March Canadian dollar lost 92 points to close at 8177. With U.S. interest rates at an all time low, we cannot fathom further declines in the dollar but the momentum and the technicals unfortunately indicate lower prices. We would look to buy the U.S. dollar index but wait for the turnaround before jumping in.
Energies
U.S. crude oil closed at $37.71 per barrel, up $2.36 with the February contract gaining another $1.44 late in the day to $39.15. The weak dollar along with reports of an OPEC agreement to cut production prompted the rally but trading in the U.S. was thin with many brokers taking time off for the holiday. We feel that the continuing decline in the U.S. economy will keep a lid on further price gains for crude since the U.S. is the major user of energy products. Stay out. We are still basking in our “glory” having predicted current price levels nearly a year ago
Precious Metals
No comment this week other than to reiterate “dollar up, gold down, dollar down, gold up”. The turmoil in the Middle East may provide the next short term direction for precious metals.
Grains and Oilseeds The weak dollar prompted short covering with March corn gaining 14 1/4c to close at $412 ¼, March wheat 17c to close at $599 ¼, and March soybeans 37 1/2c to $956 ½. We now look for further gains early in the week with renewed Fund buying the main source.
John Caiazzo is a registered commodities broker with over 40 years experience in investments and opinions are his own and not of the Futures Commission Merchant he introduces his clients to. Tel: (951) 693-9600 Fax: (951) 693-3170; Website: www.acuvest.com; E-mail: futures@acuvest.com
