Overview: The U.S. recession is deeper than previously estimated and has, as we suggested would happen, spread globally. The U.S., as the “consumer of the world”, was identified as headed for recession over two years ago in our commentary and at a conference held in Scottsdale Arizona in February of 2007. We are now fully engaged in recession that is in a downward spiral. The stop-gap measures announced by the administration are just that….stop gap…..We feel the recession must run its course and use the stimulus of lower taxes, rebates, and relaxation of mortgage rates retroactively and across the board to payers and non papers alike so as not to penalize those who pay their mortgages. All rates should be reduced and that in fact will free up monies in order to get the economy back on track for home and car buyers. That first step is the only logical answer to todays crisis. Now for some actual information.
Interest Rates: June treasury bonds closed at 12607.5 down 8 ticks as money moved from the relative safety of treasuries to the equity market which posted a 9% gain for the week. The U.S. Commerce Department reported Friday that the U.S. trade deficit narrowed in January as the recession reduced imports. The deficit narrowed to $36.03 billion from $39.90 billion in December. Imports were down 6.7% as the economy slid deeper into recession. We continue to favor the sidelines in treasuries but had indicated our preference for the short side some weeks ago on the basis that Fed funds are at zero. Any rally should also be considered an opportunity to sell since as the government continues to spend they must sell (borrow) treasuries.
Stock Indices: The Dow Jones Industrials closed at 7,223.98, up 53.92 points with the S&P 500 gaining 5.81 points to 756.55 and the Nasdaq gained 5.40 points to 1,431.50. For the week the Dow gained 9%, the S&P 500 10.7% and the Nasdaq gained 10.6%. Bank shares were mostly responsible for the renewed buying in equities as Citigroup indicated it would not need additional funds for now. Shortcovering and new buying in financials carried the market but as I have mentioned before, there remains a black hole under the market and without the prospect of a turnaround in earnings for the major industrials, I see no chance of the rally carrying forward. Implement hedging strategies.
Currencies: June U.S. dollar index closed at 8793.5 up 23 points with the Euro gaining 37 points to 12901, a three week high basis the June contract. Swiss francs sold off this week as the Swiss Central bank lowered their rate to .25% in order to weaken the Franc and curtail the threat of deflation after the recent rise. Our long position was stopped out on the day of the rate change and we are on the sidelines for now. Other currencies closed basically unchanged on the day with the British Pound gaining 59 points to 13975.
Energies: April crude closed at $45.73 per barrel, down $1.30 with April heating oil losing 2.8c to close at $1.1984 and the April gasoline closing at $1.3450, down 7c. Demand forecasts remain bearish even against the possibility of OPEC production cuts. We remain on the sidelines for all but trading accounts where we would play crude from the long side.
Copper: July copper closed at $1.6720 per pound, up 3.7c tied mostly to the Chinese premier’s statements affirming that the country could “achieve 8% growth in 2009”, and the decline in the Shanghai Futures Exchange inventory. Inventories were reported declining by 3,733 metric tonnes to 34,735. The LME warehouses reported a decline of 6,700 metric tonnes on Friday and led credence to the Premier’s statement. We continue to feel that with the U.S. in recession and a major buyer of Chinese products, his affirmation does not hold true for us. Additionally China voiced concern about the U.S. economy and the current administration’s expansive spending programs as it holds most of the U.S. debt and could be reluctant to add to its current U.S. debt holdings Add to long put positions on any further rallies.
Precious Metals: April gold closed at $930.10 per ounce, up $6.10 with May silver gaining 27.2c per ounce to close at $13.215. Money from the sidelines found its way to equities and precious metals when they usually trade opposite as money moves back and forth between equities and the perceived safety of gold. We could see continued upward pressure on gold if equities decline and investors once again run to safety. April platinum closed at $1,063.60, up $12.10 with June palladium gaining $1.70 to $200 per ounce. We view metals as a trading market and with wide price ranges, and suitable only for well capitalized investors.
Grains and Oilseeds: May corn closed at $3.88 ½ per bushel, up 3 1/4c after analysts estimated a decline in corn plantings against increases in soybean plantings. We could see a new round of buying for corn and we would now shift our position from neutral to long. May wheat closed at $5.18 ¼ per bushel, down 6 3/4c tied to a lack of fresh fundamentals and forecasts for beneficial rains. We prefer the sidelines in wheat. May soybeans closed at $8.76 ½ per bushel, down 5 1/2c but November lost 17 3/4c lower to $8.23 ¾ tied to bearish new crop fundamentals. The 2009 acreage plantings forecasts were estimated by private analysts to be higher as acreage was switched from corn and to soybeans. We prefer the sidelines in beans.
Coffee, Cocoa and Sugar: May coffee closed at $1.1015 per pound, down 40 points on profittaking but up 2.95c for the week. Technically coffee is overbought but stronger cash prices tied to a lower than expected output from the 2008-09 Central American harvest could prompt a breakout to the upside. We would buy a few Mays or Julys here but use stops. May cocoa closed at $2,381 per tonne, up $41 on technicals and posted a two week high on Friday with the help of the weaker U.S. Dollar. We could see further buying on Monday and would put on a few longs but as with coffee, use stops in the event of a dollar rally. May sugar closed at 12.83c per pound, down 26 points and remains range bound. We have no interest either way in sugar.
Cotton: May cotton closed unchanged at 42.83c per pound with July losing 10 points to 43.86c. We would await the March 31st USDA estimate of prospective plantings before making any recommendations.