“Jack of all trades, Master of none.” The U.S. Administration is using the “shotgun” approach to fixing everything in one fell swoop…..Unfortunately I think concentrating on the economy and the labor situation should be the priority which could fix or at least improve all the other conditions prevalent today. The continuing saga of AIG, the auto industry, housing, and labor is in the headlines every day but I have yet to hear a basic solution to any of them. The AIG situation is done and will require additional funds. The almost “agonizing” attention to some $165 million of bonuses that had been contracted for and approved by a Democratically controlled Congress blindly following “orders” from the President was probably a mistake but it is done…..learn to live with it. As I mentioned last week, I would not be returning any bonus that had been contracted and approved by Congress. The Auto industry is, in my opinion, a “bottomless pit”, and throwing money into it makes no sense at all. The jobs are already mostly gone, so throwing good money after bad will not improve sales at this particular time. The answer is, stop producing cars and allow inventories to decline even if you have to change the model years on the registrations. As far as housing, the same applies, stop building and let inventories decline. That will bring an end to the “crutch” being deployed to a “crippled” industry. It will heal by itself given time. Now for some actual information.
Interest Rates: June Treasury bonds closed at 12817.5, down 10 ticks on profittaking after early gains. The rally had been prompted by the Federal Reserves purchase of government securities in order to revive credit markets. Another purchase is scheduled for Monday of 17 to 30 year maturities and we will have to wait to see the results before making any recommendations. Our view however, is that since U.S. rates cannot go any lower, bonds could come under further pressure.
Stock Indices: The Dow Jones Industrials closed at 7776.18, down 148.38 points but managed a weekly gain of 6.8%. The S&P 500 closed at 815.94, down 16.92 points but up 6.2% for the week. The Nasdaq closed at1545.20, down 41.80 but gained 6% for the week. The month of March to date showed gains of 10.1% for the Dow, 11% for the S&P 500, and 12.2% for the Nasdaq. Recent statements by President Obama, Treasury Secretary Geithner and other promising a turnaround in the economy through the use of economic stimuli prompted the return to the “table” of investors and traders. Fed Chairman Bernanke was also instrumental in the new found buying of equities with statements that the economic recession would base by the end of 2009. Unfortunately we do not share their enthusiasm and look for the recession to worsen and carry through 2009 into at least the second half of 2010 due to the labor situation and the housing and auto industries. Implement hedging strategies.
Currencies: June U.S. dollar index closed at 8558, up 97 points against losses in the Swiss Franc of 117 points to 8768, the June British Pound 133 points to 14306, 45 points loss in the Canadian Dollar at 8091, and the June Australian dollar 91 points to 6886. The June Japanese yen managed a gain of 49 points to close at 10212. Chinese officials had commented that the U.S. dollar should be replaced as the world’s reserve currency but no one believes that question would be raised at the G20 leaders meeting nor come to fruition. We suggest the sidelines in all but the Swiss Franc which we favor on the long side.
Energies: May crude oil closed at $52.38, down $1.96 as the weakness in the stock market Friday renewed concerns that demand for energy products would continue to decline as they had for the past year. We prefer the sidelines, but any renewed talk of an end to the U.S. and global recession could spark new buying at least to the $60 per barrel level.
Copper: July copper closed at $1.8445, per pound, down 1.95c mostly on the weakness in equities. Since we look for a prolonged U.S. and global recession, our posture remains bearish. Inventories at the LME fell 3,150 metric tons on Friday to 500,750 while the latest Comex data reported Thursday showed an increase of 358 short tons to 45,121. The once weekly report from the Shanghai Futures Exchange showed inventories declined by 6,227 metric tons to 25,181 mostly on continued demand from far East, notably China. We would add to put positions on any further rallies.
Precious Metals: June gold closed at $925.30 on Friday, down $16.90 on profittaking, the strong dollar, and technicals. The economic data from Washington continues to show a deflationary trend and that has a tendency to weigh on precious metals. July silver closed at $13.291 per ounce, down 35.9c following gold. July platinum closed at $1,137.70, down $17.30 while June palladium lost 30c per ounce to close at $223.70. The short platinum, long palladium spread continues to work in traders favor even as we suggested taking profits last week. We prefer the sidelines in precious metals and as I have suggested in the past, “throw away your gold charts and chart the U.S. dollar”.
Grains and Oilseeds: July corn closed at $3.97 ½, down 3 3/4c mostly against the U.S. dollar. We suggest the sidelines until after Tuesdays USDA report on planting intentions. Weather will also be a factor. July wheat closed at $5.07 ¼ per bushel, down 7 1/4c also on technicals and in front of Tuesdays planting intentions and quarterly grain stocks report. Stay out for now. July soybeans closed at $9.15 ¼ per bushel, down 25 1/4c and ran through stop loss selling. Our recommendation last week to buy beans was quickly downgraded as stops were touched off and the strong dollar on Friday prompted further long liquidation. The scheduled end of the Argentinian farmers strike Friday also prompted selling. We would now await further fundamentals before taking any new positions either way.
Coffee, Cocoa and Sugar: July coffee closed at $1.1780 per pound, down 1.5c against the strength in the dollar. Supplies are putting pressure on coffee and we would avoid any positions for the time being. Bearish technicals will also play a roll in the near term for coffee. July cocoa closed at $2,576 per tonne, down $19 on the dollar strength. Prices in Central Cameroon were lower and spread through origins. We prefer the sidelines. May sugar closed at 12.62c per pound down 13 points in a narrow range between 12.83 to 12.51 and remains on our “no interest” list.
Cotton: May cotton closed at 43.34c per pound, down 62 points with July losing 58 points to 44.31c. A lack of speculator interest, the strong dollar, and in sympathy with the grain pits the main feature to cotton trading on Friday. We prefer the sidelines until after the Tuesday USDA planting intentions report.
