As the newly decreed owner of General Motors, renamed in the media as Government Motors, I suggest we go bankrupt, negate all union contracts, and spy on Toyota, Honda, and Nissan to learn how to run a business…(tic). While that may sound a big extreme, bear in mind that none of the “big three” foreign auto makers is even contemplating bankruptcy but are actually showing signs of sales improvements. What happened to our country? The government (meaning the taxpayer) will end up owning 70% of General Motors and the unions will own 20% or more. The very unions that caused the problem in the first place, in my opinion. The phrase associated with the American automobile was “planned obsolescence.” I recall distinctly, (because I am old enough to remember), then when you bought an American car, you made a list of what was wrong or didn’t work properly and went back to the dealership for corrective action. I was surprised when I bought my first foreign car, a 1987 Acura Legend coupe with a six speed manual transmission and could not find anything wrong with it. I must admit that at 63,000 miles it needed a new clutch, and a set of tires. (I was rough on both). However, changing the oil every 3,000 miles, the car ran perfectly when I sold it for more than I owed on the payment book, (something that does not happen with American autos where the payment book outlasts the car). We in this country allowed the foreign manufacturers to take over the auto industry and now, as a taxpayer, I own part of the company that allowed it to happen. Bailing out a company that cannot sell its products is tantamount to throwing money “down a well.” Bankruptcy should have been filed before bailout and the restructuring might already have been initiated. Please see my last week’s overview. The economic news on Friday showed the economy contracted at a revised 5.7% annual rate in the first quarter against the 6.3% drop in the last quarter of 2008. That was taken as “good news” signalling that perhaps the economy is turning around. I doubt it and as mentioned last week, the economy will remain in recession for at least through 2009 and into 2010. Now for some actual information.
Interest Rates: June Treasury bonds closed at 11903, up 200 basis points pushing yields to the lowest point on the ten year notes since March. The continued concern of economic growth prospects for the U.S. prompted heavy short covering and attracted new buyers on the last day of the month. Lower yields are necessary to attract new home buyers but with defaults at historic highs and leading to further foreclosures, regardless of administration efforts to help homeowners. An unemployed homeowner will lose his home and unless the government applies the General Motors answer and purchases their homes, the foreclosure rate will continue at historic highs. With over 620,000 first time unemployed every week, I estimate that the mortgages held by those people will in fact lead to additional defaults and foreclosures. Rates will not help and as I have stated in prior commentaries some months ago, the only help for those with jobs is to declare a moratorium on rate increases on adjustable rate mortgages. The only help for the unemployed is to at least double unemployment benefits and extent those benefits for at least two years. Otherwise this recession is not even close to resolution. The cost of the current bailout programs will cause the treasury to offer more and more “paper” and at higher rates so we thing bonds and notes will sell off as those rates increase to attract buyers of U.S. debt. Stay out for now.
Stock Indices: The Dow Jones industrials closed at 8,500.33, up 96.53 with the S&P 500 closing at 919.14, up 12.31 points and the Nasdaq gaining 22.54 points to close at 1,774.33. For the week the Dow gained 2.69%, the S&P 500 gained 3.62% and the Nasdaq gained 4.87%. The pending bailouts of the auto industry and the expected bankruptcy for General Motors on Monday prompted the late rally. Unfortunately the current administrations policies are, in my opinion, leading the country into fascism. The government has no place determining corporate structure. That is the domain of the capitalistic system and the stockholders of those corporations. Now the government is in a position to dictate policy and structure of the countries largest industries. Implement hedging strategies since in my opinion the government cannot even run the country much less private, I repeat, private industry.
Currencies: The June U.S. dollar index closed at 7943, down another 107 points against gains in the Euro of 171 points to 14131, the June Swiss franc 134 points to 9365, the June British Pound 187 points to 16138, the June Japanese yen 189 points to 10511, the Canadian dollar 163 points to 9143, and the June Aussie dollar 133 points to 7981. The sharp rally in treasuries prompting lower yields and further lessened dollar attraction. Once again we continue to favor the long side of Swiss Francs and would now take some of the profits generated from the move from the 8700 level. Any change in U.S. rates could prompt reversal so we would only re-enter the long side of Swissies on corrective selloffs. Our ultimate goal for the Swiss Franc is parity with the dollar but expect wide price swings in the meantime. No need to take “the ride” on corrections. The current North Korean problem could prompt some movement to the U.S. currency.
Energies: July crude oil closed at $66.31 per barrel, up $1.23 on comments by OPEC that output remains unchanged at that $75 per barrel could be acceptable on the basis that economic recovery would not be impacted by that price level. We once again suggest trading limited to well capitalized accounts.
Copper: July copper closed at $2.1975 per pound, up 6.05c tied to strength in the equity market and general commodity buying against the weak dollar. We continue to suggest holding put positions but not adding.
Precious Metals: June gold closed at $978.80 up $17.30 tied to the weak U.S. dollar in which it is denominated. Inflationary considerations also a factor as the U.S. bails out major industries and the need for capital increases. July silver closed at $15.61 per ounce up 4.5c following gold. July platinum gained $46.20 per ounce to $1,196 with June palladium gaining $4.05 to $236.05. We once again suggest throwing away your gold charts and chart the dollar with U.S. interest rates forming the basis for dollar price moves. Gold stocks at the Comex ware house were steady at 8,322.609 ounces while silver stocks were up 196,637 ounces to 120,106.464
Grains and Oilseeds: Prices in this group moved higher tied to the weakness of the U.S. dollar. July corn gained 7 1/2c to $4.36 ¼ per bushel, July wheat gained 6 3/4c to $6.37 ¼ and July soybeans gained 5c to close at $11.84. Our concentration was limited to financials and therefore unable to effectively comment on this group.
Coffee, Cocoa and Sugar: July coffee closed at $1.3740 per pound, up 60 points with July cocoa gaining $5.00 to $2588 per tonne and July sugar lost 6 points to 15.58c per pound. No further comment this week.
Cotton: July cotton closed at 56.97c per pound up 2.74c on heavy fund and spec buying tied to the sharp selloff in the U.S. dollar. No further comment this week but our expectation is for price swings in a range between 51c to 60c and therefore no position recommendation.
