Overview and Opinion: U.S. jobs continue to be lost and the unemployment numbers are growing. Problematic is the fact that many of those unemployed are losing their benefits which have now expired. Unless the government can expand those benefits many more homes and automobiles will be lost to this recession. The rhetorical statements from administration officials as well as Wall Street “geniuses” that the recession has bottomed amazes me. The University of Michigan Survey of consumer sentiment for August fell to 65.7 from 66 in July. The Commerce department showed consumer spending rose 0.2% in July but that can be attributed to the short lived “cash for clunkers” program. Incomes were unchanged after the 1.1% decline in June. We continue to suggest reigning in spending and not paying attention to the pundits claiming that the recession is over and we should all go out buy a new home or car. Hold onto your cash for that “rainy day” which is still in the Acuvest “forecast.” The current recession is not ending and the U.S. economy is nowhere near turning around, in our opinion.
Interest Rates: December Treasury bonds closed at 11903, unchanged on Friday but up for the week as yields lost nearly 20 basis points. We had suggested buying bonds on any dips simply because we feel rates cannot be raised by the Fed regardless of the rhetorical statements that the recession has ended and the economy has bottomed. With no sign of inflation, traders held treasuries and added to positions. Some fund managers have moved money from equities to treasuries as they sought safety. We could see further gains as equities decline. Add to long positions on dips.
Stock Indices: The Dow Jones industrials closed at 9,544.20, down 36.43 points but managed a 0.4% gain for the week. The S&P 500 closed at 1,028.93, down 2.05 points but gained 0.3% for the week. The Nasdaq managed a gain of 1.04 points Friday to close at 2,028.77 and posted a 0.4% gain for the week.
If I were a betting man, (what am I saying, of course traders are bettors, but the odds are in favor of those traders utilizing signals and technicals as well as fundamentals to improve those odds for their clients), I would suggest liquidating large portions of equity portfolios or implementing hedging strategies sooner rather than later. The potential for earnings gains without the laid off workers seems a hopeless “exercise in futility” and investors should re-assess their positions and ignore the rhetoric emerging from the U.S. administration, the Federal Reserve Chairman, the Treasury Secretary, and of course, Wall Street. We expect the current recession to last at least towards the end of 2010 or early 2011. Adjust positions accordingly or contact us for hedging strategies.
Currencies: The December U.S. dollar index closed at 7850, up 17.5 points against losses in the December Euro of 85 points to 14286, the Swiss Franc 30 points to 9437, the British Pound 16 points to 16268, the December Japanese Yen 16 points to 10690, and the Canadian Dollar 74 points to 9150. The loss in the Swiss Franc of 30 points is a correction after recent gains of over 200 points. We continue to favor the long side of the Swissie on dips. According to the Commodity Futures trading Commission, currency speculators increased their “bets against the U.S. dollar in the latest week”. “The value of the U.S. dollar’s net short position rose to $13.76 billion in the week ended august 25 from a net short position of $8.98 billion for the prior week”. “The aggregate U.S. dollar position is derived from the net positions of IMM speculators in the yen, euro, British pound, swiss franc, Canadian, and Australian dollars”. We could see additional short covering in dollars but our basic opinion on Swiss Francs remains intact.
Energies: October crude oil closed at $72.74 per barrel, up 25c based on expectations and claims that the recession is ending. We, of course, disagree and would avoid trading energy products unless necessary to associated businesses. We view markets that are susceptible to wide price swings as unattractive.
Copper: December copper closed at $2.9505 up 7.85c on expectations of an end to the global recession. We disagree and would continue to hold put positions without adding. LME inventories were up 1,375 tonnes on Friday to 298,925 while the Comex data showed and increase of 111 short tons to 52,981. The weekly report from the Shanghai Futures Exchange showed an increase of 4,976 metric tons to 86,625.
Precious Metals: October gold closed at $957.50, up 11.50 tied to the weakness in equities but remains rangebound. December silver gained 56.4c per ounce following the gain in gold but more so in percentage terms. October platinum rose $5.40 per ounce to $1,245.90 while December palladium gained $5.60 to close at $292.35 per ounce. A strike at the Impala Platinum Holdings Ltd mine prompted the buying in the white metals. We once again prefer the sidelines in precious metals.
Grains and Oilseeds: December corn closed at $3.29 per bushel, down 1/4c on long liquidation in front of the weekend and after earlier gains. With large supplies expected after the growing season, we could see further long liquidation. Stay out. December wheat lost 7 3/4c per bushel closing at $4.95 ¼ but up 8c on the week. Ample world supplies the main feature along with low demand. Stay out. November soybeans closed at $10.11, up 15c on speculative fund buying and concern over supplies after early harvests. Lower yields also a factor in the short covering and new buying. We continue to favor the long side of soybeans.
Coffee, Cocoa and Sugar: December coffee closed at $1.2230, up 95 points on short covering after recent selling. With coffee in a range with the expectation of roaster buying at lower prices, we could see continued sideways action. Stay out. December cocoa closed at $2,799 per tonne, down $22 tied to bearish technicals and on long liquidation after recent sharp gains. We prefer the sidelines here as well. October sugar closed at 23.52c per pound, up 1.03c and the highest prices in 28 years. Supply tightness globally and especially in India, a major producer where inadequate rains during the monsoon season could impact supplies even further. We could see further gains in sugar but this market could swing both ways in a two to three cent range. Each point in sugar is $11.20 per contract, and not for retail clients.
Cotton: December cotton closed at 58.34c per pound, up 70 points in a correction after two weeks of selling. Cotton remains technically oversold and we could see a bounce to the 63-65c level. We like the long side but with stops.
