Overview and Opinion: “Happy days are here again”? Not quite. In my opinion the rhetoric spewing from Washington claiming that the reduction in first time unemployed is a “sign of recovery” is another of a long list of claims that bear no resemblance to the facts. Try explaining that to the 15 million unemployed. As I stated in recent commentaries my expected decline in first time unemployed is merely a result of not having anyone else to lay off, not a sign of a “recovery”. Positive earnings reports merely reflect the gains in productivity prompted by individual workers having to pick up the slack and do the work of two or more other workers that were laid off. The “earnings improvement” is also a result of reduced labor costs achieved from cuts in salaries and benefits. Saving money through cost cuts is just not the same as improved sales and growth. We do not see any economic “recovery” and until the labor situation improves, we do not expect any true recovery. The idea of a “jobless recovery” is, in my opinion, an “oxy-moron” with the second half of that word applied to those even suggesting it. Now for some actual information.
Interest Rates: March Treasury bonds closed at 11826, down 112 after the “surprising” U.S. jobs report suggesting that the economy is on the path to recovery. The reduction in first time unemployed celebrated by the market place is merely a result of what I have been suggesting for some time, i.e. that there are fewer workers that can be laid off without “shutting the doors”. Another factor in the selloff is the scheduled auctions set for this coming week. The Treasury is scheduled to sell $74 billion in notes and bonds. We suspect additional sales are going to be necessary in order to finance the expansive spending programs that the administration is planning. We would also suggest that we are “tenants” in our own country paying “rent” (interest) to various foreign governments especially China. Once again we view the treasury market as in a trading range.
Stock Indices: The Dow Jones industrials closed at 10,388.90, up 22.75 and up 0.8% for the week. The S&P 500 closed at 1105.98, up 6.06 and up 1.3% for the week. The Nasdaq closed at 2,194.35, up 21.21 and 2.6% for the week. Early on Friday the markets rallied sharply after the unemployment report showed only 11,000 jobs lost and an unemployment rate decline to 10% from 10.2%. That prompted a short term rally, but the sharp dollar gains caused selling in dollar denominated commodities as well as equities. Investors are still concerned over the labor situation and the coming retail holiday selling season. Consumer confidence is the key to market action in the coming weeks in our opinion. We continue to suggest implement hedging strategies.
Currencies: The March dollar index closed Friday at 7615, up 115.5 points. The positive U.S. jobs report prompted expectations that the U.S. Federal reserve may consider raising interest rates sooner than expected and that would attract dollar investment. We do not feel the labor situation will improve any time soon and expect the dollar to either stabilize or head lower. The March euro lost 262 points to 14822, the Swiss Franc 197 to 9823 after trading above our long term goal of dollar parity.
Energies: April crude oil closed at $75.47 per barrel, down 99c with April heating oil losing 2.27c per gallon to $2.026 and unleaded gasoline losing 1.8c to close at $1.9750. Trading in energy was mostly tied to the dollar strength. We expect energy prices to continue to reflect dollar action and based on our expectation for continued pressure on the U.S. currency early in the week, expect prices to rally across the board.
Copper: March copper closed at $3.2375 per pound, down 75 points tied to the dollar rally. The positively construed U.S. labor report kept prices from declining further as copper would be a beneficiary of an improved U. S. economy. However poor demand may hamper further price gains. Inventories rose at the Comex by 424 tons to 88,543 while LME inventories also rose by 675 metric tonnes to 446,075. The weekly data from the Shanghai Futures Exchange showed a gain of 3,433 tonnes to 104,710. The implication for that increase could be tied to poor demand from the Middle and Far East. We continue to feel, as unfortunately we have for some time, that demand for copper will decline tied to the poor U.S. housing and auto industries. Much of the copper price gain was tied to demand from China and the Middle East.
Precious Metals: December gold closed at $1,168.80 per ounce, down $48.60 or nearly 4%, the largest price decline on a percentage basis since December of last year. The one day dollar decline was the largest since March of 2008. The almost “panic” selling took gold down over $50 during the session and as I have stated over and over in the past, “dollar down gold up, dollar up, gold down”. Hopefully the pundits will pay attention. March silver closed at $18.53, down 60.8c per ounce following gold. January platinum closed at $1,449.70 per ounce, down $44 with March palladium losing $7.50 to close at $379.30 per ounce. We continue to suggest “throwing away your gold charts and chart the dollar with a close eye to interest rates.”
Grains and Oilseeds: December corn lost 11 1/2c per bushel to close at $3.73 34. The strength in the dollar prompted the selling. Stand aside. March wheat closed 13 1/2c lower at $5.58 per bushel. The selling in other commodities tied to the strong dollar spilled over to the grain pits. January soybeans closed at $10.43 per bushel and held better than other commodities even again other market influence and the strong dollar. We continue to favor the long side of soybeans tied to strong global demand but only on setbacks and, of course, with stop protection.
Coffee, Cocoa and Sugar: March coffee closed at $1.4135 per pound down 3.3c with March cocoa losing $12 per tonne to close at $3,376 and March sugar lost 59 points to close at 22.52c per pound. The U.S. dollar was the main feature to these markets and individual fundamentals had no real impact on prices. We prefer the sidelines until new fundamentals emerge on each.
Cotton: March cotton closed at 73.82c per pound, down 42 points. Once again, as in other comments, the dollar played a major role in the trading. Traders are awaiting Thursdays USDA crop production and supply/demand report and we expect prices to remain sideways until then.
