Overview and Opinion: Whoever coined the phrase “tax and spend party” hit a homerun of analytical perception. The U.S. is in the throes of a severe recession which is played down by the party in power claiming a recovery is, in the words of Sherlock Holmes, “the game is afoot”. Dealing with numbers on a daily basis, I was in awe of the way the U.S. administration deals with those numbers. The Labor Department reported an increase of first time unemployed Thursday, and on Friday came the news that over 20,000 Americans lost their jobs. The “magic of mirrors” enabled the unemployment rate to decline to 9.7% from 10%. Does anyone in the public sector believe that the U.S. economy is improving? If so there may be a reward for them by the local asylum…..This economy is in recession regardless of the “dictionary” description of recession. There are over 10 million unemployed in this country and that translates to mortgage defaults and foreclosures, car repossessions, lack of consumer and business confidence. The “ambitious” projects of health care reform, bailouts for those companies “too big to fail”, increasing employment in the energy area and others have failed to garner support from the “man in the street, literally”. The jobs market has been decimated by, according to Ross Perot some years ago, that great “sucking sound as jobs move South”. Companies for years have moved jobs out of the country for “economic” reasons but it was the attraction of cheap labor that enticed those companies to move jobs. Those jobs will NOT be coming back for fear of crippling the economies of those countries that benefited from the transfer of jobs out of America. The unemployed problem, in my opinion, cannot be contained in the near term and cross training and increases in jobs available in the energy conservation sector will not reduce those numbers substantially. The exorbitant spending policy of the current party in power can only undermine any possibility of budget control and the antagonist approach to our major “lender”, China, could lead to financial disaster. We are not the “masters of our destiny”. The current budget deficit will be exacerbated after April 15th when the Federal Government’s income will be severely reduced by the labor situation and could increase the deficit against the GDP. The unemployed do not pay the same rate of tax as when they had good paying jobs. The drain from unemployment benefits will also impact the numbers. My previous suggestion to the U.S. administration was to impose duties that bring the cost of foreign products in line with what the cost would be for Americans to do that same work. No consideration for the potential impact of those countries that have benefited for years by the “free trade” policies of the past.
Now for some actual information.
Interest Rates: March Treasury bonds closed at 11916, up 23 ticks on Friday as investors sought the safety of treasuries as the equity markets sold off sharply. After the close of bonds Friday equities rallied off the lows on shortcovering after the devastating 250 point decline on Thursday and the 160 point decline during the session. As the equity market rallied after the bond close we would expect selling early on Monday in bonds. However, our view that bonds remain in a trading range is unchanged.
Stock Indices: “The market giveth and the market taketh away”. The Dow Jones industrials closed at 10012.23, up 10.05 after trading down 160 plus points. The final hour of trading saw gains in commodity prices which helped equities rally on heavy shortcovering and bargain hunting in front of the weekend. The S&P 500 closed at 1066.19, up 3.08 after trading as low as 1044.50 during the session. The Nasdaq closed at 2,141.12, up 15.69, after trading as low, on a consolidated basis, as 2100.17. Our opinion of a major selloff in equities is unchanged and we suggest strongly that investors with large equity positions contact us for hedging strategies specific to their portfolios.
Currencies: The March U.S. dollar index closed at 8037.5, up 30 points against sharp losses in the Euro of 108 points to 13635, the Swiss Franc 80 points to 9309, the British pound 152 points to 15600, all basis the March contract. Other currency losses include the March Canadian dollar 11 points to 9318, and the Australian dollar 21 points to 8607. The Greece deficits are impacting the countries of Portugal, Spain, and other euro zone economies and the dollar and U.S. treasuries became the “safe haven” for institutions. We remain on the sidelines, but as suggested in earlier commentaries, our preference in the sector is the Swiss Franc but additional purchases should be limited to sophisticated investors willing and able to sustain short term losses. With relatively little possibility of U.S. interest rate increases, further rallies in the dollar are in doubt unless Central banks reduce their rates creating a defacto relative increase in U.S. rates.
Energies: March crude oil broke through the $70 per barrel level temporarily trading as low as $69.50 before closing at $71.19, down $1.95. Record daily trading volume for the nearby contract produced the biggest three day percentage loss since last September. With supplies more than adequate and demand reduced by the global recession, prices continued under pressure. We once again suggest the sidelines.
Copper: March copper closed at $2.8575 per pound, down 2.15c after trading as low as $2.8110. The early strength in the dollar prompted heavy selling in copper as well as perceived reduction in demand globally tied to concerns over Greece. The potential impact financially in euro zone countries could be dramatic and the overal economic condition of those countries prompted the selling in commodities. The late reversal in equities and commodity prices provided the impetus for the rally in copper. We continue to believe copper prices will decline further but would not add to put positions at this time.
Precious Metals: Ads for the need to purchase gold are permeating the air waves and what people do not understand is the potential for another price collapse in precious metals. In 1980 the price of gold hit $875 per ounce and it took investors 27 years to break even before this last rally over $1,200 per ounce. That represented a really poor return on investment (ROI). We could see history repeat itself…. April gold closed at $1,052.80, down $10.20 but traded as low as $10,44.50 during the session. March silver closed at $14.83 per ounce, down 52c but traded as low as $14.65. April Platinum closed at $1,475.10 per ounce, down $40.20 while March palladium lost $10.15 per ounce to close at $398.25. Our spread recommendation of long palladium, short platinum continues to work in our favor.
Grains and Oilseeds: March corn closed at $3.51 ½ per bushel, down 2 1/2c tied to selling of other commodities against the U.S. dollar strength. Technicals remain bearish so we would avoid taking any positions in corn. March wheat closed at $4.73 ¼ per bushel, down 2 1/2c for the same reasons as for corn. March soybeans closed at $9.13 ½, down 1/2c but in our opinion has bottomed on Friday. We now suggest getting back on the long side of soybeans.
Coffee, Cocoa and Sugar: March coffee closed at $1.288 per pound, down 2.75c and remains in a downtrend technically, but exacerbated by the dollar strength. We would take on some longs since production in Brazil could decline due to potential rain damage. Brazil is the world’s biggest producer of coffee. We view coffee as a buy but with stops. March cocoa closed at $2,972 per tonne, down $118 and the lowest close in over four months. Technical support was breached and we would avoid cocoa. March sugar closed at 26.17c per pound, down 1.47c in line with sharp declines in outside markets specifically crude oil and against dollar strength. We could see a corrective rally early in the week. Some traders may want to buy a “few” contracts early Monday but with stops.
Cotton: March cotton closed at 66.62c per pound, down 2.37c in line with other commodities but we feel the decline was overdone and would buy cotton early Monday using stop protection. The breach of technical supports was tied to sell stops and I view the selling as overdone on a
Information provided is from sources deemed to be reliable but not guaranteed. Futures and Options trading involve a high degree of risk and may not be suitable for everyone. John Caiazzo is a registered commodities broker with over 40 years experience in investments and opinions are his own and not of the Futures Commission Merchant he introduces his clients to.