The Acuvest Letter
Overview and Opinion: I never thought establishing the "Euro" was a good idea. The U.S. with 50 states has basically one economy while in Europe each country has its own individual economy, industrial base, and GDP and to combine all the Eurozone countries into one "economic" structure never made sense to me. Now we see that the debt problems of one of the Eurozone countries, Greece, is impacting the entire structure possibly causing economic problems for Italy, Ireland, Portugal, Spain and others putting pressure on the EU to come to its aid. The current problem has its origins in the global recession which, in our opinion, was initiated by the U.S. recession. As I have stated in many prior commentaries, the U.S. is "the consumer of the world" and the U.S. , while portrayed by the Administration is in "recovery’ mode, we challenge that opinion with the fact that each week an additional 450,000 U.S. workers "visit" the unemployment office for the first time and many hundreds of thousands have watched their unemployment benefits end. The resulting defaults on home mortgages and auto loans as well as credit cards leaves no doubt for us that the U.S. recession is "alive and well". The "corporate" concept of increasing earnings by reducing expenses along with the banks refusing to "dump" foreclosed homes" with bad mortgages on the market only prolongs the "agony" of the U.S. economic condition in our opinion. The premise of allowing bad mortgages on bank earnings statements in the "asset column" as receivables rather than close them out and put those unsecured debts on the liability column is only preventing the economy to form a base from which to actually recover. As mentioned in recent commentaries, the U.S. budget deficit will, in my opinion, take a significant "jump" since former taxpayers are now drawing unemployment and the income to the Federal Government after April 15th will show a "surprising" increase. Of course, it is not surprising to those of us who recognize the "scenario" unfolding. Now for some actual information.
Interest Rates: June Treasury bonds closed at 115-14, up 13 ticks after trading as low as 115 flat on Friday. Poor investor demand and higher than expect yields from auction as foreign central banks as well as institutions failed to provide necessary bids. The Treasury debt sales of around $118 billion put pressure on prices amid concern over the U.S.’s huge deficits. The Commerce Department Friday reported a slightly lower revision in its fourth quarter GDP estimate. The inflation adjusted GDP increased at 5.6% annualized pace in the final quarter from the 5.9% reported last month. The University of Michigan reported consumer confidence for March unchanged at 73.6 only slightly higher than the estimates of 73. The main feature to the long liquidation of treasuries remained the lack of demand. We see bonds at or near the lows of the range we forecast but due to the unduly low rate of bids we would hold off any buying for now. Stay out.
Stock Indices: The Dow Jones Industrials closed at 10,850.36, up 9.15 and gained 1% for the week. The S&P 500 closed at 1,166.59, up 0.86 and the Nasdaq lost 2.28 points to close at 2,395.13 but still managed a weekly gain. The early gains were prompted by reports that Greece’s neighbors agreed to a bailout, if necessary, to include assistance from the IMF. Concern that a sinking of a South Korean Naval vessel may have been caused by the North prompted the selling from the days highs but no confirmation was given other than the cause was not the result of the North’s attack. We are awaiting further news but any such attack would be viewed as serious since the Korean war actually never ended but resulted in an "armistice". I have my own opinion of why that war never ended and it relates directly to then President Truman firing General Douglas McArthur for wanting to go across the Yaloo river into China where the North had depots from which to attack the South. Again, that’s my opinion. I continue to suggest implementing hedging strategies to avoid financial disaster. This equity market is extremely overbought in my opinion, and a major correction is in order.
Currencies: The June U.S. dollar index closed at 8188, down 52.5 points in a correction after recent strength tied to concerns of a possibly Greece debt default. The announced emergency package orchestrated by France and Germany and including the IMF prompted the profittaking and long liquidation in the dollar. We see no such "financial assistance" ability to stem the defaults for not only Greece, but other eurozone countries and would look for an opportunity to buy the dollar once again. The June Euro gained 109 points to close at 134 after trading as low as 13268 during the session. The June Swiss Franc closed at 9379, up 57 points with the June British Pound gaining 72 points to 14886, the June Japanese Yen 31 points to 10813, but both the June Canadian dollar and Australian dollar lost with the Canadian losing 56 points to 9722, and the Aussie Dollar 66 points to 8941. We prefer the sidelines with the usual exception of the Swiss Franc, which we view as inherently strong.
Energies: May crude oil closed at $80 per barrel, down 53¢ tied to weak demand for products in Europe. The Libyan company Tamoil shut its 96,000 barrel per day Cremona refinery in Italy for a month due to weak demand and we could see other such action by refiners in the near term. Whether or not it would support prices from here is another question however, since demand is lacking internationally. Stand aside.
Copper: May copper closed at $3.4030, per pound, up 2.25c tied to the weak dollar Friday and the comments earlier by Federal Reserve Chairman Bernanke indicating that U.S. interest rates would remain low. We continue to feel demand is weak and with the continuing weakness in the U.S. housing and auto markets, the market is overbought. We feel the strength is tied to what former Fed Chairman Greenspan once called "irrational exuberance" related to the U.S. economy. We remain bearish for copper.
Precious Metals: June gold closed at $1,105.40 per ounce, up $11.30 against the weakness in the dollar. As I have stated on numerous occasions, "throw away your gold chart and chart the U.S. dollar". The suggestion remains intact. May silver closed at $16.906 per ounce, up 16.5c. The situation in metals continue to derive activity tied to the situation in Greece and the Eurozone countries. July platinum closed at $1,600.70 per ounce, down $11.10 while June palladium gained $2.70 to close at $455.30. My recommended spread selling platinum, buying Palladium remains intact and is proving profitable for my subscribers.
Grains and Oilseeds: May corn closed at $3.56 per bushel, up 1.25¢ but lost 18 1/4c for the week. Trading was in a three cent range and was basically short covering in front of the weekend and ahead of Wednesday’s report on planted acreage. Stay out for now. May wheat closed at $4.64 ¾ per bushel, down 1 3/4c after touching new contract lows for the second day. Wait for the report next week by the USDA. May soybeans closed at $9.52 per bushel, up 9.5¢ but still lost 9.75¢ for the week. Short covering on Friday in front of the weekend and a correction after Thursdays technical selling tied the strong dollar the main feature. We continue to prefer the long side of beans but suggest waiting for next week before taking any action. Buying should be done on dips and with stop protection.
Coffee, Cocoa and Sugar: May coffee closed at $1.3585 per pound, down 1.15¢ after trading at a two month high on speculator buying but met with technical resistance which prompted some longs to take profits. We could see additional buying as momentum remains bullish but would use stops on any new buying. Concern that the mid crop from Colombia could be smaller than previous anticipated is offset to some extent by the supplies coming to market from Brazil and Colombia over the next month or two. We like coffee but again, only on dips and with stops. May cocoa closed at $2,854 per tonne, up $34 tied mostly to the weak dollar and general commodity buying by speculators and funds. Nigerian 2009-10 mid crop harvest is slow and could provide additional price support. We prefer the sidelines. May sugar closed at 17¢ per pound, down 5 ticks and remains negative technically after recent selling. Stay out for now.
Cotton: May cotton closed at 79.69¢ per pound, down 49 points on fund selling even against the weak dollar. That coupled with weak export sales could add to selling pressure this week but we would take no action either way until after Wednesday’s USDA report.
John L. Caiazzo
Website: www.acuvest.com
E-mail: futures@acuvest.com
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.
