The "Bull in the China Shop" has been replaced by the "Elephant in the China Shop" in as much as policymakers are failing in their attempts to "fix" the U.S. economy. They are "stumbling along breaking things" instead of working to resolve the basic problem of burgeoning unemployment and the ramifications such as mortgage defaults and foreclosures, car repossessions, and general public malaise and concern. No point to my repeating what I said last week. New readers should request a copy of my last overview. Now for some actual information.
Interest Rates: December Treasury bonds closed at 13122, down 4 ticks on Friday in sideways action with no important economic data reported. Yields remain low but are failing to attract new borrowers in the housing industry. With five million homeowners 60 days or more late on making payments, those defaults will soon turn into foreclosures and add to the enormous number of properties in the "pipeline". We feel treasury bonds have reached what we consider a price "ceiling" and would start to consider selling treasuries or buying puts.
Stock Indices: The Dow Jones industrials closed at 11132.56, down 14.01 but managed a 0.6% gain for the week. The S&P 500 closed at 1183.08, up 2.82 and also gained 0.6% for the week. The tech heavy Nasdaq closed at 2479.39, up 19.72 points for a 0.4% gain on the week. Traders are awaiting the next round of earnings reports which should direct the activity this coming week. We continue to suggest strongly that investors with substantial portfolios contact us for risk hedging strategies.
Currencies: The December U.S. dollar index closed at 7725 , down 38.4 points as finance ministers meet to try to mitigate the direction of various currencies in order to avoid a "currency war". We are in the camp that believes nothing can be done and markets will determine currency relationships based on specific economies. We suggested taking profits in our long standing recommendation for Swiss francs and we hold to that opinion. We are considering a long dollar position recommendation and will advise our clients when we feel they should enter the market.
Energies: November crude oil closed at $81.77 per barrel, up $2.28 influenced by the weak dollar and in front of the G20 group of industrial and developing nations. We continue to feel with global economies remain weak and that should continue to weigh on energy prices. Stay out
Copper: December copper closed at $3.8175 up $3.60 tied to the U.S. dollar weakness and to reports that China’s third largest zinc producer has stopped production of lead and zinc. Base metals rallied in London and carried to the copper market. We remain bearish on copper tied simply to our expectation that the enormous number of home mortgage foreclosures and homes waiting to be "dumped" on the market once the banks ignore the Administrations "instructions" to hold off on foreclosures. Those foreclosures will eventually come out and provide inventory which will negatively affect any new home building.
Precious Metals: December gold closed at $1,325.10, down 50c per ounce on light profittaking in front of the weekend and the G20 meetings. December silver closed at $23.118, down 2.1c per ounce following gold. January platinum closed at $1,675.10, up $1.70 per ounce on dollar weakness and December Palladium gained $4.80 per ounce to $591.10. We could see currencies determining the action in precious metals and would avoid participating for now.
Grains and Oilseeds: December corn closed at $5.60 per bushel, down 4 1/4c on fund and speculative selling. Corn exports have declined and profittaking after the recent sharp runup responsible for Fridays light selling. We prefer the sidelines. December wheat closed at $6.70 ¾ per bushel up 2c but lost 33 3/4c for the week. Prices had run up initially on the disastrous Russian drought and beneficial rains expected in the plains prompted the weeks price declines. We continue to prefer the sidelines in wheat. November soybeans closed at $11.99 ½ per bushel, down 2c after hitting a high intraday of $12.12 ½. Commercial selling to make room for corn along with profittaking took prices lower but we maintain our bullish posture towards soybeans.
Coffee, Cocoa, Sugar: December coffee closed at $1.9890 per pound, up 5 ticks after trading above $2.00 on Thursday. Shortage of the milder arabica coffee beans in global markets and higher prices at the South and Central America shipping ports prompted the buying as well as the weak dollar. We prefer the sidelines. December cocoa closed at $2842 per tonne, down $4.00 on Friday after early strength that pushed prices up higher on concern of supply disruption from Ivory Coast. Elections have been delayed since 2005 and divided into a government controlled South and the rebel held North following the 2002 military mutiny and civil conflict. We prefer the sidelines but with global economies faltering, demand for cocoa could decline. March sugar closed at 28.54c per pound, up 32 points on Friday as bad weather taking its toll on sugarcane. The long dry spell recently in Brazils main sugarcane region in center-south of the country is causing cane volumes variances as to how much is expected to be crushed into sugar or ethanol next year. Mills are forecasting output to be either unchanged or only slightly higher in 2011 and that could prompt new buying in sugar. We are on the sidelines.
Cotton: December cotton closed limit up 4c per pound on Friday to $1.1971 per pound, after last week posting the highest prices since the Civil war 150 years ago. A hailstorm in West Texas along with thunderstorms and heavy rains causing supply concerns. We could see additional buying early in the week on carryover and momentum technical buying. We prefer the sidelines. We could see a dramatic correction if supply concerns prove unfounded.
John L. Caiazzo
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 to which he introduces his clients.