"Show me the money" should be the "battle cry" of the American public. The various so-called "stimulus" programs have yet to "stimulate" anything or create a single job. Nor can it begin to resolve the current mortgage default and foreclosure debacle. My recent suggestion on how to save at least some homes was to declare a 6 month moratorium on all foreclosures to allow homeowners to find a job, and make a single mortgage payment with the missed payments tacked onto the back end of the mortgage. That might save as many as 10-20% from foreclosure.
The others must be allowed to foreclose and put those homes on the market which, while it would temporarily cause further sharp price declines, it would open the market to a base where potential buyers would come into the market without fearing supply overhead. A "bitter pill" to be sure but the only answer I see. The National Association of Realtors reported that sales of existing homes unexpectedly dropped in September by 1.8% against expectations of a 2.5% increase. The really big problem however, is jobs.
When Ross Perot stated emphatically that NAFTA would provide for a great "sucking sound" as jobs went South, that is exactly what happened. The American worker cannot compete with "slave wages" being paid outside the U.S. and as I see it, the U.S. does not manufacture many of the goods Americans use, not a TV, not a radio, not a telephone, nor other items that can be found at Wal-Mart that are imported from China. Even clothing items that were made by members of the "International ladies garment union" are made in the Southern part of the hemisphere and the far east. The government has to stop the free imports of products that can be made by Americans. A trade war already exists as the U.S. is being "flooded" with cheap cost-basis imports and to impose tariffs on products that can be made in the U.S. is a solution that must be considered if any change in the jobs situation is to be expected. It is time for the U.S. Administration to "bite the bullet" and make the tough decisions that will bring jobs back into this country. Now for some actual information…
Interest Rates: December Treasury bonds closed at 13022, down 100 or 32/32nds after trading as low as 12930 after the report showing that the U.S. economy added more jobs than analysts expected. The Labor Department report showing employers "created" 150,000 non farm jobs in October was higher than analyst expectation of an increase of 60,000 jobs did not effect the unemployment rate which remains unchanged at 9.6%. We continue to feel sporadic economic data will impact treasury prices and our opinion that we are at or close, with recent highs, at a market top. We are inclined to suggest buying puts out to 6 months on treasuries.
Stock Indices: The Dow Jones industrials closed at 11444.08, up 9.24 after the positively construed October jobs report. We continue to question the "optimistic" view of the monthly reports since on an ongoing basis the first time unemployed number is around two million a month so that an increase of 150,000 jobs, and with many in the service sector, not manufacturing, is of concern to us. The conclusion" drawn by the pundits is confusing since with nearly 15 million people out of work translate in our opinion to a devastating condition and nothing to garner such optimism. We are continuously hearing reports of better than expected earnings from U.S. corporations but that only assumes that the millions of unemployed contributed nothing to the corporate bottom lines and were absolutely worthless. Something I absolutely do not agree with. So in effect I believe the numbers appearing in the proverbial "mirror" are just that. I look for a major correction in equities and would not hesitate in buying put options in the
Currencies: The U.S. dollar index rallied on Friday closing at 7676, up 76 points basis the December contract, after trading on Thursday at a ten month low against the Euro. The December Euro closed at $1.4038, down 1.64c. Other currencies also declined against the dollar with the Swiss Franc closing at $1.0409, down 28 points but still over the U.S. dollar. We had been bullish on the Swiss Franc from the 70c level and recommended profittaking when it finally broke parity with the dollar. The December British pound closed at 16185, down 91 points, the Japanese yen 12297, down 101, and the Aussie dollar 10100, down 5 points. Only the Canadian dollar which sometimes tracks the U.S. currency managed a gain of 29 points to close at 9988 after having traded at parity with the U.S. dollar early in the session. We remain negative on the dollar but at some point as U.S. interest rates stabilize and tick higher, the dollar will also benefit. For now stay out of this market.
Energies: December crude oil closed at $86.85 per barrel, up 36c on Friday and a two year high closing. Earlier crude traded above $87 early in the session but set back after the better than expected U.S. jobs data which "pumped up" the dollar. For the week crude gained 6.7%. We prefer the sidelines since demand, in what we see is a continued recessionary atmosphere, declines.
Copper: December copper closed at $3.9485, up 3.65c on falling warehouse inventories and the worker strike at a Chilean copper mine. The strong dollar kept prices from gaining further on Friday. While our bearish stance remains tied to our negative assessment of the U.S. economy, we would avoid any new positions.
Precious Metals: December gold closed at $1,397.70 per ounce, up $14.60 on Friday to a new contract high even as the U.S. dollar gained. December silver closed at $26.75 per ounce, up 70.7c. Shortcovering and new buying as concerns that the price gains in "food" vis-à-vis grain and meat prices, would be inflationary. We prefer the sidelines but now feel that prices in precious metals may be overdone and time for a correction. January platinum closed at $1,768.60, up $12.70 while December palladium gained $12.15 to close at $686.90. We prefer the sidelines here as well although the "white metals" benefit from any increase in auto sales since they are used in catalytic converters.
Grains and Oilseeds: December corn closed at $5.87 ¾, down 2 1/4c as the dollar gained. Expectations that the USDA would cut production estimates in Tuesday’s supply/demand report kept prices from declining further. Corn gained 5 3/4c for the week and on Thursday posted a 26 month high. Export demand weakened recently and was also a factor in the profittaking. We prefer the sidelines. December wheat closed at $7.28 ¾ per bushel, up 15c tied to technicals as wheat settled at multi-month highs. Continued dry weather threatens U.S. winter wheat which will be harvested early in the new year. We could see further gains in wheat but we prefer the sidelines here as well as any correction could be severe against margin requirements. March soybeans closed at $12.92 ½ per bushel, up 9 1/4c on light farmer selling. Continued demand by China a factor in the shortcovering and new buying. We continue to favor soybeans in this group but with stop protection.
Coffee, Cocoa, Sugar: December coffee closed at $2.0515 per pound, down 65 points mostly tied to the dollar rally. Demand for commodities has benefited coffee but the better than expected non farm payrolls report from the U.S. prompted the long liquidation. We continue to prefer the sidelines in coffee. December cocoa closed at $2,734 per tonne, down $22 also tied to the dollar strength. Recent strength tied to concern over Ivory Coast elections which were inconclusive and will require a re-vote. We prefer the sidelines during any political uncertainty in a major growing country. March sugar closed at $31.69c per pound, down 7 ticks settling at a 30 year high. With India celebrating their Diwali holiday nothing will be reported for now even as India had considered exporting sugar after the festival and could pressure prices from here. We prefer the sidelines.
Cotton: December cotton closed at $1.4223 per pound, up 1.78c on Friday. The prices we have seen of late have not been seen since the end of the U.S. Civil War tied to demand and technicals. Spec funds have been heavy buyers along with cotton mills trying to ensure adequate future supplies. Supplies for current demand appears adequate and we could see a price correction from here.
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.