This past week was fraught with concern that Greece and Spain persistent debt problems could affect global markets. Investors are also worried whether or not an increase in the U.S. debt ceiling will be forthcoming and if the failure to do so could mean severe economic problems. The two major political parties are at odds with one claiming financial disaster if the ceiling is not raised while the other claims extensive spending cuts are necessary rather than increasing debt. We will have to wait to see what happens. In our opinion, the level of spending is out of control and the increase in the debt ceiling is necessary as a "temporary" remedy to keep the government going and maintaining the overall U.S. debt rating.
In other news President Obama pressured the Israeli Prime Minister Benjamin Netanyahu to move that country’s borders back to the 1967 level. A "suggestion" Mr. Netanyahu rejects claiming it would make Israel indefensible against attack from the Golan Heights. The strain between Obama and Netanyahu was obvious to me and appears to reflect President Obama’s willingness to appease the Arab community at the expense of our only reliable and trustworthy ally in the area. I see it as a big mistake and serious breach of fiduciary responsibility on the part of the U.S. President. Now for some actual information to help my readers with their trading decisions...
Interest Rates: June Treasury bonds closed at 12428, up 8 points in choppy trading. With no economic data to provide stimulus bonds lacked direction Friday. Next week should prove interest with reports of durable good orders, new home sales, and a revision to the first quarter GDP. Our concern is that any budget deficits will fail to include the shortfall in the Government’s "income" from taxes. The continuing unemployment problem translates to reduced income tax which represents the "income" of the federal government on which the budge deficit is determined. We could see a "tug of war" of sorts between the two major political parties, one which wants to increase the debt ceiling, and the other which wants sharply reduced spending. We will know shortly whether or not the rampant spending by the U.S. administration will be "rewarded" with more money to spend vis-à-vis an increase in the debt ceiling. We feel continued price swings in treasuries will continue but that higher interest rates are inevitable. We like the short side of treasury bonds either through short sales or purchases of put options depending on the financial abilities of the clients.
Stock Indices: The Dow Jones industrials closed at 12512.04, down 93.28 points and for the week lost 0.7%. The S&P 500 closed at 1333.27, down 10.33 and for the week lost 0.3%. The tech heavy Nasdaq closed at 2803.32, down 19.99 and lost 0.7% for the week. Two major retailers led the declines on Friday posting poor first quarter earnings and were reflective of possible future company reports. We continue to persist in our admonition to investors to implement hedging strategies. Large equity portfolio holders can contact us directly for programs specific to their needs.
Currencies: The June U.S. dollar index closed at 7578.5, up 50.8 points tied to concerns over the debt situations of Greece and Spain. The Euro closed at $1.4112, down 1.49c. Our belief has been that the establishment of the Euro was a mistake and we cannot understand the logic in establishing a single currency for a number of countries each of which has it’s own economy, GDP, and outstanding debt. The June Swiss Franc closed at 11400, up 55 points while the June British pound gained 12 points to close at 16221. The bank of Japan left its key interest rate unchanged but since it was already at 0.1%, it would be difficult to do otherwise. The June Canadian dollar lost 45 points to close at 10267 while the Australian dollar gained 6 ticks to close at 10636. We continue to prefer the sidelines since news plays an important part in the currency markets and is something we cannot "predict".
Energies: June Crude oil closed at $99.49 per barrel up $1.05 expiring at the close of business Friday. Geopolitical events in the Middle East continue to create concerns over future supplies. However traders are more attuned to economic conditions in Japan and the U.S. Japan is the world’s third largest oil consumer. We continue to favor the short side for an eventual move for nearby futures crude to the $80-85 price level.
Copper: July copper closed at $4.1215 per pound, up 6.9c on a correction after recent price declines and on concern over declining global stockpiles. The Shanghai Futures Exchange warehouses declined to the lowest copper storage level since late 2010 and has declined for the ninth consecutive week. Inventories at the London Metal Exchange warehouses which had gained recently, declined in Thursdays report to 466,250 metric tonnes down 775 tonnes from Wednesday. We are watching this market closely and suggest taking some profits on short sales and on long put positions. Hold a basic position however based on our continued expectation of declining global economic activity. The "rebuilding" of Japanese cities is a factor in the shortcovering after the horrendous earthquake and tsunami.
Precious Metals: June gold closed at $1,508.90 per ounce on Friday, up $16.50 and traded at $1,513.00 in late trading up $19.40. The weak equity market helped gold despite the U.S. dollar strength as gold was used as a "safe haven" for Euro holders. July silver closed at $35.087 per ounce, up 40c following gold. July platinum closed at $1,769.40, up 40c while its "sister" June palladium gained $7.35 per ounce to close at $735.50. Precious metals have always provided a "safe haven" during times of geopolitical concerns, inflationary trends and currency turmoil.
Grains and Oilseeds: July corn closed at $759 ½ per bushel, up 11 1/4c on planting concerns. Wet weather has kept farmers out of the fields where only a small percentage has been planted when plantings are usually completed by now. We could see further price gains. July wheat closed at $8.06 ½ per bushel, down 5 1/2c on profittaking after recent price gains tied to excessive dryness in the Southern Winter wheat belt stressed crops. We prefer the sidelines in wheat while further price gains are possible, our preference has turned to corn and soybeans. July soybeans closed at $13.80 ¼ per bushel, up 3/4c. The widespread flooding along the Mississippi River that could curtail some shipping to the Gulf prompted the light buying awaiting Mondays USDA crop report. We like soybeans from here but new positions should be accompanied by stop protection.
Coffee, Cocoa, & Sugar: July coffee closed at $2.81 per pound, down 2.7c on concern that the ICE exchange is widening its ability to cancel certain trades during time of extreme price activity. Some clarification of the policy is needed to assure traders that their trades will stand regardless of wide price swings or extraordinary volume. July cocoa closed at $2907 per tonne, down $72 and remains on our no interest list after recent heavy long liquidation as supplies once again available to ports after the recent election problems. July sugar closed at 22.42c per pound, up 60 points on shortcovering but concern over the ICE policy shift could put a damper on further price gains. We continue to favor the long side of sugar but with stop protection.
Cotton: July cotton closed at $1.5561 per pound, down 4 little ticks. Cotton has sold off recently tied to global economic conditions. We would await the Monday USDA crop report before taking any action but we favor the long side tied to the potential damage from the Mississippi delta flooding and possible crop damage.
John L. Caiazzo