Overview: This week the U.S. President claimed he is not “concerned about a double dip recession.” Why should he be? HE has a great job, lives in a really neat house, our house, gets free medical care for himself and his family, and free travel on cool airplanes….. unlike millions of Americans in this country who are concerned about their mortgage and car payments, not to mention food and energy. It reminds me of another of my “famous” says, “He is blind who will not see and deaf who will not hear.” I wonder if he will “see” the results of the polls or next year’s votes or “hear” the chatter of the voters displeasure. As I have been bemoaning for the past year, we are mired in recession regardless of whether or not it meets the dictionary criteria of one. Each week over 400,000 Americans apply for first time unemployment, to the tune of nearly two million a month. The so called jobs creation of 100-200,000 or so claimed by the Administration does not quite measure up. Once the Administration figures out the reality of what the U.S. economic condition is, perhaps then some “attitude correction” will occur. Now for some actual information to hopefully guide my readers through the mire of news and data…….
Interest Rates: September Treasury bonds closed at 125-23, up 15/32nds as money once again moved from equities to the relative safety of Treasuries. Concerns over the global economic situation, the prospect of an increase in the debt ceiling making it easier for the U.S. administration to keep from defaulting on its already gigantic debt and continue its rampant spending. While we do not see an increase in rates coming out of the Federal Reserve, which would no doubt impact the debt servicing if it were to raise rates, we continue to favor the short side of Treasury bonds. There is no room for lowering rates and while “stimulus” programs could become inflationary, the Fed probably will not move. International and national economic reports are due this week and that could determine market direction across the board. Hold put positions or sell calls on any further rally in bonds.
Stock Indices: The Dow Jones industrials sold off sharply on Friday adding to the recent declines, closing at 11951.91, down another 172.45 points. For the week the Dow lost 1.6%. The S&P 500 closed at 1270.98, down 18.02 points and for the week lost 2.2%. The tech heavy Nasdaq closed at 2643.73, down 41.14 points and for the week posted a loss of 3.2%. We have been warning of a major selloff in equities for some time and cannot impress enough the need for holders of large equity portfolios to implement hedging strategies. We have been offering our assistance in setting up hedging programs with only nominal response. We urge investors to heed our warnings and now other analysts have joined in voicing their negativity towards the U.S. economy and current price levels. Disappointing news internationally also is a factor in the market declines. Import and export numbers were viewed as detrimental to economic growth. If at all possible, get out of riskier positions and move to cash until the “smoke clears.”
Currencies: The September U.S. dollar index closed at 7523, up 83.1 points with losses posted in most major currencies that are viewed as overbought and on concerns over Eurozone debt conditions. The Swiss Franc closed at 11883, up 2 ticks and remains our favorite in the group although we suggested taking profits on our previous long recommendations. The September Euro lost 155 points to close at 14312. The September British pound lost 125 points to 18219, the Japanese yen 4 points to 12454, the Canadian dollar 33 points to 10212, and the Aussie dollar 73 points to 10438. We continue to favor the sidelines for small investors.
Energies: August crude oil closed at 9950 down 2.95 on reports that Saudi Arabia is offering to produce more crude to Asian refineries. The strong dollar also is a factor in the decline. As stated recently we view crude as overpriced based on the “fear” value of about $20 per barrel putting the true value based on supply/demand factors of around $80 per barrel. Our continued view of a global economic decline and demand should continue to put pressure on prices.
Copper: July copper closed at $4.0560 per pound, down 5.15c tied to the strong dollar and declining demand from China. Copper imports by China for May were reportedly down 3% from the prior month and 36% from the same month last year according to the General Administration of Customs. We continue to be bearish for copper tied to our continued view of global economies as in recession. The selloff in equities last week also is a factor in the weakness. We are watching Chile for additional signs of labor strife with workers becoming more agitated and that could cause some production declines. Otherwise stay with your put positions.
Precious Metals: August gold closed at $1,529.20 per ounce, down $13.50 tied to the strong dollar in which precious metals and other commodities are denominated. July silver closed at $36.327 per ounce, down $1.097. The white metals also suffered against the strong dollar with July platinum losing $12.60 per ounce to $1,832.10 per ounce and September palladium losing 80c per ounce to close at $817.30. Once again I suggest throwing away your metal charts and chart the U.S. dollar and keep a close eye on interest rates in the U.S. and abroad.
Grains and Oilseeds: July corn closed at $7.87 per bushel, up 1 1/2c after surging to a new record for front month corn. December corn lost 1 1/2c per bushel to close at $7.12 ½ per bushel. We like corn on both fundamentals and technicals but any new purchases should be accompanied by stop protection. July wheat closed at $7.59 ¼ per bushel up 14 1/4c while the December contract closed at $8.25 ¾ per bushel, down 12c. Nearbys fared better than the deferreds on short term demand by feed lot producers who have turned to wheat from corn, which traded at a premium to wheat. A rare situation but tied to demand by livestock producers. We prefer the sidelines in wheat. July soybeans closed at $13.87 ¼ per bushel while November closed at $13.81 ¾ per bushel down 5c on a correction after recent highs. The strength in the U.S. dollar put pressure on most commodities. We prefer the sidelines but would hold long call positions.
According to the Labor Department a 17.1 percent drop in the price of cotton led the decline in prices for agricultural exports, although prices for wheat, soybeans and corn also dropped.
Cattle & Hog report: June cattle closed at $1.02725 per pound, down 1.9c tied to the dollar strength and profittaking after recent strength. Trading on Friday was quiet and buyers already completed beef buying for the upcoming Fathers day holiday. We prefer the sidelines but would consider buying on any renewed interest. June lean hogs closed at 91.7c per pound, up 1,25c on tight supplies and improved cash prices. We prefer the sidelines for now but hogs remain bullish.
No Softs comments this week.
John L. Caiazzo