This past Friday, a break in the house of mirrors occurred in the form of negative economic and jobs data. The euphoria of the recent past was largely reduced to dust as the employment rate inched up to 9.2% and the obvious failure to create jobs emerged. The creation of 18,000 new jobs, (unknown as to what kind of jobs) against estimates of 105,000 was a disappointment to the Obama administration. The President had no doubt planned his speech to congratulate his administration on job creation but instead had to reiterate his previous statements that "there is much more to do," etc.
I have been declaring ad nauseum that there is no such thing as a jobless recovery because those without jobs are not consumers of any consequence. The true unemployment and underemployment figure is closer to 17% since many unemployed have had to accept positions paying substantially less than the job they lost. Even those with jobs are concerned about them and have cut back on spending. Without spending, further layoffs are almost certain since the producers of those products must then contribute to the unemployment numbers by laying off workers.
I had indicated in prior commentaries that at some point, the weekly unemployment number on Thursday would start to decline. That, in effect, is not the result of an improving job situation, but merely reflects the fact that fewer workers are available to lay off without companies closing their doors. The productivity factor so often claimed by the administration is a result of fewer workers doing the added jobs of the laid-off workers. That is not a reflection of a better jobs condition even though the rhetoric emanating from Washington would like the public to believe it is. When will the administration recognize that there is no recovery not even a "tepid" one?
Now for some actual information my readers can translate into successful trading...
Interest Rates: September U.S. treasury bonds closed at 12431, up 1.22/32nds for the largest weekly yield decline in over a year. Investors moved money from equities to the relative safety of treasuries as the U.S. jobs data and European sovereign debt problems raised fears once again that problems continue to exist. The U.S. jobs data showed a much lower than expected increase in jobs of 18,000 against anal-ysts expectations of 105,000 jobs as reported by ADP on Thursday. The unemployment rate also inched up to 9.1%. The debt crisis for Greece may have expanded to include Portugal and Spain once again and concerns that the ECB may not be able to provide debt restructuring on any continuing basis for weak members of the EuroZone. We continue to suggest that the entire concept of one currency, the Euro, encompassing the GDP and economic conditions of all the participating countries was a mistake and never made any sense to me. We should see some stabilizing of treasuries as markets tend to become ‘overdone" in one direction or another so a selloff in treasuries could be expected early in the week. Hold strangle positions and only roll when one side moves to the strike price.
Stock Indices: The Dow Jones industrials closed at 2657.20, down 62.29, after having been off over 150 points after the early morning employment data. The S&P 500 closed at 1343.80, down 9.42 and the Nasdaq closed at 2859.81, down 12.85 after both indices traded much lower after the data. For the week the Dow still managed a gain of 0.6% but is still 9.3% ahead so far for the year. We once again suggest implementing hedging strategies for those with large equity portfolios.
Currencies: The September U.S. dollar index closed at 7543.5, up 17.8 points as the EuroZone problems continue to grow with not only Greece but Portugal, Spain and now Italy probably needing ECB or IMF assistance with restructuring of debt. We like the dollar but with U.S. interest rates declining sharply on Friday tied to the weaker than expected jobs data, we could see some profittaking early in the week unless treasures come under some profittaking pressure. The September Euro lost 106 points to close at $!.4214. Other currencies not necessarily impacted by the Euro problem fared better. The Swiss Franc gained 118 points to close at 11960, the British Pound 70 points to 16017, the Japanese Yen 95 points to 12408. The Canadian dollar lost 24 points to 10383 and the Australian dollar lost 31 points to 10647. We continue to prefer the sidelines for now.
Energies: August crude closed at $96.20 per barrel, down $2.47 on selling that emerged after the June jobs report. Prices had risen after Thursdays ADP jobs report which as it turns out, was overly optimistic. The weak economic data and concerns over various debt problems in Europe could also continue to impact demand. We prefer the sidelines in crude but once again, our goal for prices continues to be in the $80-85 range.
Copper: September copper closed at $4.412 per pound, down 3c tied to the weaker than expected U.S. labor report. Economic data as well as geopolitical events have a material effect on copper prices. Concerns over possible mine production disruptions due to labor strife has kept prices at current levels. We continue to prefer the short side of copper based on our expectations of a new recessionary trend for the U.S. and its trading partners.
Next page: Where is gold going?
Precious Metals: August gold closed at $1,541.60, up $11.00 tied to the weaker than expected U.S. jobs data and the rush to the relative safety of bonds and precious metals. September silver gained only 0.7c to $36.543 but in late trading was up 14.9c to $36.6850. October platinum closed at $1,733.40, down $9.60 with September palladium losing $7.60 to $778.95. Concern that a weaker than expect jobs market could cut into auto sales which the white metals depend on for their use in catalytic converters. We prefer the sidelines.
Grains and Oilseeds: September corn closed at $6.42 ¼, per bushel, up 17 1/4c mostly on a correction after having lost 15% since the middle of June. The U.S. Senate voted to end some tax breaks for the ethanol industry and prompted long liquidation and new shorts in corn. We believe corn has based and could rally from here based on supplies and export demand. Buy corn. December wheat closed at $6.90 ½ per bushel, up 15c on some fund buying and tied to corn action. We favor the sidelines in wheat. November soybeans closed at $13.48 ½ per bushel, up 8 3/4c also on the buying in corn. Dry weather concerns could develop over some areas of the Midwest in the next few weeks could help soybeans. Also the planted acreage numbers will require good crop yields in order to offset the acreage losses. We like soybeans from here.
Cattle & Hog report: August live cattle closed at $1.1465, on Friday down 75 points on profittaking after recent strength. The weak stock market also played a role in the long liquidation. Good export demand for beef was also a supportive factor recently. We continue to like cattle but would use stops on any new purchases. August lean hogs closed at $.96.175 per pound, down 1.00c on weak cash markets. We prefer the sidelines in hogs.
Coffee, Cocoa and Sugar: September coffee closed at $2.6360, up 30 points tied to possible cuts in production by Brazil. Low yields also a concern but prices remain in a range near the 14 year highs. We prefer the sidelines but on any setbacks would look to buy coffee for December delivery. Always consider stop protection for markets dependent on foreign producers. September cocoa closed at $3,088 per tonne, down $3.00 but holding above $3,000 tied to concern over Black Pod disease at the Ivory Coast. We could see some price correction after recent gains but would use setbacks to add to longs or for new purchases. October sugar closed at 28.98c per pound, down 38 points on a pre-weekend long liquidation. We like sugar from here on expectations for reduced Brazilian crop production and poor harvest tied to dry weather. Use stop protection.
Cotton: October cotton closed at $1.1658, up 38 points tied to concerns over dry weather. We could see some buying develop on shortcovering, but have no opinion as to future direction after having been short for some time. Stay out for now.
John L. Caiazzo