Not the least of the problems for the U.S. is the ongoing unemployment and underemployment problem. On Friday I needed a cab to take me to the auto dealership that was servicing my car. The driver was a former construction worker who had made over $30 per hour in his job. After he was laid off he turned to other ways to feed his family and pay his bills. One of the ways was to drive a taxicab in my area at about $10 per hour. The problem in this country is that the unemployment rate of 9.1% is not the true reflection of the current condition. This cab driver, as I am sure millions of other formerly employed in good jobs, is unfortunately included in the number of "employed" and not unemployed. There are millions of workers who have taken jobs paying substantially less than they had earned previously and that has exacerbated the "revenue" problem for the U.S. They pay less taxes and the administration wants the employed workers to make up the difference. Hopefully the answer is reduced spending and not increased taxes during an economic slowdown.
The markets once again concentrated on the U.S. debt negotiations which faltered late Friday when the President tried to add $400 billion of "revenue" to the package and the Republicans balked at any tax increases on the American public during economically trying times. That problem coupled with the ongoing debt crisis in the EuroZone countries prompted light trading on Friday in equities. I had been warning for some time that the concept of a single currency for 17 countries each with its own economy and GDP makes no sense to me. The debt crisis in Greece, along with problems with the debt obligations of Spain, Portugal, Ireland, and Italy are exacerbating the concern and impacting markets globally. The U.S. debt ceiling talks have broken down temporarily and I hope the two major political parties can come together to "fix" the problem. Unfortunately the rampant spending over the past two years have accelerated the budget deficit to the point where a debit ceiling must be implemented to avoid default. One of the rating agencies has threatened to reduce the credit rating for the U.S. Government and that would prove disastrous to the borrowing public and businesses. Let’s hope for a resolution before any such action occurs. Now for some actual information that can help my readers with their trading……
Interest Rates: September treasury bonds closed at 12527 up 24/32nds and treasuries benefited from their status as a safe haven in view of the ongoing debt crisis in Europe. The ongoing debate in Congress about raising the debt ceiling and the differences between the two political parties on a resolution prompted the rally in bonds. We favor the spreads since we view treasuries as in a trading range.
Stock Indices: The Dow Jones Industrials closed at 12681.16, down 43.25 as concern mounted over whether or not Congress would meet the deadline for establishing a new debt ceiling and the potential ramifications of a default. Caterpillar Tractor was responsible for most of the Dow loss. For the week the Dow gained 1.6%. The S&P 500 closed at 1345.02, up 1.22 and gained 0.1% for the week. The tech heavy Nasdaq closed at 2858.83, up 24.40 and posted a weekly gain of 2.5%. We encourage holders of large equity positions to implement hedging strategies.
Currencies: The September U.S. dollar index closed at 7445.5, up 22.4 and as in treasuries provided the relative safe haven against the debt crisis in Europe. We continue to favor the dollar but would hold off any new purchases pending the possible resolution or otherwise in the U.S. budget crisis.
Energies: Septem ber crude oil closed at $99.81 per barrel, up 68c after trading over $100.00 per barrel during the session. The International Energy Agency indicated they would not release additional oil supplies from emergency reserves and that prompted short covering and new buying in crude. We continue to favor the short side of crude on the basis of the global economic condition we perceive as continuing in recession.
Copper: September copper closed at $4.40 per pound, up 10c as the largest Chilean mining union voted to "indefinitely" extend a strike at the Escondida copper mine. However with the weak overall demand for copper we remain bearish. Copper stocks at the LME were down 1,725 tonnes to 472,325 but the deliverable stocks at the Shanghai Futures exchange were up 2,585 tonnes to 112,046.
Next page: Gold's reaction
Precious Metals: Agust gold closed at $1,601.50 per ounce, up $14.50 on concerns over the U.S. debt ceiling increase that most economists feel is necessary to avoid a U.S. default. With the ongoing debate in Congress, we have no opinion since a resolution could prompt long liquidation. September silver closed at $40.12 per ounce up $1.18 following gold. October platinum gained $10.60 per ounce to close at $1,798.40 while September palladium lost $2.60 per ounce to close at $806.40. Until there is some determination as to the debt ceiling we are on the sidelines.
Grains and Oilseeds: September corn closed at $6.90 per bushel, up 10 3/4c on the extremely hot weather conditions across the Midwest. We like corn from here pending any change in the weather. December wheat closed at $7.31 per bushel, up 14 1/4c on shortcovering after recent selling and in front of the weekend where weather remains a concern. November soybeans closed at $13.88 ¼, up 1/4c in mixed trading with weather Argentina production reduction. Export sales were in line with forecasts and prices could remain in a range possible directed by weather. We like soybeans from here but would use stop protection for any new purchases.
Cattle & Hog report: October live cattle closed at $1.154 per pound, up 10c in sideways trading awaiting the cattle on feed report which when we wrote this was unavailable. We continue to favor the long side of cattle in view of the herd reductions tied to the extreme heat. October lean hogs closed at 92.575c per pound, up 1.92 1/2c on expectations of Chinese pork buying. We prefer the sidelines in hogs. A floor rumor that China had relaxed its restrictions on importing U.S. pork from pigs on growth hormones prompted the rally. It could advance further but our overall opinion has been bearish.
Coffee, Cocoa and Sugar: September coffee closed at $2.4220 per pound, up 1.4c on light shortcovering but we prefer the sidelines. September cocoa closed at $3,085 per tonne, down $107 on long liquidation. We are slightly bearish for cocoa but need new fundamentals before instituting new positions. October sugar closed at $31.46c per pound, up 1.61c on shortcovering and new buying prompted by poor weather and a forecast for smaller production from Brazil. We would move to the sidelines for now.
Cotton: October cotton closed at 99.14c per pound, down 19 points tied to weak demand and poor export sales. We prefer the sidelines for now.
John L. Caiazzo