I’m not sure which one is representative of Fed Chairman Bernanke’s performance -- speak no evil, see no evil, or hear no evil -- but his speech on Friday was obviously a non-event while international anticipation was at a peak level prior to his speech.
Market participants globally where awaiting words of wisdom from the Fed Chairman, and his blatant attempt at pacifying the investing public fell short of the reality of the global financial condition. We were disappointed in a way but glad that no earth-shattering proposal was forthcoming, and the markets took solace in that.
The overriding concern from our viewpoint is the ongoing unemployment picture which was exacerbated on Thursday with the surprising increase of first time unemployment. I had stated ad nauseum that at some point the layoffs would subside as we approached the point at which no further layoffs were possible without some corporations shutting their doors. Corporations have to be made to return to our shores from whence they migrated for a better tax structure. That will accomplish the job of returning workers to their jobs. As I stated last week you cannot create a job without creating a new industry. Those jobs must be restored from the countries they were sent to by virtue of corporate exits. Now for some actual information...
Interest Rates: December treasury bonds closed at 13630, up 20/32nds continuing the rally prompted by Fed Chairman Bernanke’s "ill advised" statement that interest rates would remain low through the middle of 2013. His speech in Jackson Hole Wyoming was basically an "after thought" since it had no substantive information or policy initiative other than to indicate "additional tools were available". I don’t believe there are any "tools" left in his toolbox so I would prefer the short side of treasuries from here.
Stock Indices: The Dow Jones industrials closed at 11284.54, up 134.72 and posted a weekly gain for the first time in five gaining 4.3% for the week. Mr. Bernanke’s statement that the economy is "not in need of quick stimulus" prompted expectations that future data would be positive. We of course see it differently since the so called recovery is non existent and the labor situation has worsened once again with the increase in first time unemployment reported on Thursday. The early selling in equities quickly reversed after Mr. Bernanke’s positively construed statements. The S&P 500 closed at 1178.80, up 17.53 and posted a weekly gain of 4.7%, while the Nasdaq gained 60,22 points to close at 2479.85, up 5.9% for the week. We continue to warn against complacency and suggest, once again, the implementation of hedging strategies so investors with large equity portfolios do not get caught again as they did for the past four weeks.
Currencies: The December U.S. dollar index closed at 7407.5 down 64.2 points and underwent wide price swings from early morning through Mr. Bernanke’s speech. We continue to favor the dollar against the Euro and would maintain short positions in the Euro. His speech merely postponed "the inevitable" meaning that additional action must be taken by the Fed to avoid a deeper recession from manifesting itself.
Energies: October crude oil closed at $85.37 per barrel, up 3c after Mr. Bernanke’s "glowing" report on the U.S. economy. We had achieved our long time goal of $80 per barrel oil and would now stand aside.
Copper: December copper closed at $4.12 per pound, up 2c on a correction after recent long liquidation. The weaker dollar prompted shortcovering and some new buying. A South American copper producer had indicated the possibility of a world copper deficit of 500,000 tons for 2011 and that was a positive for copper. The London Metals Warehouse stocks were down 1,275 tonnes to 465,175 tons and that also helped copper prices. We are on the sidelines after having been extremely bearish in recent months.
Precious Metals: October gold closed at $18.2930, per ounce, up $6.87 on short covering after the recent selloff from the high of over $1900 per ounce down to the low $1700s. We would avoid gold since nearly the entire public has been "brainwashed" by the media promoting it. We saw this occur once before in 1980 when gold hit $875 per ounce and it took those buyers 25 years to break even. Will it happen again? Maybe but from what level? $2,000 per ounce, $2,100 per ounce or even $2,300 per ounce. No way of telling how far the "feeding frenzy" will carry it before the "balloon" bursts, which I imagine it will. Owning a little gold wont hurt. It is shiny and some of the bullion coins are "pretty"….. December silver closed at $41.780 per ounce up 98.7c or 2.42% following gold and also against the weak dollar. Octob er platinum gained $12.80 per ounce to $1,835.20 while December palladium fared better percentage wise posting a $7.95 gain to close at $761.15. We would avoid metals for now pending the Presidents after Labor Day speech. We await his comments with baited breath……As we stated before, only a competitive tax structure will get corporations to return to our shores and that will improve the jobs situation and provide for a meaningful economic recovery.
Grains and Oilseeds: December corn finished 23 1/2c higher at $7.67 per bushel tied to the USDA reduction in corn production. The extremely hot weather has impacted yield prospects for both corn and soybeans. We continue to favor the long side of corn but with intraday stop protection. December wheat closed at $7.97 per bushel, up 9 1/4c following the strength in corn and beans along with tight supply indications. We prefer the sidelines in wheat. November soybeans closed at $14.23 ½ per bushel, up 30 3/4c tied to the extremely hot weather that is impacting yields. We like soybeans for a possible "attack" on the $15.50 resistance level.
Cattle & Hog report: October cattle closed at $1.1520 per pound, up 1.10c. We continue to prefer the long side of cattle against the short side of hogs. October lean hogs closed at 87.10c per pound down 1.25c.
Coffee, Cocoa and Sugar: December coffee continues its upward trend gaining another 4.4c per pound on Friday to close at $2.7990 per pound. Old crop Colombian has been sold out and farmers are holding back on selling new crop for higher prices. Brazil is also not selling much and other Central American growers also withholding coffee from the market. We could see a price move basis the December contract to the $3.00 per pound resistance level. December cocoa closed at $3,090 per tonne, up $63 on short covering after recent selling. Current supplies are ample and Ivory Coast exports are 985,336 tons, up from last years 836,024 tons. We prefer the sidelines after having been bullish for cocoa. October sugar closed at 30.06c per pound, up 40 points tied to an expectation for a smaller Brazil crop. The Philippines have exported 121,817 tons so far this year and has supplies of 276,683 tons of Refined and 571,126 tons of Raw sugar. China has sold most of its sugar at auction and rumors that they will need to import more to maintain pricing could support sugar prices from here. We prefer the sidelines after having been bearish.
Cotton: December cotton closed at $1.0432 per pound up 1.33c on shortcovering after recent long liquidation tied to disappointing export sales. With China and Pakistan growing areas damaged by rains we could see additional price gains and after having been bearish from the $1.75 level, we would now look to buy using stop protection.
John L. Caiazzo