The U.S. is suing the banks for mortgages created and the packages that were sold globally. This at a time when the banks are being pressured to lend more. It would appear to me to be a contradiction of efforts. The original problem with mortgages was created way back when Glass Steagell was appealed, but by now everyone knows that this was the "origin of the species" so to speak.
The basis for the current economic dilemna is the fact that jobs have left the country along with the corporations that sought better tax conditions for their companies and ultimately their stockholders. On Friday, the shock of shocks when the non-farm payrolls were unchanged in August, less than the analyst and economist expectations of at 53,000 job increase. While the unemployment rate was unchanged at 9.1%, we view that number as fiction since it does not include the underemployed and those that left the workforce to create their own home grown jobs.
The actual rate is probably closer to 17-19%. When a worker loses a job paying $80,000-100,000 for instance, and takes a job at half that rate, he is considered employed. We consider him "underemployed." As I stated recently, there is no job creation formula unless you create a new industry. There is, what I consider to be the only avenue out of this recession, job restoration. That can only be accomplished by attracting those industries and companies that left for better tax consideration such as to Ireland, Switzerland and, of course, the Far East where they manufacture the iPhones for Apple. Most high-end technology now is imported, not made here in the U.S. due to both labor costs and tax considerations. I suggest that we impose duties equivalent to what an American worker can make something for and compete with the corporate tax to lure companies back to the U.S. I know of nothing the administration can do to change this ominous situation. A lot of hope, which I consider hype, is being held out for what our president will say on Thursday in his speech. I just don’t feel like hearing any more empty promises, and neither do those in the unemployment line. Now for some actual information...
Interest Rates: December treasury bonds closed at 14011, up 2 3/32nds as the rush to safety from equities after the heavy selling this past week. The yield on the 30 year bond fell to 3.311% while the ten year fell to 1.996%. Selling was also attributable to the lawsuits brought against banks over the bad mortgages. Average hourly wages fell 0.1% to $23.09 while economists had expected a 0.1% gain. Payrolls for June and July were revised downward by a cumulative 58,000 rising 20,000 for lowered by 85,000 in July. Whether or Fed Chairman Bernanke announces QE3 is really irrelevant to us since QE2 really did not accomplish anything and the prospect of throwing "good money after bad", makes no sense to me. I already outlined the only way to get the economy from faltering in my recent "Overviews". While we are short Treasury bond calls, we could be forced to roll over unless there is a definitive indication that the Fed will not pursue QE3. We cannot contemplate rates moving still lower and that is the basis for our short recommendation through the sale of calls. I attached my Treasury Bond trading strategy here this week.
Stock Indices: The Dow Jones industrials closed at 11240.26, down 253.31 points and lost another 0.4%. The S&P 500 closed at 1,173.96, down 30.46 points and lost 0.2% for the week. The Nasdaq lost 65.71 points to close at 2,480.33 and for the week managed a slight gain of 0.02% probably because it had declined further percentage wise against the other indices earlier. The U.S. economy added a total of….Zero new jobs in August and investors were left questioning whether anything could be done to bolster the labor situation. I already explained what I felt was the only "avenue" available to accomplish this. Once again I implore those with large equity portfolios to heed my oft indicated warnings, and implement hedging strategies, one of which I attached here this week.
Currencies: The U.S. dollar index closed at 7511.5, on Friday, up 22.3 points on a correction after recent weakness but also considering the latest events related to the Greece debt crisis and reports of concern from Germany and Italy as to whether Greece is willing to implement various austerity measures. We are also concerned that the ability of Greece to even repay current debt obligations would be exacerbated by adding to that debt. Our original conclusion some months ago and actually at the origin of the Euro currency was that we did not believe that 17 countries, all with varying economic situations could come under the auspices of a single currency. It made no sense to me then…..and it makes no sense to me now. I firmly believe it will be "dissolved" in the future. We continue to favor the short side of the Euro.
Energies: October crude oil closed at $86.45 per barrel, down $2.48 on Friday tied to the disappointing U.S. jobs data. Concern that a new U.S. recession was in the offing could reduce demand for energy products. We continue to feel, basis our assumption of a renewed concern over a global recession, that prices could meander lower to the $70-75 level. Our original goal instituted a year ago was for a decline to the $80-85 level. That goal was achieved recently and we moved to the sidelines. We are now estimating price declines as indicated.
Copper: December copper closed at $4.12 per pound, down 4c tied to the disappointing U.S. jobs data and the strong dollar on Friday. We continue to view copper as bearish based on our anticipated global recession and demand reduction.
Precious Metals: December gold closed at $1,886.70, up $57.60 in late trading Friday bumping against it’s all time high of $1,891.90 set a week and a half ago. Gold was up 10% for the week as investors moved from equities to the "safe havens" of gold and treasuries. The poor U.S. labor data showing no jobs added in August was the "final straw that broke the camel’s back" so to speak. December silver closed at $43.30 per ounce, up $1.7680 or 4.25% following, or perhaps leading gold which only gained 3.15% Friday. On metals analyst wrote that with "gold worth 43 times more than silver, and the global supply of silver less than that of gold and with more industrial applications as a better conductor of heat and electricity, a better reflector of light and medical applications, silver is the better choice." We agree since our recent commentary indicated the annual gain in silver was greater percentage wise than that of gold. We would hold both metals but would not add to positions at these levels. October platinum closed at $1,884.80 per ounce, u $31.90 while Palladium lost $7.20 per ounce to close at $783.20. Platinum benefited more than palladium since it is the primary metal for auto catalytic converters and U.S. car sales were up 5.6% in August from the same period last year. For the week Platinum gained 7% while Palladium gained only 3.6%. We would say on the sidelines for now due to the extreme volatility for metals.
Grains and Oilseeds: December corn closed at $7.60 per bushel, up 21 1/2c on a pre holiday weekend correction after recent selling. Lower anticipated production could support prices. We continue to favor the long side of corn but only on setbacks and with stop protection. December wheat closed at $7.75 ½ per bushel, up 14 1/2c tied to extremely dry weather in the U.S. Great Plains. Winter crop plantings could be impacted. We like wheat from here as well with the same condition of stop protection on new positions. November soybeans closed at $14.45 ¾ per bushel, up 11 1/4c and for the week gained 1.6%. Declining crop forecasts a factor. We also like soybeans from here but would select only one of the group.
Cattle & Hog report: October cattle closed at $1.1480, up 1.2c in lackadaisical trading lacking direction from the cash market. Economic news was negative. We continue to favor the long side but raise the trailing stops for protection against a reversal. October hogs closed at 85.8c per pound, up .625c per pound on pre holiday shortcovering. We continue to favor the short side of hogs but would hold current positions without adding for now.
Coffee, Cocoa and Sugar: December coffee closed at $2.8805 per pound, up another 1.7c tied to a shortage of high quality Arabica beans. We could see higher prices but any new buying should incorporate sell stop protection. December cocoa closed at $3,098 per tonne, up $23 also on pre weekend shortcovering. Cocoa has been trading sideways of late so we would avoid any new positions pending a breakout of the current narrow range. October sugar closed at 29.18c per pound, down 41 points to a two week low tied to supplies exceeding demand. We continue to favor the short side of sugar.
Cotton: December cotton closed at $1.0589, up 11 points on pre weekend shortcovering after recent price declines. We feel cotton is basing between $1.02 and $1.04 and would look to buy with stop protection between $98c and $1.00.
John L. Caiazzo