The potential demise of MF Global, thanks to the efforts of Jon Corzine, who tried to model the company after his former firm Goldman Sachs, continues to reverberate through the international marketplace. It's an abysmal failure and at the cost of many jobs, at a time when the overall economy continues in recession, in our opinion. It takes a back seat, however, to the ongoing European credit crisis, which could impact markets globally.
The Friday jobs report showed a decline in the unemployment rate to 9% from 9.1%. The actual level of unemployment in the U.S., factoring in those that are underemployed could be as high as 20% and nothing we see or hear from Washington can alter the economic stagnation in our opinion. The so-called stimulus programs were a failure in as much as the number of jobs created against the amount of dollars used. Once again, as I have stated in earlier commentaries, the only answer to the jobs situation is the seduction of companies that moved their operations overseas by competing with the tax benefits offered by those countries.
Interest Rates: The ongoing credit crisis continues to plague markets and this past week exemplified the impact of global economics on markets. The December treasury bonds closed at 14100, up 10/32nds pushing the yield on the 30 year paper down 38 basis points for the week to 3.09%. The rescue package for Greece is critical and nothwithstanding the coordinated effort by the G20 officials another problem is emerging with Italy’s debt. We continue to view treasuries as a trading affair since the wide price swings is not conducive to positioning either way.
Stock Indices: The Dow Jones industrials closed at 11983.24, down 61.23 points due to uncertainty over whether there will be a resolution to the Euro zone debt crisis and impacted investor sentiment. For the week the Dow lost 2%. The disappointing U.S. jobs report showing the economy only added 80,000 jobs in October against expectations of over 105,000 jobs created. While the unemployment rate declined by one tick from 9.1% to 9%, the disappointment with the kind of jobs created added to the pressure on equities. The S&P 500 closed at 1,253.23, down 7.92 and lost 2.5% for the week, while the Nasdaq lost 11.82 points to close at 2686.15 giving up 1.9% for the week. We would caution against holding positions without implementing hedging strategies for those with large equity portfolios.
Currencies: The December U.S. dollar index closed at 77.105 up 24.9 points as concern grew about the Euro Zone ability to resolve the Greece debt crisis given the fact that the austerity program required for the "bailout" is being protested against by the public. The loss of jobs, reduction of salaries, adding to the retirement age etc are vehemently opposed by the public. The Greek government is undergoing a possible transition and that prove problematic for the agreements required for assistance. Some banks are also balking about the 50% "haircut" of the debt which could cause investor angst and actually cut income but without it, they could lose 100% of the loan values. We are on the sidelines for now but would consider "jumping in" if the G20 either succeeds or fails Sunday evening.
Energies: December crude oil closed at $94.26 per barrel, up 19c tied to the U.S. jobs data would prompt fuel demand. We do not agree with the figures on Friday were enough to increase demand. The nearly 400,000 first time unemployed weekly would be a deterrent to additional demand for fuel however an early winter weather forecast could be the real reason for the enthusiasm towards energy products. We continue to believe prices could retreat to the $75-80 per barrel level but would only sell with stop protection or through the purchase of put options. The labor situation remains problematic and cannot be expected to improve the demand picture for energy.
Copper: December copper closed at $3.56 per pound, down 2c and for the week lost 4% tied to the action in equities but also in expectation that the G20 could help keep the Euro zone intact. Reports that China may rescind its aggressive tightening policies that had put pressure on copper of late. However an increase of 10,000 tons of copper stocks at the Shanghai Futures exchange warehouses offset that idea. LME warehouses stocks were down only 4,275 tonnes to 417,850. Other than that we would avoid new positions in copper but our overall view remains bearish.
Next page: What's up with gold...
Precious Metals: December gold closed at $1,755.70 per ounce, down $9.40 as traders could not make any determinations after the U.S. jobs report and concern over the Euro zone. Profittaking in front of the G20 meetings this week in Cannes also a factor. We would await the results of that meeting before taking any action. December silver lost 41c per ounce to close at $34.08 posting a weekly loss of 3.4%. While we prefer silver to gold, we would take no action until Monday when hopefully the results of the Greek government situation and the G20 is available. January platinum closed at $1,629.30 per ounce down $17.70 while December palladium lost $6.980 to $655.30. For the week Platinum l9ost 1.4$ while palladium lost 2%.
Grains and Oilseeds: December corn closed at $6.55 ¾ per bushel, up 2 1/4c on shortcovering in front of the weekend. Prices are supported by demand for ethanol and concern over early winter weather and recent purchases by China of U.S. corn. We like corn and would hold long positions. December wheat closed at $6.36 ¾ per bushel, up 3/4c but could be pressured by increased probability of beneficial weather over the U.S. Southern plains. A record Australian wheat harvest could add pressure to wheat prices. We prefer the sidelines in wheat. March soybeans closed at $12.30 per bushel, down 6 1/2c on selling tied to the resolution of the Argentina soy processing workers and the country"s main port in Rosario which was ended by Government order. USDA reports expected could prompt wide price swings so we would hold corn and soybean positions but not add for now.
Meats: December cattle closed unchanged on Friday at $1.2450 per pound tied to packer demand. We continue to like cattle but look for resistance between $1.275 and $1.295. A reduced poultry supply could add support to red meat. Hold long positions but raise trailing stops. December hogs closed at 86.85c per pound, up 25 points in line with the buying of cattle, however pressure on pork products tied to reduced packer demand could weigh on prices. We continue to favor the long cattle, short hogs spread but if cattle prices hit resistance levels, liquidate both sides of the spread, do not leave a leg open.
Coffee, Sugar and Cocoa: December coffee closed at $1.3105, up 4.25c on shortcovering and new buying tied to expectations of a resolution of the Euro zone crisis. We are not sure of anything right now so would take profits, if any, on long coffee positions and stay out for now. December cocoa closed at $2679 per tonne, down $41 on long liquidation in front of the weekend and against the strong dollar which has become a refuge pending the outcome of the G20 meetings. March sugar closed at 25.55c per pound, down 10 points on profittaking after recent strength and in front of the G20 meeting results. We prefer the sidelines but would hold short positions for now.
Cotton: December cotton closed at 98.74c per pound, up 62 points on shortcovering in front of the weekend and the G20 meetings. Recent long liquidation tied to the International Cotton Advisory Committee’s forecast for world cotton surplus in the 2011-12 period. We continue to favor the long side of cotton.
John L. Caiazzo