"Beware the Ides of March." In the William Shakespeare play, a soothsayer warns Julius Caesar, but Caesar pays no heed and is ceremoniously killed. I will play the role of the soothsayer here, warning the investing public to beware the Ides of March. The markets are susceptible to changes in the global financial environment as evidenced by the reports of a resolution of the Greek debt crisis and an improved labor situation.
The Greek situation, while a debt swap was approved, merely extends the life of the Greek economic situation and is not, in my opinion, a solution to the problem. It is basically a Greek default. It cannot be assumed that by increasing the debt time frame, getting bond holders to accept severely reduced debt under the threat of total default, and the inability for Greece to repay any debt due to the contracting economy, suggests a resolution to the problem. In addition, other countries experiencing economic problems may emerge as the new Greece, and further erode the EuroZone condition. I view the debt swap provided to Greece tantamount to throwing money down a well.
Also on Friday, the U.S. commerce department reported that 227,000 jobs were created. The quality of those jobs has been brought into question as well as the 8.3% unemployment rate. What kind of jobs were created is the big question and is the rate the result of fewer people seeking jobs, or the acceptance of jobs paying substantially less than those jobs that were lost? The continuing specter of mortgage foreclosures, auto loan and other credit defaults, remains of grave concern to me and the warning of "Beware the Ides of March" is certainly appropriate. Don’t let your investment portfolio end up like Caesar.
Now for some actual information...
Interest Rates: June treasury bonds closed at 140 and 10/32nds, down 12/32nds tied to the "positively construed" U.S. economic data. The expectation that the Federal Reserve may consider moving up their timetable for raising rates based on an improving economy saw yields rising in anticipation. The jobs data from the Labor Department showed an gain of 227,000 jobs last month, above economist expectations of a gain of 210,000 jobs. The euphoria attached to jobs gains prompted higher yields and lower fixed income instrument prices. While we were expecting a "correction" after recent rallies in bond prices, with a continuing "see saw" from the high end of the expected range to the lower end. We now look for prices to move back towards the higher end of the range as reality sets in that the U.S. economy is not improving and that the jobs "created" are materially exaggerated. With fewer people looking for jobs and the jobs paying substantially less than those jobs that were lost, there is a "false" interpretation of the jobs data in my opinion. We continue to view treasury bonds as in a trading range and would adjust option and futures positions accordingly.
Stock Indices: The Dow Jones industrials closed at 12,922.02, up 14.08 based on the Friday jobs data showing a gain of 227,000 jobs against economist expectations for a gain of 210,000 jobs. As I stated in prior commentaries, if analysts would head my admonition of "better to keep ones mouth shut and be considered ignorant than to open it and remove all doubt" their incorrect expectations would not have the effect on markets that they do. For the week the Dow lost 0.43%. The S&P 500 closed at 1370.87, up 4.96 but for the week gained 0.9%. The Nasdaq, home of the tech issues, closed at 2988.34, up 17.92 and for the week rose 0.41%. We continue to maintain our opinion that the U.S. economy is not in a recovery mode and the global economic influence will continue to wreak havoc in the marketplace. We now "insist" that holders of large equity positions implement hedging strategies. We can offer suggestions as to which strategies would be most appropriate based on portfolios.
Currencies: The June U.S. dollar index gained 90 points on Friday closing at 8050.9 against most other currencies. The uptick in treasury yields as well as the fear of a Euro zone recession prompted the move to dollars on Friday. We have been suggesting the long side of the dollar and continue to do so in the face of the so-called Greek credit swap which in effect was a "default" of existing debt. The "transfer" of debt or as it is called a debt-swap merely prolongs the inevitable. Greece, in my opinion and that of others who have joined my "economic prediction train", will default in its entirety and probably leave the Euro. We cannot understand the willingness of debt holders to extend additional monies to an economy that cannot support existing debt. The extension of time along with the "forgiveness" or existing debt to the extent of 60-70% and then additional debt makes no sense to me and is tantamount to "throwing money down a well". My feeling is that Greece should have been allowed to default, and remove it from the Eurozone. I do not believe in throwing good money after bad. The other currency losses included the Swiss Franc 1.43c to $1.0881, the June euro, 1.66c to $1.3114, the Japanese yen 137 points to 12126, the British pound 1.59c to $1.5657, the Canadian dollar 4 points to 10078 and the Australian dollar 83 points to $1.0455. Other problems within the Eurozone include Spain and Portugal. Spain, with a budget deficit for 2011 coming in much higher than expected is ignoring the European union demand to reduce its deficit target and may be next on the "problem" list. Stay with the dollar. The European debt crisis is far from over.
Energies: April crude oil closed at $107.42 per barrel on expectations up 84c on Chinese inflation data and U.S. retail sales at the highest rate in several months. The U.S. jobs data was also a factor in the buying of crude on expectation of demand increases. Another factor is the ongoing concern that Israel may attack Iran and de-stabilize the region of oil producing nations. We continue to expect crude prices to decline based on our view of a global recession.
Copper: May copper closed at $3.85 per pound, up 6c tied to better than expected U.S. jobs and economic data and on speculation that the world’s largest metals user, China, will boost growth. We continue to expect price pressure tied to our continued view of a global recession. The U.S. housing and labor markets remain problematic. Stay with put positions.
Precious Metals: April gold closed at $1,713.40, up $14.70 tied to better than expected U.S. economic data. Gold also managed to rally on technical considerations after recent heavy selling took prices from $1,800 per ounce to below $1,700. We prefer the sidelines. July silver closed at $34.400 per ounce, up 50.9c on shortcovering after recent selling and following gold. We prefer silver to gold but as indicated in prior commentaries, without inflationary fears in the U.S., continued wide price swings make metals a trading affair. April platinum closed at $1,684.90, up $28.20 while April palladium gained $10.70 to close at $708.40 per ounce. We prefer palladium to platinum. Both metals have similar applications.
Next page: Ags and softs report
Grains and Oilseeds: May corn closed at $6.45 per bushel, up 9 1/2c on exports to China. We prefer the sidelines in corn even has technicals and exports could support prices from here. May wheat closed at $6.43 per bushel on supply reductions. We prefer the sidelines in wheat but on spreads we like long wheat/short corn. May soybeans, our favorite in the group, closed at $13.37 ¾ down ¾ on profittaking after recent strength. We look for demand from China for bean oil and meal to prop up soybean prices. Stay long the beans but raise those trailing stops.
Meats: April cattle closed at $1.2602.5 per pound, down 62.5 points on profittaking after recent price gains. Beef demand improving and reduced herd sizes could prompt further buying of futures. Stay long but raise your stops. April hogs closed at 87.825c per pound up 75 points on continued concern over China pork disease problems. We prefer the sidelines in hogs.
Coffee, Cocoa and Sugar: May coffee closed at $1.8620 per pound, down 3.2c on continued long liquidation after recent strength. The International coffee Organization had cut its forecast for world production and that had provided the backdrop for the recent high prices. We could see a further correction for coffee but any further selling should provide an opportunity to buy. May cocoa closed at $2,410 per tonne, up $15 tied to concerns over caterpillar damage and demand for cocoa beans against supply concerns. The Ivory Coast political situation has stabilized but further rallies could be sustained by production cuts in Africa. Demand improving on expectations for global economic recovery, a situation we do not feel is valid, however we could see further price gains to the $2500 per tonne level but we would look to buy put options on any further price gains.
Cotton: July cotton closed at 89.74c per pound, down nearly a penny losing 96 points as pressure increasing on India'’ prime minister to withdraw the country'’ export ban. We would hold off on any new purchases but would keep long call positions intact.