Crude oil, copper, gold, silver
"Clueless in Seattle" was a comedic movie, but the current "episode" of "Clueless in Washington" is not so funny. Once again, as I have stated in the past, the concept of a jobless recovery is a bad joke. Unemployed consumers do not consume, and the manufacturers of those unconsumed products will be next to lay off workers. On Thursday, and every week in recent times, more than 350,000 workers once again applied for unemployment benefits. The obvious reason is a lost job. On Friday, it was announced that 115,000 jobs were created in a month. Does anyone do the math?
We are in a recession no matter what Washington says, regardless of the dictionary description. The idea that jobs are being created is in question. You cannot create a job; you can only recover jobs. The creation of a job can only be accomplished by creating a new industry. The recovery of jobs should be the dominant phrase in the Washington rhetoric and the primary goal. Jobs lost because of companyies moving offshore to obtain better tax advantages should be a primary goal. Companies are owned by their stockholders and that means millions of Americans expecting their company to perform. Because the interest rates are so low, their only way of increasing their income is through investment. Should anyone be surprised that companies are doing their best for their stockholders without regard to employees? The only way out of this mess is to attract those companies back.
Another problem I indicated last week was the mortgage default and foreclosure problem. New buyers are reluctant to purchase homes when the huge inventory is hanging over the market. If the banks would concern themselves less with their balance sheets and take the necessary action, they would foreclose on those homes where the mortgages have not been paid for months and longer. While the initial reaction would be another home value collapse, they would provide a foundation from which to emerge from this mess. Buyers would then step up to the plate and buy, causing the manufacturing sector in this country to start the recovery in earnest.
Interest Rates: June Treasury bonds closed at 143 22/32nds on Friday up 27/32nds as money once again made the "trip" from equities to the relative safety of treasuries. This coming week we should hear from Federal Reserve officials as to plans after the disappointing U.S. employment report. We are getting close to my suggested range high of 145 and for that reason had suggested shorting bonds or calls or buying puts. Also since with Fed rates at zero, there is not much the Fed can do to lower rates other than buy bonds which would push yields lower. So I would use caution here but hold positions. Short call positions may need to be rolled over if the bonds rally another point from here. Short put positions would necessarily be rolled forward in that event. With short "strangle" spreads, one side can only go to zero while the other can continually gain. We will advise our clients on how to make adjustments.
Stock Indices: The Dow Jones industrials closed at 13,038.27, down 168.32 points losing 1.27% on Friday and for the week lost 1.26%, most of it on Friday. The S&P 500 closed at 1,369.10, down 22.47, down 1.61% and for the week lost 2.21%. The tech heavy Nasdaq closed at 2,956.34, down 67.96 or 2.25% Friday and for the week lost 3,09%. The addition of only 115,000 for the month of April was below economist forecasts and prompted an immediate reaction in the equity market. We continue to strong recommend the implementation of hedging strategies for holders of large equity portfolios using the futures and options market against actual holdings. We can advise as to which positions would offer the most protection based on the category of their holdings relative to indices.
Currencies: The June U.S. dollar index of a basket of currencies closed at 79.585, up 29.2 points on Friday as the worse than expected jobs data along with the upcoming French elections prompted selling in the Eurozone currencies. The June Euro lost 63 points to close at $1.3089, the Swiss Franc 49 points to $1.0901, the British Pound where Great Britain as reportedly returned to recession, 37 points to $1.6141, the Canadian dollar 67 points to $1.0038, and the Australian dollar 89 points to $1.0140. The only gainer was the Japanese yen posting a gain of 66 points to 12525. We have maintained a strong dollar opinion and continue to do so based on deteriorating economic conditions in Europe where concerns over Europe are considerably higher than the weak U.S. economic situation. All things being relative, stay with the dollar.
Energies: Our expectations are materializing. June crude oil closed Friday at $98.59 per barrel, down $3.95 after trading as low as $97.51 after the U.S. jobs data was released. The disappoint jobs report showed the U.S. economy is not progressing as well as was anticipated and that could reduce demand for energy products. The mild weather was also a factor. China growth is reportedly slowing down and as the second largest user of energy, was a negative for crude. We continue to forecast a return to global recession as already indicated by Great Britain and the ongoing state of affairs with Spain, Italy, Greece, Portugal and now the U.S. jobs data. We are sticking with our expectation for crude to decline to the $80-85 level although timing is the question.
Copper: July copper closed at $3.72 per pound, down $1.00 after trading as low as $3.70 after the U.S. jobs report. The indication of a slowing in economic growth could reduce demand for copper in the housing and auto industries. A possible return to global recession led by Great Britain would also reduce demand as well as China’s slowing economy. We continue to favor the short side of copper.
Precious Metals: June gold closed at $1,643.10, up $8.30 for the first gain in a week thanks to the weaker than expected U.S. jobs growth report. We see the buying as shortcovering with no real impetus for price gains other than the possibility of a Federal Reserve stimulus measure. July silver closed at $30.32 per ounce, up 21c. I continue to prefer, given the desire to own precious metals, silver, which gained 1.03% on Friday against gold’s gain of only 0.51%. Those investors who "must" own precious metals are reminded that silver outperformed gold over the past couple of years percentage wise as would be our choice given that we would consider precious metals right now. July platinum closed at $1,525.90, per ounce, down $7.20 while June palladium lost $11.10 per ounce to close at $650.25. After recent gains of palladium over platinum percentage wise, Friday’s action was a correction. We continue to favor the long palladium, short platinum spread.
Next page: Ags and softs
Grains and Oilseeds: July corn closed at $6.20 ¼ per bushel, up 5 3/4c tied to reported export sales to Mexico and South Korea. We prefer the sidelines in corn. July wheat closed at $6.09 ½, per bushel, down 6c on higher than expected Kansas Wheat Tour production estimate. The strong dollar Friday also a factor. We prefer the sidelines in wheat. July soybeans closed at $14.78 ¼ per bushel, up 4 3/4c after recent selling took prices through our expected stop protection and now looks like the bull market correction may have been completed. We favor the long side of soybeans from here.
Meats: June cattle closed at $1.15375 per pound, down 50 points after Thursdays gains and due to the weaker than expected U.S. jobs data. Unemployed consumers buy less beef I guess or such is the psychology. We continue to favor the long side of cattle but with stop protection due to the increase in the daily cattle slaughter from a week ago. July hogs closed at 85.36c per pound by weakness in outside markets and lower cash prices and slowing demand. We favor the sidelines in hogs.
Coffee, Cocoa and Sugar: July coffee closed at $1.7485 per pound, down 95 points on light physical trade and its lowest price in 19 months. Since touching $2.4360 on January 12th the price has slipped consistently down to the current lows. We had favored buying coffee with stop but obviously those stops kept getting touched off. Hold on to any calls but do not add for now. July cocoa closed at $2282 per tonne, down $25 on dollar strength and on the Great Britain announced return to recession and the U.S. jobs data. We continue to favor the long side of cocoa but with stop protection. We look for global demand to gain in coming months. July sugar closed at 20.85c per pound, up 20 points on expectations that the European Union plans to import sugar and on concern that rains my disrupt supplies in Brazil. We continue to favor the long side of sugar but once again, as with other recommendation, use stop protection due to the recent volatility in commodities in general.
Cotton: July cotton closed at 87.99c per pound, down 1.22c on dollar strength, projected increase in output from the U.S. However, declines in production from China, and India, and reduced sowings in favor of other more profitable commodities could prompt support for cotton prices. We continue to favor the long side of cotton but with stop protection. We look for a return to the 95c-$1.00 level basis the July. Longer term investors should consider the October or December contracts or calls.
