Gold, Silver, Crude oil, Copper
We waited in eager anticipation for an explanation from Fed Chairman Bernanke at Jackson Hole, Wyo., for his intentions as to somehow fix the labor situation, the European financial crisis and the U.S. economy. Unfortunately, the best he could muster was that he has more he can do but all we heard was a possible intention to purchase bonds.
I personally feel he is firing blanks. When you have a wound that is dripping blood on your nice floor, you do not first get a mop to clean up the blood. You get sutures to patch the wound. The sutures for our situation could be attracting major corporations that have transferred their manufacturing offshore due to beneficial tax structures and seducing them into bringing those jobs back to this country. It is the job situation that must first be cured that would allow consumer consumption to accelerate, and that would start the healing process.
Once again, for those who think the mop is the answer: "An unemployed consumer does not consume and the manufacturers of those (unconsumed) products will be next to lay off workers." What part of that statement goes unaddressed in Washington? The country is turning into a welfare state where the government will take care of you rather than provide the ability for small businesses and people to live the American dream and take care of themselves. Thomas Jefferson is credited with the statement: "A government big enough to give you everything you need, is a government big enough to take away everything you have." According to President Reagan, the most feared words are "I am from the government, and I am here to help you."
The markets this past week or so have experienced some of the lightest volumes recorded in anticipation of some action by that government, but be it as it may, nothing was forthcoming of any substance and we are now facing additional complacency in the coming days. Now for some actual information albeit lacking in any substantive suggestion...
Interest Rates: September Treasury bonds closed at 150 and 16/32nds, up 28 ticks after Fed Chairman Bernanke stated the Bank could buy additional government bonds to "help boost the U.S. Economy", something we disagree with. Without his "firm pledge" to do so and with his continued assessment of a "mild economic recovery" we doubt his resolve. With China, the second largest consumer of the world in economic "contraction" we remain concerned after their manufacturing unexpectedly shrank for the "first time in nine months" on reduced orders and diminished output. Our previous suggested range for the Treasury bonds of 145 to 155 came about as prices declined to 145 03/32nds before recovering. We continue to view treasuries as in that predetermined price range. We continue to favor bond option strangle spreads.
Stock Indices: The Dow Jones industrials closed at 13,090.84, up 90.13 points on pre-holiday weekend trading but still lost 0.51% for the week. The S&P 500 closed at 1406.58, up 7.10 points but for the week lost 0.32%. The Nasdaq closed at 3066.96, up 18.25 points but for the week lost 0.9%. For the entire month of August however, the Dow gained 0.653%, the S&P 500 1.98% and the Nasdaq 4.33%. The weeks action was moderated by the expectation that Fed Chairman Bernanke would seriously address the economy and provide direction. His speech "calmed" some nerves as he approached the problem with the expected "bond purchase" and determination to do whatever he deems necessary. That rather "mild" statement did manage to provide some optimism and the markets rallied on Friday. We continue to believe the Fed has in fact done what it is mandated to do, and that is to lower rates, which has been done. To expand their ‘stimulus" attempts and purchase bonds may have a minor effect on economic stability, but in our opinion it is "too little, too late" without immediately addressing the manufacturing, small business, and tax situation. The ongoing :"fear of small business" to expand and hire is a result of the ongoing "confusion" tied to Obamacare costs and taxes. We once again suggest strongly the implementation of hedging strategies for those with large equity portfolios.
Currencies: The December U.S. dollar closed at 8153.5, down 49.3 points after Fed Chairman Bernanke reiterated his intention for additional quantitative easing to grow the U.S. economy. He failed however, to indicate specifics and the dollar investors were disappointed and decided to liquidate some longs in front of the holiday weekend. The dollar closed at its lowest since late May. We continue to favor the dollar on the basis that while the U.S. economy is "growing" slower than desired by the Administration and the Federal Reserve Chairman, based on the more disconcerting European debt crisis, the U.S. is faring better on a relative basis. Stay with the dollar. Gains were posted in the December Euro closing at $1.2596, up 72 points, the Swiss Franc 63 points to $1.0501, the Japanese yen 012778, up 49 points the British Pound $1.5878, up 95 points the Canadian dollar up 73 points to $1.0123, and the Aussie dollar gained 27 points to close at $1.0228. Stay with the dollar.
Energies: October crude oil closed at $96.47 per barrel, up $1.85 tied to the U.S. Federal Reserve chairman'’ "optimistic" statement that could produce increased demand for energy products as economic conditions "improve" through his efforts. We disagree with any idea that the Fed can alter the current direction and lackadaisical performance of the U.S. economy. Our reasons are clearly stated in the Overview. Hold put positions. Fridays action to a great extent was shortcovering in front of the holiday weekend in the U.S.
Copper: December copper closed at $3.46, up 1c in late trading and as with other commodities, was tied to the Bernanke statement on providing additional "stimulus" for the U.S. economy. Shortcovering also a factor after copper weakness over the recent 12 week period. Stay with put positions and add on any strength. We see no signs of increased demand and with the China economic and manufacturing contraction, we could see increased selling pressure for copper.
Precious Metals: October gold closed at $1,691 per ounce, up $36.20 on heavy shortcovering after the Bernanke speech at Jackson Hole Wyoming. His indication of increased bond purchases could lift demand for metals as an inflation hedge. We tend to disagree with any inflationary trend during what we see as an ongoing recessionary trend. Some concern over high commodity prices also a factor in the "inflation" expectation. December silver closwed at $31.79 per ounce, up $1.3440 tied to the same expectations. We prefer silver to gold but after the heavy shortcovering of Friday, would retreat to the sidelines for now. October platinum closed at $1,5409, up $37.20 per ounce while December palladium closed at $629.90 per ounce, up $13.50. On Friday platinum managed a gain of 2.47% against palladium’s 2.19%. We continue to favor long palladium against short platinum.
Next page: Ags and softs
Grains and Oilseeds: December corn closed at $7.99 ¾ per bushel, down 8 3/4c on profittaking in front of the holiday weekend. The drought conditions across the country have caused heavy buying across the board in grains and soybeans and concern persists related to supplies going forward. We prefer the sidelines in corn. December wheat closed at $8.89 ½ per bushel, down 13 1/2c on profittaking as with corn but with the added negative that Russia does not plan any export restrictions allowing Russian wheat to compete more favorably against U.S. exports. We prefer the sidelines in wheat as well. November soybeans closed at $17.56 ½ per bushel, down 7c on profittaking in front of the U.S. holiday weekend and on trader "taking profits off the table" after prices gained to record highs. We continue like soybeans but as we suggested recently, take some profits, wait for the pullback, then add to call positions.
Meats: December cattle closed at $1.2865 per pound, up 2c as beef processors pay higher prices in front of the holiday shortened weekend. Better than expected demand could push prices higher and we like the long side of cattle from here. The previous concerns related to animals pushed to market and creating supply due to higher feed prices may have abated. The period for rebuilding those herds prompting some shortcovering and new buying in futures. December hogs closed at 72.4c per pound, up the 6c limit on heavy shortcovering in front of the holiday weekend as selling due to higher feed prices and increased slaughter may have been overdone for now. We like hogs from here but use stops.
Coffee, Cocoa and Sugar: December coffee closed at $1.6475 per pound, up 1.35c on shortcovering and technical buying after trading as low as $1.6250 during the session. With a three day holiday traders squared their books since the Monday holiday is limited to U.S. trading and Europe will be open. With Columbia expecting an improving harvest we could see additional hedging pressure and would avoid coffee for now. Our longer term view however is positive. December cocoa closed at $2,610 per tonne, up $9.00 on supply concerns from West Africa, the world’s top producing region. We could see further price gains on continued speculator buying tied to lower output expectations from Ivory Coast. October sugar closed at 19.78c per pound on light shortcovering in front of the three day U.S. holiday and on suggested oversold technical condition. We prefer the sidelines.
Cotton: December cotton closed at 77.26c per pound, up 32 points on pre-holiday shortcovering. The USDA report of low U.S. cotton exports and a lack of fresh fundamentals puts us on the sidelines but after recent lows, with a bullish bias going forward.
