The current artificial investment environment promulgated by Fed Chairman Ben Bernanke is doomed to failure. The answer to the current U.S. economic problem is not to throw money down a well. The $40 billion Bernanke has promised to inject into the financial system each month is not going to improve the labor situation. As indicated in prior commentaries, "an unemployed consumer does not consume and the manufacturers of those un-consumed products will be next to lay off workers."
His own words are that "a weak job market should concern everyone," given in a somber tone, are not indicative of an atmosphere of a systemic cure. Bernanke is trying his best to put a positive spin on a financial apocalypse. The market participants globally rejoiced in the attempt by Bernanke to quell the overwhelming fears prevalent in the world, but I fear it is tantamount to putting lipstick on a pig. It is still a pig.
Now for some actual information...
Interest Rates: December U.S. Treasury bonds closed at 144 and 30/32nds, down 2 and 9/32nds as money transitioned to the higher risk higher yielding assets such as stocks and commodities. The Federal Reserve’s open ended stimulative policy had an immediate affect on markets putting pressure on relative safe treasury instruments and providing the impetus for higher prices for stocks and commodities. The effect, of course, in our opinion, only provides a psychological respite during times of economic distress. I have no expectation that providing funds to the banking system will have any material effect on the U.S. labor and debt default situation or the global economic crisis. Bonds are now at the low end of our suggested trading range of 145 to 155 and we are now fully committed to the bullish side of treasury bonds. Buy December bond futures using stop protection or purchase calls.
Stock Indices: The Dow Jones industrials closed at 13,593.37 on Friday, up 53.51 points but off the session highs which saw the Dow up as much as 113 points. For the week the Dow posted at 2.15% gain. The S&P 500 closed at 1465.77, up 5.78 points and for the week gained 1.94%. The tech heavy Nasdaq closed at 3183.95, up 28.12 points and for the week gained 1.52%. Stocks benefited by the positively construed "attempt" by Mr. Bernanke, the U.S. Fed Chairman, to allay the concerns of the investing public by announcing yet another quantitative easing but this time he left the "amounts" open ended. Our view of course is that this attempt to improve the U.S. economic condition will prove ineffective and has only led to a bigger "bubble" for equity prices. Implement hedging strategies immediately. We can provide the guidance for holders of large equity portfolios.
Currencies: The December U.S. dollar closed at 7897.5, down nearly 1.5% for the week as the U.S. Federal Reserve announced an open ended quantitative stimulus program and prompted the flight from the relative safety of the U.S. Treasury bonds and dollars to the riskier assets of stocks and commodities. We expect the condition to be shortlived and would add to calls on the dollar. We do not see this "stimulus" as providing any relief to the global economic financial crisis.
Energies: December crude oil closed at $99.63 up 79c after briefly trading over $100 per barrel as money moved from the Treasury market and dollars thanks to Mr. Bernanke’s open ended stimulus program. The new quantitative program which could funnel $40 billion per month into the U.S. economy provided the impetus for global stocks and commodities to expect increased demand for energy. The other factor of course is the fear the Middle East and North African unrest could distupt supplies. We expect wide price swings as news is disseminated. We would avoid these markets.
Copper: December copper closed at $3.8325 per pound, up 11.8c tied to the "euphoria’ generated by the U.S. Fed Chairmans announced QE3 stimulus program which markets expect will provide demand for industrial metals. We disagree. With this year’s copper output from Kazakhstan up 6.9% and the weekly Shanghai deliverable copper stocks up 5,328 tons to 156,401, supply is ahead of actual demand from China .We expect continued reduced demand and lower prices. We would buy put options on December copper.
Precious Metals: December gold closed at $1,772.70 per ounce, up 60c after gaining $38.40 on Thursday. The U.S. Fed’s stimulative program could prompt and inflationary condition as stocks and commodities rose sharply. Gold has always benefited by inflation and the selling of dollars, all dollar denominated commodities rose. We prefer the sidelines since the global economic climate, the European debt crisis, and the U.S. labor and mortgage default and foreclosure problems are not conducive to continued "stimulus" effectiveness. For the week gold gained 1.9%. December silver closed at $34.66 per ounce, down 12c but overall has gained precipitously over gold for the past year or more. We continue to favor silver over gold but look now for a correction after the recent strength. October platinum closed at $1,713.70 per ounce, up $34.20 tied to labor strikes in South Africa. December palladium closed at $699.30 per ounce, up $10.30. Our suggested long palladium, short platinum spread has been working but on Friday platinum gained 1.76% while palladium only rose 1.5%. Stay with that spread.
Next page: Ags and softs
Grains and Oilseeds: December corn closed at $7.82 on Friday, up 8 3/4c on general commodity strength and production estimate down from last month. We prefer the sidelines in corn. December wheat closed at $9.24 ¼ per bushel, up 23 3/4c. Australia expects its wheat crop to possibly be at a five year low tied to dryness in the growing regions. The weak dollar also played a part in the buying of U.S. wheat. We could see higher prices but at current levels a correction is due. Stay out for now. November soybeans closed at $17.39 per bushel, down 9 1/4c on profittaking but with the USDA production estimate down and continued dryness expected in the growing areas of the U.S., we would use any further weakness as a buying opportunity. Our ultimate price goal is $19-20 per bushel.
Meats: December cattle closed at $1.29725 per pound, down .625c tied to a better cash market and the weak U.S. dollar. We remain bullish for cattle but would raise trailing stops. December hogs closed at 73.45c per pound, up 1.075c on shortcovering and against the weak dollar. The increase in moving animals to slaughter tied to high feed prices seems to have diminished but with weights running above last year and the five year average, continued marketings are expected to keep pressure on prices. With this past week slaughter the largest in over 4 years, we would hold current longs but raise trailing stops.
Coffee, Cocoa and Sugar: December coffee closed at $1.81.10 per pound, up another 2.06c on shortcovering and the weak U.S. dollar. For the week coffee gained 11% on shortcovering after prices lost 20% early in the year tied to the certified stockpiles surpassing 2 million bags which was the highest since August of 2010. We continue to favor the long side of coffee but raise trailing stops. Any dollar rally or technical selling could provide a substantial correction. December cocoa closed at $2643 per tonne, up $24 tied to the weak U.S. dollar but also on Ivory Coast actions to protect farmers from price volatility. Price guarantees a factor. We had liked cocoa from a move about $2500 per tonne but prices have surpassed our goal. Stand aside for now. October sugar closed at 19.91c per pound, up 19 points tied to the weak dollar but strength from concern that rains may dissrupt the harvest in Brazil, the world’s largest producer could cut their output and a decline in exports from India also helped prices. We like sugar and would look for an interim move to the $22-23c level. Use stop protection.
Cotton: December cotton closed at 75.90c per pound, up 2.37c on the weak dollar and on good export sales. The U.S. Fed’s announced stimulus program also a factor in the expectation that any economic improvement would help consumer commodities. We like cotton from here but if the dollar stabilizes, we could see a minor correction. We would use that correction to buy cotton. Use stop protection.