Economic data drove markets this past week, while secondary concerns continue to be the back-and-forth information on North Korean intentions both implied and announced. The economic data challenges the idea of an economic recovery and the ongoing Euro crisis also foments concern. Cyprus claims it does not need additional funds but then reports that the country agreed to sell excess gold reserves to assist in its bailout efforts prompted a sharp selloff in gold prices. The amounts could be absorbed by the market but the mere mention of government gold sales prompted the metals retreat. We fully expect Cyprus to request additional financing but with Germany balking at that prospect, it seems unlikely and we could hear more about the possible withdrawal from the Euro. That would affect the Eurozone and possibly lead to a breakup. Other weak countries such as Greece, Portugal, Spain, Ireland and Italy could impact the Euro as well. We have never believed that a single currency for 17 countries each with diverse economies and GDPs made any sense at all.
Interest Rates: June Treasury bonds closed at 147 17/32nds, up 1 10/32nds tied to the disappointing economic data. The University of Michigan, Thomson Reuters consumer sentiment index early April reading declined to 72.3, a nine month low and below economist forecast of an increase to 79. Adding to that was the U.S. retail sales decline in March, also the lowest in nine months and an indication that the so called "economic recovery" is a "pipe-dream" of the administration. The 30 year yield declined to 2.92% down 8 basis points. We continue to warn against expectation of any economic recovery and have programs to offset some of the negativity for the investing community.
Stock Indices: The Dow Jones industrials closed Friday at 14,865.10, down 08 points but traded much lower at 14,790.57 after the early morning economic data was released. For the week the Dow still managed a gain of 2.1%. The S&P 500 closed at 1,588.85, down 4.52 points but for the week posted a gain if 2,3%, The tech heavy Nasdaq closed at 3,294.95, down 5.21, but for the week managed a gain of 2.8%. The selling pressure on Friday came after the retail sales figure for March showing a decline of 0.4% against analyst expectations of a decline of only 0.1%. and after the February gain of 1.1%. The University of Michigan-Thomson Reuters index was also a negative coming in for early April of 72.3, lower than the analyst expectation of 79.3 and against the March figure of 78.6. While the Thursday first time unemployment number was 34,000 lower at 601,000. However, you will recall that I have been indicating for some time that any decrease in the first time unemployment number would not be an indication of an improved labor situation but as a result of few workers available to lay off by corporations without "closing their doors". Productivity by virtue of having the remaining workers do "double duty" and more is not a good sign for the labor condition. The continued unemployment number is increasing with 6.35 million workers filing claims in the week ending March 25, which was 56,000 more than in the previous week. Once again, "an unemployed consumer does not consume and the producers of those products will be next to lay off workers". Do not be fooled by the U.S. Administration’s claims of an "improving economy". Implement risk hedging strategies as soon as possible to avoid the loss of principal similar to that of 2008. Contact me for program information for those with large equity portfolios.
Currencies: The U.S. dollar index closed at 82.406 with late trades posted at 82.21, down 1.96. With the negative economic data on Friday the dollar saw selling pressure tied to the lower interest rates. Expectation that the data would not prompt the U.S. Federal Reserve to halt its quantitative easing and lower rates pressure the U.S. currency and detract from dollar investment. We continue to favor the dollar against the currencies of its trading partners not due to any expectation of U.S. economic improvement but as its relative comparison to the problems inherent with its trading partners. The Euro closed at $1.3085, the Swiss Franc $1.0673, the japanese yen, 0.10118, the British Pound $1.5338, the Canadian dollar 98.49c, the Australian dollar $1.0453. The situation in Cyprus is ongoing with the government "claiming" it is solvent but reports indicate it is seeking additional bailout funds. Germany, the most important economy in Europe, is apparently "balking" at providing additional funding. Why any country would consider extending credit to another country unable to meet current obligations is beyond me and I continue to expect one or more of the "weak" economies to be forced out of the Euro possibly prompting an overall collapse of that "experiment". We have never believed that one currency for 17 countries of varied economies and GDPs made sense. Stay with the dollar.
Energies: May crude oil closed at $91.29 per barrel, down $2.22 and for the week declined by 1.5%. Our recent expectation of continued price declines for crude is based on our supply/demand model and we see no reason to change our negative bias towards crude. The IEA said it expects global oil demand growth down from its previous forecast and that also created selling pressure for crude. Stay short or add to put positions.
Copper: May copper closed at $3.35 per pound, down 8.35c on continued pressure from supply/demand especially from China and on concern that the negative U.S. data on the economy will reduce demand further. The reports of "hoarding" of copper can only lead to additional inventories coming "out of the woodwork" and provide further selling pressure. We have favored the short side of copper for some time and see no reason to change our opinion. Any rally should provide an opportunity to sell short or add to put positions.
Precious Metals: June gold closed at $1,501.40, down $63.50 or its lowest level since July of 2011. Gold is down approximately 20% after reaching is record level from August of 2011. It had traded as low as $1,491.40 during the session and lost 4.7% for the week. Reports of gold reserve sales by Cyprus to shore up its financial situation was one of the reasons but lower price forecasts by some major firms also pushed gold prices through most of its technical support levels and ran into stop loss selling pushing prices even further down. We have suggested the sidelines for metals for some time and not change in our sentiment. A price "bounce" is expected by "bargain hunters" after sharp market moves but we do not see any reason to expect extended corrections to hold. Stay out. May silver closed at $26.33 per ounce, down $1.37 for the same reasons. Our interim price goal for silver is $25,00 per ounce but see no reason to "stand there buying" even at that level. I may consider buy back some of the one ounce silver eagles I sold in 2011 around $38 per ounce but maybe not……I wonder what the TV "purveyors of hype" are telling clients about their "gold buying recommendations" on the phone.
Platinum and palladium followed with substantial losses closing at $1,495.90 and $709.10 respectively. Stay out for now.
Next page: Ags and softs
Grains and Oilseeds: July corn closed at $6.41 ¼, up 7 3/4c per bushel on speculation that rain in the U.S. growing areas as well as Canadian snows will delay plantings. July wheat closed at $7.19 ½ per bushel, up 16 1/4c tied to cold weather threatening the winter crop in the southern Great Plains of the U.S. July soybeans closed at $13.79 ¼ per bushel, up 11c also tied to the U.S. rains and Canadian snows delaying plantings. We like soybeans once again from current level but use stop protection.
Meats: June cattle closed at $1.2075 per pound, up 10 points on light shortcovering after recent weakness. Reduced demand tied to economic concerns have pressured prices for some time. We could see some corrective buying but use stops. June hogs closed at 89.90c per pound up 45 points also on light shortcovering after recent weakness tied to lowered U.S. demand for pork. Recent highs around 92c failed to hold and long liquidation brought prices back down. We prefer the sidelines.
Coffee, Cocoa and Sugar: May coffee closed at $1.3490, down 1.9c on continued selling pressure tied to global supplies. We prefer the sidelines in coffee. May cocoa closed at $2,261 per tonne, up 33 points on light shortcovering in front of the weekend. We continue to prefer the sidelines in cocoa. Weak global economies reduce demand for cocoa products. May sugar closed at 18.03c per pound up 22 points tied to concerns that rains will delay the sugar cane harvest in Brazil. We could see further price gains in sugar and would lightly buy but with stop protection.
Cotton: May cotton closed at 85.58 per pound, up 1.25c on shortcovering after recent selling had been tied to signs of increased global supplies. Buying from last October 71c price level tied to supply concerns may have been overdone and the correction was expected. We had been bullish towards cotton and are now on the sidelines.