Markets adopt wait-and-see approach to Syria

Overview and Observation;

Once again external events play a major role in the international marketplace. We have a difficult enough time analyzing markets using the normal elements of supply/demand, economic data and corporate reports without having to try to determine what effect geopolitical events play. The latest "departure" from the determination of the U.S. in dealing with the use of chemical weapons came in a speech by President Obama claiming now to require Congressional approval before dealing with that threat to the people of Syria. The U.S. is now viewed as weak in responding to threats and can only strengthen the Syrian government’s resolve to crush the rebellion. On the other hand there is little or no support for any aggressive position by friend and foe alike for attacking a regime trying to suppress a revolution. The big question of "who did it" remains unanswered as the speech by the UN representative refused to address that question. He insisted that the "mandate" only includes the fact of whether chemical weapons were used, not as to who is responsible for its use. An email claiming that the Associated Press indicates that the rebels themselves launched the gas attack on its own people in order to garner support for their cause is circulating. We just don’t know and that confuses everyone, especially market participants. The U.S. economic data is barely positive and confirms our position that the so-called recovery is in fact a "figment of the Administration’s imagination" and does not deal with the problems of lower new home sales and labor conditions. We will try to offer suggestions to hopefully "guide" our readers through the "maze" of information. Now for some actual information…

Interest Rates:

The December Treasury bonds (CBOT:ZBZ13) closed Friday at 131 and 23/32nds, up 1 tick but 32/32nds higher on the week after yields had risen tied to the possibility that the Federal Reserve would reduce monetary stimulus. The Consumer Confidence Index declined to the final August reading of 82.1 from the prior months reading of 85.1 and that prompted the rally in bond prices and the decline in yields. Another indicator of economic health was the report from the U.S. Commerce Department that spending and personal income rose 0.1% in July against economist expectations of a 0.3% gain in spending and a 0.1% in new income. Any disappointment no matter how marginal has an almost immediate effect on interest rate instruments, which then affect yields. We continue to view the Treasury market as in a range dictated by the Federal Reserve statement and expectations. We do, however, feel that the U.S. economy is not in recovery and for that reason we see continued Federal Reserve "hesitation" to change policy and would hold bond calls for now. My program of selling puts and/or calls in this market based on the tight trading range should be considered by well capitalized account holders.

Stock Indexes:

The Dow Jones industrials closed Friday at 14,810.31, down 30.64 or 0.2%. For the week the Dow lost 1.3%, for the month 4.5%. The S&P 500 (CME:SPV13) closed at 1,632.97, down 5.20 and for the week lost 1.8%. The tech heavy Nasdaq closed at 3,589.87, down 30.43 and lost 1,9% for the week. The markets reacted to the on again off again possibilities of a U.S. attack on Syria after evidence that chemical weapons were used on civilians. We question the validity of claims as to who is responsible, but the fact remains those weapons, against international law, were used. The U.S. President’s intention to strike at Syrian positions was expected but contrary to that expectation and confusing to his own cabinet was the "eleventh hour" change of heart and now considers consulting with Congress. This retraction of intention apparently sent a message of "weakness" to Syria that he is not in control of the situation being unable to garner support from the U.S. closest ally, Great Britain, and criticism from many other factions not the least of which was Putin of Russia. Economic data also provided for the pre-holiday selling in equities. We continue to implore holders of large equity positions to "purchase insurance" in the form of strategic hedging programs which we can "design" specific to their requirements.

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