Overview and Observation:
The problems with the Affordable Health Care Act persist with a new promise that the infamous website, www.healthcare.gov, will be fully operational in a month. A lot of wasted time with the Government shutdown and aside from a minor concession by Republicans, it was voted in. The only question remaining is the sequester, which had been approved by both parties and is now being contested as divisive and arbitrary. The cuts across the board were not expected to be implemented and the President agreed thinking that it would never be enforced. Now Congress has to decide on how to deal with cuts in certain areas that remain critical for the economy. We will await an expected "revision" to see how it will impact the overall economic situation in the U.S. For now we are in earnings season and the markets are reacting to each new revelation. Also in the news is the revelation that the U.S. has been spying on our friends and the U.S. trying to apply damage control. How this will affect the relationships that were in fact damaged remains to be seen. The news that could have an effect on equities and commodities is as yet unknown but our intention is to disseminate the information generally available to the investing public and try to assess reactions in order to benefit our readers and clients. Now for some actual information…
The 30-year Treasury bond (CBOT:ZBZ13) closed Friday at 135 10/32nds up 8/32nds on expectation that the U.S. Federal Reserve is not considering scaling back its current monthly bond purchases. The quantitative easing program is based on the Fed’s assessment of the U.S. economic condition and that portends an assessment that the economy is not improving according to what they consider acceptable. We concur since our own assessment is based on the ongoing labor situation where fully 80% of new hires are for temporary employment. Employers are cutting back on working hours because their cost for health care under the "Affordable Health Care Act" is prohibitive so their full time employees working 30 hours or more are being cut to 29 hours to avoid the implementation of the "law." Therefore, in our opinion, any "improvement" in the numbers from Washington is "fictitious." The latest data for September shows U.S. durable goods orders rose 3.7%. Unfortunately that number is tied to demand for new jetliners. Taking that out and leaving the core capital goods number delivers a decline of 0.2%. Also in the news is the U.S. trade deficit widened to 0.4% in August according to the Commerce Department. Weekly first time employment was up 12,000 to a seasonally adjusted 350,000 against economist expectation of a decline to 340,000 with the prior week’s number revised upward to 362,000. Once again, as I mentioned in prior commentaries, there is no such thing as a "jobless recovery." An unemployed consumer does not consume anything other than absolute necessities. We continue to view Treasury bond prices and yields as mired in a range but with a positive bias.
The Dow Jones industrials closed at 15,570.38, up 61.07 and for the week was up1.1%. The S&P 500 closed at 1759.77, up 7.70 and for the week gained 0.9%. The tech heavy Nasdaq closed at 3,943.36, up 14.40 and for the week was up 0.7%. Strong earnings reports from the large tech companies provided the basic strength for equities. We continue to watch earnings figures for a definitive determination of market direction but our view remains constant that the U.S. markets are overextended and a severe correction is due. We implore holders of large equity positions to implement strategic hedging programs in order to "protect" against a 1987 or 2008 type market decline.