With the "global investment community" waiting for the here-to-for "elusive" equity market correction, the markets continue to make new highs. The investment institutions "fearful" of not competing favorably against the "market standard" the S&P 500 (CME:SPN14) on their periodic reporting, keep committing cash to the market thereby "artificially" supporting the "bull market" scenario. Unfortunately they failed to recognize the "symptoms" we see of a "black hole" developing under the market. A quotation sometimes attributed to Santayana, but also others, "Those who ignore the past are doomed to repeat it", appears to be ignored by the financial media and most certainly by the institutions in our opinion. The basic facts related to certain of the more important economic elements such as housing and labor are not conducive to an "improving" U.S. economy.
Treasury bonds closed Friday at 136 07/32nds, up 16/32nds as shortcovering after three days of declines on concern over the turmoil of the Ukraine elections set for Sunday. Yields declined as prices rose on the "flight to safety" of treasuries. The new single-family homes rose by 6.4%, better than economic expectations and kept bonds from holding the session high of 136 13/32nds. Once again we expect treasuries to remain "rangebound". The "phenomena" of treasury prices rallying with the rally in stocks should be "shortlived" since the usual "flight to safety" of treasuries when equities decline and vice-a-versa will no doubt return in my opinion. For now we view treasuries as a "trading affair."
The Dow Jones industrials closed Friday at 16,606.27, up 63.19 points or 0.4% and gained 0.7% for the week. The S&P 500 closed at 1,900.53, up 8.04 points also 0.4% higher on the day and for the week gained 1.2%. The Tech heavy Nasdaq closed at 4,185.81, up 31.47 points or 0.8% and for the week gained 2.3% recovering from prior weeks losses which were greater than those of the Dow and the S&P 500. The better than expected housing numbers provided the improved market sentiment and supported the thesis of an improving housing sector. We disagree and continue to suggest the implementation of risk hedging strategies for holders of large equity positions.
The September U.S. dollar index closed at 80.505, up 8.7 points tied to the U.S. housing report showing new single family homes up by 6.4%, better than analyst expectations. Once again any information that could influence the U.S. Federal Reserve as to rates is watched closely, and "improving" economic data could prompt an early rate increase and that would bode well for the dollar. We see no possibility of a Fed change of policy based on one or two positive economic data. We do however, favor the dollar on the basis of our view that the U.S. is "less" of a concern than its trading partners. Stay with the dollar.
July crude oil (NYMEX:CLN14) closed at $104.35 per barrel, up 61c on anticipation of an economic "improvement" in the U.S. and the better than expected new home sales which could mean increased demand for energy products. The holiday weekend in the U.S. is also the start of the "summer driving season" and that could increase demand for gasoline. June gasoline closed at $3.024 per gallon up almost 2c. We are on the sidelines with bearish bias to crude on our expectation that there is no "economic recovery". However, with the unknown surrounding the Ukraine and the Chinese/Russian energy deal, we prefer the sidelines for now.
June gold (COMEX:GCM14) closed at $1,291.70 per ounce, down $3.30 and for the week managed a "feeble" 0.1% gain. Precious metals, the usual "safe haven" for investors, has failed to perform as it has in the past when "angst" due to geopolitical events emerges, leaves us on the sidelines. July silver closed at $19.435 per ounce, down 8.5c and is also on our "sideline" list although as mentioned in prior commentaries, "those who must a precious metal in their portfolio should look at silver, not gold". July platinum closed at $1,472.80, down $20.30 or 1.4% but for the week managed a gain of 0.5%. June palladium closed at $831.45 per ounce, down $5.00 or 0.6% but gained 2% for the week. Our preference in this market continues to be palladium over platinum.
Grains and Oilseeds
July corn (CBOT:CN14) closed at $4.77 per bushel, up 1/4c on light shortcovering after the selloff that saw prices decline from the April high around $5.24 to $4.72 last week. With Argentina’s farm ministry indicating "excellent" crop condition in some of its northern areas increasing estimates on corn production. We remain on the sidelines even though further shortcovering should continue early in the week tied to concern over potential "fungal attack" on corn ears. Argentina was the mail feature to grains. July wheat (CBOT:WN14) closed at $6.51 ½ per bushel, down 7 3/4c tied to expectation of higher wheat sowings for the 2014-15 crop. Wet weather had curtailed plantings in the U.S. as well as the switch by some farmers from wheat to barley. We prefer the sidelines in wheat. July soybeans (CBOT:SN14) closed at $15.16 ¼ per bushel, down 2 1/2c on light profittaking after the recent rise in prices. With the harvest nearly 70% complete and behind the average we could see further price gains for soybeans. We continue to favor soybeans in this group.