Trying to differentiate between what is important for my readers and what is "cannon fodder" was difficult this week.
However, in ignoring social unrest, an earthquake that struck Northern California, the ongoing ISIS situation, I revert to what I feel is important, namely whatever words emanate from Fed Chairwoman Janet Yellen and others.
Important economic data, treasury market influences, and of course the continuing investor "euphoria" with the equity market rally provides the substance for many of the markets we follow. There remains confusion as to what the Federal Reserve is or is not planning for rates but for now we see no near term changes in their overall philosophy. The Yellen statements seem to focus on the "slack" labor situation and we concur and reiterate, "there is no such thing as a jobless recovery."
Those without jobs do not purchase anything but necessities and those companies that manufacturer other products will soon be forced to lay off workers. Another factor is the ongoing "under-employment" concerns where the combination of unemployed and underemployed currently appears to be around 19% nationally.
Interest Rates: September 30-year treasury bonds closed at 140 14/32nds, up 12/32nds and for the week lost 26/32nds. The yield on the 30-year bond declined Friday by 3.5 basis points to 3.158% as bonds rallied. The comment by Federal Reserve Chairwoman Janet Yellen had prompted the slight jump in rates as she suggested that the economy is "moving toward its objectives". That statement in itself was confusing since the scope of the economic situation includes both positive and negative elements. The most pronounced element in our mind is the ongoing labor situation. For now we prefer a "neutral" position.
Stock Indices: The Dow Jones Industrials closed at 17,001.22, down 38.27 points but was up 2% for the week. Energies led the decline with consumer discretionary the best performing segment. The S&P 500 lost 3.97 points to close at 1,988.40 but was still up 1.7% for the week. The tech heavy Nasdaq closed at 4,538.55, up 6.45 points and for the week gained 1.7%. The continuing "investor euphoria" seems to us to be a "last gasp" attempt to keep the rally going but "throwing " money at it.
A lot of sideline money is concerned that they "missed the boat" and money market funds try to at least keep up with the S&P index. Failing to do that by keeping money on the sidelines poses a problem for their performance reporting and so they keep sending money into what I believe is a "bottomless pit". I once again urge holders of large equity positions to implement risk hedging strategic programs which we offer.
Currencies: The September U.S. dollar index closed Friday at 82.36, up 15.2 points as the Federal Reserve suggested the economy is moving to its objectives. That comment provided the impetus for the dollar’s biggest weekly rise against the Japanese yen since July of 2013. Other currencies losing points Friday included the Euro 36 points to $1.3246, the Swiss Franc 28 points to $1.0946, the Japanese yen 14 points to 0.09622, and the British Pound 7 ticks to $1.6576. The only gainers were the Canadian dollar 2 ticks to 91.32c and the Australian dollar 14 ticks to 93.02c. We continue to favor the dollar not because we "believe" the rhetoric from Washington, but against the "fortunes" of its trading partners. The ongoing Ukraine situation which could impact energy supplies to Europe by Russia is another factor that keeps us in favor of the dollar.
Energies: October crude (NYMEX:CLV14) oil closed at $93.65 per barrel, down 31c and has lost 1.8% for the week. The dollar strength as well as the basic supply/demand factors weighed on prices and we see no immediate threat to supply even against the ongoing Ukraine situation and the ISIS "invasion" in Iraq. The U.S. is finally taking steps to halt the onset of Islamic terrorist advances and with Kurdish control over some Northern oil production, we do not expect supply disruptions. We remain bearish overall but would only use the option market for trying to take advantage of further weakness in prices. We continue to feel Natural Gas prices have bottomed and would hold call positions or short put positions for now pending any basic changes
Precious Metals: December gold (COMEX:GCZ14) closed at $1,280.20 per ounce, up $4.80 but remains under the $1,300 psychological level. The dollar strength failed to impact prices as Fed Chairwoman Yellen indicated the U.S. economy was getting "closer to the Fed’s goals of stable inflation." That, of course, remains to be seen since the ongoing labor situation could temper any positive implications for inflation or gold prices. September silver closed at $19.39 per ounce, down 3c and we remain sidelined on both. October platinum closed at $1,418.50 per ounce, down 80c while September palladium gained $7.70 to close at $887.60 per ounce. We continue to favor palladium over platinum as stated in our recent commentaries.
Grains and Oilseeds: September corn closed Friday at $3.65 ¾ per bushel, up 3 1/2c tied to estimates that corn production yields and plantings may have been overstated. We could continue to see shortcovering and new buying after the selloff from the April/May highs around $5.20. We like corn from here. September wheat closed at $5.49 ¼ per bushel, up 3c also on shortcovering tied to quality concerns but we prefer the sidelines. September soybeans closed at $11.68 per bushel, up 31 3/4c and as with corn, yields are in question as well as a technically oversold condition. We also like soybeans from here but stop protection for corn and beans is appropriate for any new long positions.
Coffee, Cocoa and Sugar: September coffee closed at $1.8140 per pound, down 2.35c or 1.3% and is trading sideways midway between the $2.07 highs of April and the $1.60 lows of July. We prefer the sidelines but recent Brazilian stocks drawdowns could prompt a new round of buying. We might consider light call buying from here if additional fundamentals warrant. October sugar closed at 15.61c per pound, down 38 points and remains on our "no interest list."
Cotton: October cotton closed at 67.46c per pound, up 96 points or nearly a penny. Some hedge fund shortcovering and new spec buying accounted for the action on Friday and the prior two sessions. We like cotton from here but only through the purchase of call options.