Overview: The
surprisingly strong jobs
report coupled with the
sharply higher revision
from the prior month
allayed concerns of an
imminent recession in the
"hearts and minds" of the
investing public. The
problem is if the prior
month was revised from
sharply lower to sharply
higher, can the number
emanating from Washington
really be counted on as
factual. Of the 110,000
new jobs created,
somewhere around 37,000 of
those jobs were government
jobs. The honeymoon
created on Wall Street
was, in our opinion, done
with "mirrors" and I
expect yet more revisions
in the future. For now, we
still see a recession as
imminent and that is based
on actual, real numbers of
delinquent mortgage loans
which become defaults
which in turn become
foreclosures. The U.S.
Housing industry has been
decimated and all
employees of firms
associated with housing
and autos, will be next on
the list of delinquencies,
defaults, and
foreclosures. That reality
will not change and
therefore, once again, we
see a recession in the
future. Now for some
actual information
Interest Rates:
December Treasury bonds
closed at 11025, down 1
10/32nds pushing yields
right back up again thanks
to the "glowing" jobs
data. The payrolls gain of
110,000 in September and
the revision for August
from a loss of 4,000 jobs
to a gain of 89,000 leaves
us perplexed as to what
the numbers really are.
The report prompted an
almost immediate drop in
treasury prices and an
increase in yields as
traders no longer
concerned with the
possibility of recession
were now looking at a
return to "prosperity" and
no need for the safe haven
of treasuries. We are not
fooled by the "honeymoon"
and see a "divorce" in the
offing. Add to long bond
positions or calls.
Stock Indices: The
Dow Jones industrials
closed at 14,066.01, up
91.70 points after trading
at a new all time high of
14,124.54. The S&P 500
closed at 1,557.59, up
14.75 points and a new all
time high. The Nasdaq
closed at 2,780.32, up
46.75 points. The rally in
equities was prompted
solely by the labor
departments "surprisingly
strong" jobs data for
September and the sharp
upward revision for
August. The continuing
problems in the mortgage
industry were disregarded
and the shorts covered and
new buying came from the
sale of treasuries and
other safe haven entities.
We view the sharp gains in
equities as an anomaly
which will be corrected
shortly. Implement hedging
strategies.
Currencies: The
December dollar index
closed at 7823.50, down
14.50 points even though
the normal reaction to the
surprisingly strong jobs
report would have
positively impacted the
dollar, investors were not
convinced that the U.S.
economy is strong and that
the Fed no longer would
entertain rate cuts. We
concur with those
investors and that Fed, in
sooner or later
recognizing the economic
downward spiral in the
U.S. will be forced to
lower rates in the not so
distant future. The
December Euro gained 21
points to close at 141580,
the Swiss Franc, however,
lost 10 points to close at
8538, and the Japanese Yen
lost 34 points to close at
8623. The British pound
gained 45 points to close
at $2.0391. The initial
reaction to the jobs
report prompted short
covering in the dollar but
trades sold in front of
the Columbus Day weekend.
Once again, we prefer the
long side of the Swiss
Franc.
Energies: November
crude oil closed at $81.22
per barrel, down 22c
trading lower right from
the opening. Wednesdays
data showing crude oil
inventories unexpectedly
increased for the second
week in a row the main
feature to the trading.
November natural gas
closed at $7.073 per MBTU,
down 33.9c as the risk of
a tropical storm
threatening gas production
in the Gulf of Mexico
diminished. We prefer the
sidelines in energy
products. There are too
many variables to consider
when trying to analyze
these markets, not the
least of which are the
weather and the potential
for terrorist activities.
Copper: December
copper closed at $3.7255
per pound, down 1.25c even
though it usually trades
conversely to the U.S.
dollar in which it is
denominated. Early buying
based on the jobs data and
the continuing strike at a
Peruvian mine was met with
long liquidation in front
of the weekend. While we
would hold long put
positions, we would not
add at the current time.
Precious Metals:
December gold closed at
$747.60 per ounce, up
$3.80 tied to the weakness
in the U.S. dollar in
which it is denominated.
December silver closed at
$13.52 per ounce, up 2c.
January palladium closed
at $1,387.80, up 9.40 with
December palladium losing
$1.80 to close at $369.50
per ounce. Once again, for
the pundits, gold will do
what the dollar and U.S.
interest rates tell it to
do…. Chart the dollar, and
trade gold off the dollar
move.
Grains and Oilseeds:
December corn closed at
$3.42 ¼ per bushel,
unchanged, after trading
lower during the session
tied to selling in the
other pits, namely
soybeans and wheat. We
prefer the sidelines since
corn did not react to the
crop production estimate
by Informa Economics which
was 200 million bushels
over the USDA September
figure. Stay out of corn.
December wheat closed at
$8.90 per bushel, down 16c
and lost 49c for the week.
July wheat gained 7 1/2c
to close at $6.86 ½ on new
crop/old crop switches. We
prefer the sidelines.
While the demand for wheat
is expected to continue,
the runup in prices could
prompt a sharp correction.
November soybeans closed
at $9.40 per bushel, down
13 3/4c with December
beanmeal losing $5.40 per
ton to $265.40 and
December soybean oil
losing 15 points to 39.03c
per pound. Seasonal
pressure along with
favorable weather
conditions for the current
harvest weekend the main
feature. Profittaking also
a factor in front of the
holiday weekend. Hold bean
positions but don't add
right now.
Coffee, Cocoa and Sugar:
December coffee closed at
$1.37 per pound, up 1.8c
tied to concerns over
whether Brazil will get
enough moisture during the
tree flowering from
October to November. We
like coffee from here
having held above our
support levels but would
only buy with stops.
December cocoa closed at
$1,858 per tonne, down $17
tied to speculator selling
and light origin selling
during the West African
cocoa harvest. We prefer
the sidelines. March sugar
closed unchanged at 9.79c
per pound and remains on
our no interest list. Stay
out until a trend forms
based on fresh
fundamentals.
Cotton: December
cotton closed at 63.22c
per pound, down 27 points
in light trading and
minimal dealings in
actuals. Informa Economics
on Friday estimated the
U.S. 2007-08 cotton
production at 17.887
million bales, higher than
the USDA estimate in
September. We prefer the
sidelines.