Market Commentary Week ending June 8, 2011
by John Caiazzo
Overview:
This past week saw commodities suffering the longest weekly losing streak in 11 years. Mr. Bernanke’s failure to specify options for further easing and the ongoing economic deterioration in the U.S. and China, the Worlds two largest economies, continues to “mystify” the investment public. At a time when investors and traders are seeking direction from the elements of power that could mean the difference between profit and loss, Mr. Bernanke, the Chairman of the Federal Reserve left us without a “clue” in his recent appearance. His ambiguous statements failed to address the specific problems and how the Federal Reserve could or would address them. Mr. Bernanke declined to specify whether further easing was appropriate or how to deal with the impact on the U.S. economy from the ongoing European financial crisis. We believe it is because neither he nor the U.S. administration has any clue as to how to handle either. We would suggest applying a variation of the “Monroe Doctrine” approach to dealing with the situation by concentrating on the U.S. economy and let the Europeans deal with their problems. To suggest that as one of the larger financial backers of the IMF, that the U.S. should consider adding billions to the Fund to help countries that are without the ability to repay existing loans makes no sense to me. The economic viability of Greece or Spain and their GDP situations are such that over 100% of their GDP is owed out. That does not encourage assistance in my opinion. The funding suggested for the U.S. would better be served by helping U.S. homeowners and the unemployed through our own financial crisis. Now for some actual information that may provide some “enlightenment” as to how to position our readers to deal with the ongoing U.S. economic crisis… .
Interest Rates:
September U.S. Treasury bonds closed at 148 21/32nds up 6/32nds after trading as high as 150 10/32nds during the session. The U.S. trade deficit narrowed in April but was still over $50 billion. The markets were concerned that Spain, whose credit rating was reduced by Fitch, would have difficulty obtaining financial assistance. Some investors were pulling money from the banks in order to seek safer assets. The favorite of late has been the safety of the U.S. Treasury market even as the U.S. economic growth appears to be faltering. On a relative basis however, the U.S. appears more attractive and the treasury market has been the beneficiary of the “flight to safety”, even moreso than the traditional safe haven, gold. We feel the market may be overdone as yields are at all time lows and without the benefit of demand for mortgages or the inability of the public to “qualify” in many instances, there is no point, in our opinion, for the U.S. Fed to consider even lower rates. The agreement by the Eurozone finance ministers to bailout Spanish Banks with a 100 billion Euro loan could pressure prices on Monday. We like the short side of Treasury bonds but only through options for which we have developed a strategy.