Weekly Commentary

Overview:

Friday the 13th lived up to its name for equity investors. For the rest of us the week provided real concerns related to the ongoing Euro zone crisis with Spain the latest "victim". The additional funds needed to avoid defaults is growing with our expectation that at some point the "prosperous" nations will soon have to cut off the funding. I believe they should let the "cards fall where they may" so that a recovery can "begin in earnest". With new countries added to the "crisis" list we view any bailouts as "throwing money down a well". The U.S. has its own problems with the mortgage and loan defaults, and the postponing of the "inevitable". Mortgage foreclosures that are being artificially delayed by banks not wanting to move the "receivables" from the asset column to the other side will only exacerbate the problem. Let "gravity" take its course in order to form a base from which to effect a true economic recovery. The U.S. administrations "joy" at the creation of 120,000 jobs in a month does not take into consideration the weekly unemployment figure of over 350,000, each of course representing a job "lost". There is no joy in "Mudville" as the Administration is "striking out" in the game of "recession". Now for some actual information......

Interest Rates: June Treasury bonds closed at 141 14/32nds as the relative safety of the U.S. treasury market became the "escape valve" for equity investors. The ongoing European debt crisis along with the weaker than expected U.S. economic growth data with the meager 120,000 jobs "created". As I have stated in prior commentaries and the overview, the job "creation" of 120,000 jobs in a month does not take into consideration the less publicized weekly loss of over 350,000 jobs by virtue of the first time unemployment figure. We continue to expect bonds to remain in a trading range with the high of 143-144 and the low of our anticipated range of 135-136. We have strategies for taking advantage of that expected price range. Opening an account under my personal management is a simple matter. Contact me for information.

Overview: On Friday markets received a "wake up call" as the job "creation" number was only 120,000 against anal-yst expectations for a gain of over 205,000. Yields on treasuries dropped as treasury bonds rallied sharply. An enigma persists in as much as regardless of the number of jobs "created" in a month, each Thursday the unemployment figure of over 350,000 translates to over a million jobs lost in that same month. As I stated recently in my commentaries, a worker applying for unemployment is clearly the result of a "lost" job. The administration "dream" of added jobs makes no sense to me given the circumstance of the numbers. As far as analyst expectations, I reiterate "better to keep ones mouth shut and be considered ignorant, than to open it and remove all doubt". That's the basis for my "misspelling" analyst in the second line of my overview. The damage done to markets by "incorrect" assumptions and expectations leads me to believe no expectation of numbers should emanate from these "geniuses" and just let the reports have their eventual effect. Now for some actual information that my readers can hopefully apply profitably to their trading.......

Interest Rates: Most markets were closed on Good Friday but some trading in equity futures and treasury bonds were open until 8:15AM Chicago time. During that time wide price swings and a sharp rally in treasuries tied to the disappointing jobs report occurred. The June treasury bond jumped by 1 29/32nds closing in the morning at 14008. Our option positions were dramatically impacted and rollover of short position became necessary incurring loss. It was necessary for us to rollover short May 140 calls to 141 calls and short 136 puts to 137 puts. We will have to see what Sunday evening brings to determine if additional adjustments are necessary. The government reported 120,000 net jobs were created while analysts were expecting in excess of 200,000 jobs. That prompted immediate response in the treasury market where thin trading allowed for the sharp rally in prices and decline in yields. The yield on the 30 year bond declined to 3.322% down 0.058% while the ten year declined 0.068% to 2.175%. We feel the move in a thinly traded early Friday morning market was overdone but will await the return of trading Sunday evening. Stock Indices: An abbreviated Good Friday session saw the Dow Jones Industrials add to the weeks losses closing at 13060.14, down 14.61 after the 132 point loss Thursday. For the week the Dow lost 1.2%. The S&P 500 closed at 1398.08, down 0.88 but for the week lost 0.7%. The tech heavy Nasdaq closed at 3080.50, up 12.41 but for the week lost 0.4%. The selling on Thursday was long liquidation in front of the Friday jobs data and a three day holiday weekend. Additionally the news of Spain's economic difficulties was also a factor. Friday mornings activity was prompted by the disappointing jobs data showing only 120,000 jobs created against expectations of over 200,000. The first time unemployment data on Thursday was also a factor in Thursdays selloff posting 359,000 first timers at the unemployment office. The 120,000 jobs "created" in a month against first time unemployed for that period of over 1.4 million questions the administrations optimism. We continue to feel the U.S. equity market as well as international markets are susceptible to any news from the Eurozone, Iran's nuclear ambitions, and just as importantly, the U.S. economic situation. Implement hedging strategies.

Currencies: The June U.S. dollar index closed at 8008.5 on Friday, down 20.8 points on U.S. government data indicating that the U.S. economic recovery may be stalling as well as the disappointing U.S. jobs data. The sharp rally in treasuries with lower yields was the major factor in the dollar weakness. Lower U.S. interest rate precludes dollar investment. We continue to favor the dollar since the sharp moves on Friday were on reduced trader and investor participation.

Overview: The last trading day of the month and first quarter saw a lot of "position squaring" and the usual "window dressing" by institutions wanting to show performance in the first quarterly report of 2012. The only "fly in the ointment" was the possibility of China cutting back on commodity purchases, a warning that came from two of China's most influential government think-tanks. As the world's number two economy, any such cutback would not bode well for producing countries especially producers of construction materials and consumer goods. With China's growth rate revised downward, some pressure on product demand ranging from energy, metals, food, cotton and other could be impacted. We continue to suggest that a global recessionary trend prompted by a continuing U.S. labor condition as well as so called austerity programs instituted by some Euro zone countries and the ongoing debt crisis will hamper forward growth prospects. The "season" of "preservation of wealth" is upon us. Now for some actual information...

Interest Rates: June Treasury bonds closed at 137 24/32nds, down 1 and 4/32nds or 0.81% pushing the yield on the 30 year bond up to 3.345%, up from the February 3.09%. The "improvement" in the economic outlook offset concerns for the European debt crisis. Less demand from Europe for the relative safety of U.S. treasuries another factor in the selloff Friday. We are close to our suggested low end of the 135-143 trading range and would await additional economic data before taking any action. Hold strangle spreads suggested last week. I added the June Treasury bond futures chart here.

Stock Indices:

Overview:
We finally hear some semblance of "reality" from the U.S. Federal Reserve Chairman, Mr. Bernanke, who this week stated "The economy is still very challenging. Unemployment is still high, and that creates problems for everybody, obviously". Once again, if I am not repeating myself too often for this publication, "an unemployed consumer does not consume and the producers of those (unconsumed) products will be next to lay off workers". The creation of 227,000 jobs in a month, does not correlate mathematically with 350,000 jobs lost weekly. The international monetary organizations, in my opinion, are going through the "motions" of trying to calm the fears of the investing public as well as the public in general, that solutions to the overall problems are at hand. I do not believe the European debt crisis, the U.S. jobless situation, or the geopolitical concerns related to North Korea and Iran are anywhere near resolution. For that reason I would once again warn my readers that a reassessment of their financial condition and investments is warranted due to the various factors which could materially affect them. Now for some actual information with my usual rhetoric....

Interest Rates:
June treasury bonds closed at 137 26/32nds up 24/32nds on concerns over global growth. The late February high of 143 to the March 19th low of 135 established the trading range for treasuries. As you know I had indicated such a range in my recent commentaries and that bonds were a trading affair. We continue to believe news and economic data will direct the pricing and yields of treasuries. Stay with options. We currently have option spreads in treasuries for clients.

Stock Indices:
The Dow Jones industrials closed at 13080.73, up 34.59 or 0.27% higher but posted the worst weekly performance of the year so far losing 1.15%. The S&P 500 closed at 1397.11, up 4.33 or 0.31% but as with the Dow posted its worst weekly performance losing 0.5%. The Nasdaq, thanks to the tech stocks, closed at 3067.92, up 4.80 or 0.15% and for the week gained 0.41%. We continue to expect a sharp decline in equities based on our overall expectation of continued angst related to geopolitical and economic conditions globally. Implement hedging strategies to avoid the kind of "meltdown" witnessed last August which wiped out many investors. Sidelined money by those following our recommendation at the time to hedge risk, enabled the markets to form a base which allowed for the rally since that fateful period in August.