Markets react to global declines in most commodities and lack of inflation

Financials: Sept. Bonds are currently 12 lower at 157’07, 10 Yr. Notes 7.5 lower at 127’19.5 and 5 Yr. Notes 3.5 lower at 119’28.2. German 10 Yr. Bunds are 4 higher at 154.60 with an overnight high of 155.09. These are levels not seen for a little more than 2 months as these markets react to the global declines in most commodities and the perception of once again a lack of inflation. Personally I must point out that the lack of declining prices for basic goods is just one factor of looking at inflation rates and I feel that these published numbers do not reflect the rise in the cost of services as most consumers will tell us their cost of living seems to be rising. I must also admit that I’ve been a bit stubborn when it comes to sitting with naked short positions which have a considerable loss . As I have written over the past few weeks I prefer to sit with either the long 5 Yr. /short 10 Yr. spread (currently losing 13 points) or the ratio spread of long 5-5 Yr. notes/ Short 3-10 Yr. notes (currently at a small loss). We are also at a loss on the short German Bund position which I recommended selling above the 154.00 level. Comments by the FOMC last Wednesday still leave me to believe that there will be a small rate hike by the end of the year if employment numbers stay strong.

Grains: Dec. Corn is currently 3’4 higher at 380’0, Nov. Beans 10’2 higher at 945’6 and Dec. Wheat 4’2 higher at 509’2. Last week we were able to go long Dec .Corn below 390’0 (386’4) and are currently using a protective sell stop in the 371’0 area. We also remain long Nov. Bean 1200’0 calls originall purchased for 4’4 cents. The Crop Production Report on Aug. 12th will give us more current idea crop condition. I suspect yields will be down on both Corn and Beans.

Cattle: My last “Report”, dated July 27th, I recommend covering all short biased positions in both Live and Feeder Cattle. I am now looking to re-establish short biased positions in Dec. LC in the 151.00 area +/- 50 points with an initial 2.00 risk.

Silver: Sept. Silver is currently 9 cents higher at 14.60 and Dec. Gold 4.00 higher at 1093.50. We remain long ca reduced position in Silver.

S&P's: Sept. S&P’s are currently 5.0 lower atv2086.00. We continue to hold a combination of short futures and short the Aug. 2080 put (originnaly sold for 32.00). Of note: the S&P’s are approaching support at the 200 day moving average of 2056.25. The Dow Jones Industrials Average is trading bhelow the 200 day average of 17,782. The market will be watching the Greek stock market for any kind of recovery after falling more than 20% on Monday after being closed for a month. It comes as no surprise that Greek bank stocks for the most part were down their 30% limit.

Currencies: As of this writing the sept. Euro is 20 higher at 1.0974, the Yen 20 lower at 1.5609 and the Pound 31 higher at 1.5609. I remain a seller in the Euro on rallies to the 1.1150-1.1250 area ( recent high was 1.1121 on July 31st).