Did the US Have Negative "Real" Job Creation?

Well… On Friday, when I was signing off, I said that suddenly the currencies were getting sold… At that time, it looked as if it might be short-lived… But NOOOOOOOOOOOOOO! This was an all-out assault on risk, folks… At when the dust settled in the early afternoon, the euro (EUR) had fallen below 1.20, for the first time since 2005, and every other currency was getting whacked, too. For the first time all week, though, gold rallied…

You see, it was all in reaction to the dismal Jobs Jamboree on Friday morning. The “non-census worker” job creation only netted 41,000 new jobs in May… Hmmm, that sure was not what the President and Vice-President were spouting off about earlier in the week… But, Shoot Rudy, how could they have known? They just had all those highly paid government economists giving them their forecasts!

The birth/death model job adjustments were +215,000… So, I know that some of those were probably warranted, but 215,000 new jobs, when 450,000 people per week are applying for jobless benefits? I doubt it… So, let’s give the economy 100,000, even at that level, the “real jobs” were negative… But don’t tell the administration… Because then we’ll hear about all those “saved jobs” that are more trumped up than the birth/death model!

OK… I went off on the jobs thing there for a minute, but I’m back now! Once that dismal jobs report printed, it was “all bets off” on a strong recovery for the US this month, and so risk assets were sold, US Treasuries were bought, along with gold…

This morning though, gold is off $6 at the start of the day… Hmmm… Gold’s little visit below $1,200 didn’t last too long last Friday morning… It lasted about as long as the book on “What men know about women”!

The euro was also feeling some pressure from comments over the weekend from Hungary… Those pressures are receding though, as the comments about “default” were taken out of context.

The G-20 meeting ended with little fanfare… There was this idea floating around the meeting that there could be a universal bank levy to pay for future bailouts… That’s a good thing, that’s the last thing we need! Well, maybe not the last thing, but it’s far down the list for sure! US Treasury Secretary Geithner was at odds with Germany on the best way to get an economy back on the right track. Geithner believes in spend, spend, spend, till you can’t spend any more, and Germany believes in debt reduction. I bet you a dollar to a Krispy Kreme that you know exactly which of those I would choose! Right?

Geithner was also calling for China to allow greater flexibility of the renminbi (CNY), even though there was no “official” call from G-20 to do so.

So… Geithner was over at the G-20 meeting, acting like “father knows best”…

It looks like the data cupboard will be stocked with “outside the US” data this week, along with some central bank meetings. The only central bank meeting that will net anything real, will be the Reserve Bank of New Zealand (RBNZ) which meets Wednesday, and will by all accounts, raise rates. The Bank of England (BOE) and the European Central Bank (ECB) will meet on Thursday, but all we can hope for there are some scraps thrown to us by ECB President Trichet in his statement following the unchanged rates announcement.

There was a “good jobs report” somewhere on Friday, and that somewhere was Canada! Canadian job creation increased by 24,700 in May, following up the whopping 108,700 jobs created in April… The second quarter is off to a strong start in Canada.

Elsewhere… The emerging markets of the world are beginning to feel the pressures from the European debt problem. As I’ve told you many times before, these emerging markets are all connected in some way, and when one of them weakens, they all feel it… So, in this case, the countries that have higher interest rates and stronger fundamentals like Brazil and India, get thrown into the barrel with South Korea, Turkey, and others, and sold…

The weight these countries feel is the weight of investors leaving and repatriating their funding home… The “flight to safety” here in the US is in full swing… I heard a mortgage guy on the radio this morning saying that he had “fixed rates” at 4%. The 10-year Treasury yield is down 16 BPS since Friday morning… Once that Jobs Jamboree data printed on Friday, the risk aversion set in like the plague.

Even the price of oil, which on Friday was $75 before the jobs data printed, has felt the pressure of a weaker economy not being able to fill their gas tanks, and has fallen to $71! That’s a HUGE drop, for just two days of trading!

The dollar and Treasuries are not the only beneficiaries of the “flight to safety”… Even though Japanese yen (JPY) has struggled with the change in leadership, it’s still the destination of many “safety seekers.” Another currency that has been stealth-like in its direction is the Swiss franc (CHF)… But not for US investors… For European investors… The Swiss franc has hit a record high versus the euro in recent days… The franc has pretty much held its own against the dollar too… So… Even with the threat of Swiss National Bank (SNB) intervention hanging over the markets like the Sword of Damocles, investors are heading to Swiss francs as a “euro and pound alternative.”

One thing that is going on in the background, and is not being seen in the markets’ pricing just yet, is the fact that for the third week in a row, the bets against the euro  haven fallen… Last week the number of wagers in the futures markets against the euro fell to 93,325 contracts, down from 113,890 the previous week. Hmmm… Usually this is a forward-looking thing to watch.

As I said above, the data cupboard here in the US is not so chock-full-o-data this week, but we will see The Fed’s Beige Book on Wednesday, and the trade deficit on Thursday, along with the monthly budget deficit, and then close out the week with the retail sales data on Friday… I have to say that the Butler Household Index (BHI) is telling me that retail sales could be disappointing when it prints on Friday.

Then there was this… Well, a reader that watches this stuff since I brought it up a couple of months ago, tells me that we can now add Connecticut to the list of about 35 states that are now borrowing money to stay afloat… Connecticut is preparing to borrow $956 million to close a budget gap in the fiscal year beginning July 1, after borrowing money last year to cover a deficit of $947.6 million. Not good. Fitch has reduced the state’s credit rating from AA+ to AA. And to think… Connecticut is the wealthiest state on a per capita basis!

To recap… Risk aversion has taken over the markets after the Jobs Jamboree print was dismal last Friday… Global growth flag-wavers have gone home, and the flight to safety is going strong. The dollar, Treasuries, yen and gold, were the beneficiaries on Friday, and that remains in place this morning. G-20 didn’t yield any “miracles,” and the RBNZ should hike rates on Wednesday.

Chuck Butler
for The Daily Reckoning