Dollar Bugs Beat Up Risk Assets

Good day, and a happy Friday to one and all! I’m not sure this will turn into a fantastic Friday yet. It sure isn’t going in that direction for the risk assets this morning. But I know one thing about today — I’m sure glad it is Friday! I’m beat! And it was only a four-day workweek! I had better get some much-needed rest this weekend!

It’s a jobs jamboree Friday, folks, but that’s not the only piece of data that the U.S. data cupboard will give us today. It’s chock-full of data again today, just like yesterday.

The data yesterday was not kind to the “the economy is strong” campers. For instance, GDP’s final print for the first quarter came in at 1.9%, not the 2.2% previously thought for the quarter. The weekly initial jobless claims were much larger than forecast, printing at 383,000, and the Chicago PMI (manufacturing index) saw a huge drop from 56.2 to 52.7 in May.

But as I explained yesterday, it seems it just doesn’t matter what’s going on here in the U.S. to the markets and hedge funds right now. It’s all about the eurozone, and nothing else matters.

And if the markets are paying attention to this rotten day for economic data in the U.S., then they must be right back to square one, and rewarding the dollar for bad data here in the U.S. I thought we had gotten past that, but as I was telling a young lady from Dow Jones in an interview yesterday, a couple of months ago, we began to slip back to this perverse way of trading, when the jobs jamboree was so bad.

So there was even more blood in the streets yesterday, and this morning, it continues to be spilled with the currencies taking shot after shot from the dollar bugs. And even gold, which had been a star performer this week, is getting sold this morning. And some of the data overseas aren’t helping, either. For instance, this morning, the eurozone printed the highest unemployment rate since the data was gathered in 1995.

And this next thing illustrates so nicely the difference between Germany and the Club Med countries that contributed greatly to that highest unemployment rate, which was 11%. Germany reported yesterday that their May unemployment rate (they call it a jobless rate) had dipped to 6.7% from 6.8% in April.

Inflation for the eurozone is falling, too. May’s inflation print for the eurozone was 2.4%, down from April’s 2.6%. And this news has brought the rate cut campers out in force, and that has put pressure on the euro, too.

And I’m not sure I understand what the Swiss National Bank (SNB) is always whining about. They claim the franc (CHF) is too strong and hurting the economy, but they just printed a stronger than expected first-quarter GDP, and revised upward the fourth quarter’s number. But look at the franc — it’s getting whacked right alongside the other currencies that aren’t dollars and yen (JPY).

I know that the April data for SNB reserves didn’t show that they had intervened, but I’m very confident that May’s data won’t have the same result. I still believe the SNB is selling francs. Oh, and the cross to the euro is 1.2008 this morning.

Have you been paying attention to the plunge in the price of oil? Pretty strange, but no need to own an anti-dollar asset if the dollar is in bear market rally mode, eh? Sell now, take your shekel or two of profit and buy it when it’s really cheap! That seems to be the trade du jour at the moment.

Have you seen or heard of what the people that make the global banking rules are thinking of doing? They are thinking of making gold a Tier 1 asset for commercial banks and give it 100% weighting, rather than the Tier 3 asset it is now, with only 50% risk weighting.

These same rule makers are probably going to increase the amount of capital banks must set aside. Put the two things together, and you could very well have a large ray of sunshine on the price of gold.

Doesn’t it make sense to allow banks to hold gold as capital, with 100% weighting? I think so. I wonder what the price-manipulating banks would do in this case? That’s a conundrum, eh?

I mentioned earlier that I did an interview with Dow Jones yesterday, and the subject was the Canadian dollar (CAD) and the U.S. labor report. I basically said that the Canadian dollar/loonie was getting sold because a lot of investors had believed the central bank when they said that they would be raising interest rates sooner than later, and when sooner came and no rate hike was seen, the investors bailed. The weakness in the loonie isn’t all about the eurozone.

And as far as the U.S. Jobs Jamboree is concerned, I told the interviewer that this is difficult to call because one never knows the wild card. The Bureau of Labor Statistics (BLS) always adjusts to the numbers, and only the Shadow knows what they will be before the print at 7:30 CST. So I’m going to say that I believe the number will be disappointing, as 150,000 is forecast to be the number of jobs created in May. I believe it will be much less than that.

So then the interviewer asked me if the number is disappointing, what does that do to the dollar?

Again, I said this is difficult, because previous to the last two month’s reports, the markets had begun to go back to the way things were before the financial meltdown and reward a currency if the jobs report was good, and vice versa. The last two months, we’ve seen the markets slip right back into the financial meltdown frame of mind and reward the dollar with bad or weaker-than-expected jobs reports. So what’s it gonna be, boy? So I picked the financial meltdown frame of mind for the markets’ reaction to the disappointing number.

The other data due to print this morning includes two of my faves: personal income and personal spending. Then the ISM manufacturing index will print for May. Look for slippage here. And then vehicle sales data. There’s also the personal consumption, blah, blah, blah… data to deal with.

Yesterday, I made a big deal about nobody paying attention to what’s going on here in the U.S. and that it’s all about the eurozone. And then Ty sent me this note that just made my day! Finally! Someone besides the usual suspects of Bill Bonner, Addison Wiggin, Doug Casey and me talking about this very subject!

Then, from Bloomberg, “Forget the Euro Crisis… The U.S. is in Far Worse Shape” about Nassim Taleb. You may remember that name, as he is the author of the great book The Black Swan. I won’t give you the whole article, but most of it:

“A breakup of the euro ‘is not a big deal,’ Taleb said yesterday at an event in Montreal hosted by the Alternative Investment Management Association. ‘When they break it up, there will be a lot of fun currencies. This is why I am not afraid of Europe, or investing in Europe. I’m afraid of the United States.’

“The budget deficit as a proportion of gross domestic product in the U.S. amounted to 8.2% at the end of 2011, government figures show. That’s twice the 4.1% ratio for euro-region countries, according to data compiled by Bloomberg.

“‘Of course, Europe has its problems, but it’s in much better shape than the United States,’ Taleb said. He voiced similar concerns about U.S. prospects at a conference in Tokyo in September…

“Rising interest rates would make things worse for the U.S., said Taleb, a principal at hedge fund Universa Investments LP who also serves as an adviser to the International Monetary Fund.

“‘We have zero interest rates,’ Taleb said. ‘If interest rates go up in the United States, you can imagine what the deficit would be. Europe is like someone who is ill but is conscious of it. In the United States, we are ill, but we don’t know it. We don’t talk about it.’”

Yes, our financial fundamentals are very ill and no one wants to talk about it, except me! That’s because if we talk about it, eventually, someone will do something to correct it, and if we continue to not talk about it, well, I guess we’ll find out what happens. There’s no political will to correct this.

To recap: The dollar bugs continue to beat up on the risk assets, with currencies front and center. Gold is getting sold this morning after five days of upticks in the price. It’s a Jobs Jamboree Day. Chuck talks about his interview with Dow Jones yesterday, and the other data that will print today. Eurozone unemployment reaches a record high level, and inflation is falling. Look for more rate cuts there.

Chuck Butler
for The Daily Reckoning