12/06/10 St. Louis, Missouri – Well… The cold fell over the dollar on Friday, as we saw something that has happened very often in the past two years, and that is a downright – no two-ways about it – convention reaction to the jobs data! First of all, the Jobs Jamboree turned sour when it was learned that US corporations only added 39,000 jobs in November… You may recall that on Friday morning, I told you that the number would be less than the forecast of 150,000 jobs created, but even my guess was higher than the actual, 39,000 jobs created.
One of the news agencies put out a blurb that said that this 39,000 jobs created in November proved that the economy was accelerating, but at a slower pace than anticipated… I say bunk! Yes, we’re no longer losing 300,000 jobs in a month… But that’s just because there are no more people to fire without closing up shop! If that’s the best the US can muster after all the stimulus, and loans, and zero interest rates, and quantitative easing… Then I would argue that 39,000 jobs doesn’t represent an acceleration, but more of an “adjustment”… Oh! And the unemployment rate rose to 9.8% (from 9.6%)… Of course that’s the “company line” unemployment rate from the Labor Department… The actual unemployment rate, if you count all the heads – which the Labor Department seems to have forgotten how to do – is nearing 25%…
That’s right… Nearly a quarter of the country’s workers are unemployed…. And if you counted the “underemployed”… OMG!
OK… So… The markets reacted in a “normal” way, and took the dollar for a ride on the slippery slope down against all currencies, and gold and silver… Gold shot back above $1,400, and silver saw the good side of a $29 handle!
I can tell you though, from what I’ve seen since I came in this morning, the dollar selling was a short-lived event for Friday only… The euro (EUR) immediately traded to 1.34 this morning, but has been falling since I came in and has lost 1.5 cents during this time. I understand the “too far- too fast” trading, but this looks like more than that right now… I’ll keep an eye on this as I talk further to you this morning.
Well… Remember last month, when the quantitative easing (QE) was announced at $600 billion? I told you then that I didn’t believe that $600 was all the “Bernank” was going to spend, print and fold…. Well, Big Ben Bernanke told a crowd of reporters on Friday, that the “economy is barely expanding at a sustainable pace and it’s possible the Fed may expand bond purchases beyond $600 billion.” Then last night on 60 minutes, He went on to say that, “We’re not very far from the level where the economy is not self-sustaining, it’s very close to the border.”
So, with Big Ben spouting that kind of stuff about the economy, and the possibility of more QE, I’m surprised at the dollar buying this morning. I guess it’s a bond-buying thing, as yields on Treasuries have dropped from Friday morning’s levels.
I guess over the weekend the so-called “analysts” thought it over and decided that even though on Thursday they thought European Central Bank President, Trichet, had calmed the markets, that he really hadn’t! And that has the euro on the run this morning. And then the divisions that are forming from different members of the Eurozone doesn’t help the euro one iota… It seems that some members want the bailout fund expanded, while the Big Dogs (Germany and France) do not…
The euro also is seeing some selling this morning, on a comment that German Chancellor Angela Merkel uttered the other day about how she was disgusted with the process of getting her plan for debtor nations… Ms. Merkel warned for the first time that her country could abandon the euro if she fails in her contested campaign to establish a new regime for the single currency.
OK… I’m surprised that traders would get drawn into this political parlance… She was simply trying to tell people that if she didn’t get to bat soon, she was going to take her bat and ball and go home! Germany isn’t leaving the euro, folks… Why? Well… There are a number of reasons… But in the first place, it was their baby… And in the second, 50% of Germany’s exports are to Eurozone members that no longer have cross border currency problems, and delivery problems…
OK… So now that we know that Germany isn’t leaving the euro, hopefully Ms. Merkel will not feel the need to utter such things again! In fact, she was just quoted this morning as saying, “Europe needs the euro”…
The Reserve Bank of Australia (RBA) is due to make a rate announcement this afternoon… I am sure that the RBA will sit on rates at this point in the rate hike cycle… Their recent data has been soft… But like I keep saying… I do expect the RBA to return to the rate hike table in the first quarter of 2011…
Bank of Canada (BOC) will also meet to discuss rates tomorrow, and there will be no change here either… And while I’m at it… No rate decisions – other than to keep them unchanged – will be made by the ECB and the Reserve Bank of New Zealand this week…
Of the four central bank meetings this week, I would have to say that the only one to have half a-chance to hike rates is the BOC… Their data has been mixed, so it all depends on what Central Bank Governor Mark Carney wants to focus on…
And with all these central banks sitting on their hands… Their respective currencies will probably see some weakness, as traders move on to the next “currency du jour”… But for us… It’s the tried and true blue bloods that make the hit parade of currencies to own… What? You don’t know what’s on that list? Ahhh grasshopper, that’s why I go out 20 times a year and speak! Come and listen and learn!
Speaking of which… The next time I go on the road is the first week of February for the Orlando Money Show… I get to stay home for two months! WOW! Of course, I would prefer to go to someplace warm in January for sure!
So… Getting back to the euro… the single unit has to feel as though it continues to get “piled on”… In football that draws a penalty flag, but there’s no referee in currencies… And so the debt problems of the periphery countries of the Eurozone, the bickering going back and forth between member nations, and calls for the collapse of the euro all pile on the single unit… And that’s not going to change any time soon… So batten down the hatches, folks, and ride this one out…
Well… The man that has tried everything under the sun and moon to keep the Brazilian real (BRL) from strengthening – Brazilian Central Bank (BCB) President, Meirelles – is retiring this week… He’ll have one more chance to raise rates and then leave, knowing that the rate hike will shine a light on the real once again… But, he’ll be gone… I doubt he’ll do that, though… He’s a “company man” and will leave those decisions to the next BCB president.
I have to say that while the real has bounced back and forth all year, it still has put in a “better than the average bear” performance this year… The overall return in real is about 10% (currency performance and interest rate received)…
The best performing currency this year, in the overall return bracket is… Drum roll please… The Aussie dollar (AUD), barely beating out the Japanese yen (JPY)… (Aussie gets the benefit of having a nice yield/interest rate, while Japan just has currency return)…
The data cupboard is pretty thin this week, with the trade and monthly budget deficits to report, later this week.
Then there was this… Well… The US Debt Commission called their report the “moment of truth”… Unfortunately, the Commission couldn’t even get enough votes from its own members to push it on to Congress… The Big Boss, Frank Trotter and I were discussing the Debt Commission’s findings the other day, and agreed that it was a good starting point, but needed to be more robust or else the US will just kick the can down the road even further, and at some point in the future, the walls of debt come crashing down on us… Our town’s David Nicklaus from the St. Louis Post Dispatch, had this to say about the failure of the Debt Commission to pass their report and send along to Congress…
If Republicans & Democrats would agree to pursue even a few of them, we could make a good start toward defusing the time bomb that is our national debt. Make no mistake, that time bomb is ticking. The Congressional Budget Office estimates that if we follow current policy, government debt will grow to 90% of gross domestic production in 2020, from 60% today. As the Deficit reduction panel correctly points out, the interest on that debt will eventually hamstring the government, leaving it unable to respond to future emergencies.
To recap… The Jobs Jamboree showed that only 39,000 new jobs were created in November, and not the 150,000 that the “experts” forecast. The dollar got sold on the news, like in the old days! But has turned around this morning as Eurozone members are voicing differences on how the deficits should be handled… This has caused a selling of the euro from the 1.3420 high we saw on Friday… Four central banks will meet this week, Australia, Canada, Eurozone, and New Zealand, and only Canada has a slight chance of a rate hike.
Chuck Butler
for The Daily Reckoning
Chuck Butler
Chuck Butler is President of EverBank® World Markets and the author of the popular Daily Pfennig newsletter, which is reposted here at The Daily Reckoning. With a career in investment services and currencies extending over 35 years, Mr. Butler oversees all aspects of customer service and the trading desk for EverBank World Markets. A respected analyst of the currency market, Mr. Butler has frequently made appearances or been quoted by the national media. These include the Wall Street Journal, US News and World Report, MarketWatch, USAToday, CNNfn, Bloomberg TV, CNBC, and the Chicago Tribune. Mr. Butler was previously the Chief International Bond Trader and Director of Risk Management for Mark Twain Bank, and has held significant positions in the investment industry since 1973.
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Thanks for the wonderful article it has really helped me. Another good post Chuck.