Chuck Butler

The big stock sell off that I’ve warned about since last year, looks like it has finally arrived… Bringing with it my biggest fears that the link between all the risk assets, had not been broken completely, and this link has turned into a bloodletting on currencies and commodities.

OK… So I got that out of the way, front and center this morning! You know… Ever since I began writing about a big stock sell off, I told you that, should the link remain in place, and the currencies and commodities have adverse reactions, then we would come to the fork in the road. The people that bought currencies and commodities to keep up with their neighbors, in hopes of being able to brag about their returns at the next bar-b-que, will panic and sell, making the sell-off even worse. The people that bought these risk assets for the “right reason”, which was to diversify their investment portfolios, so that not all their investments were denominated in dollars, and to provide a hedge against further potential losses by the dollar, and to reduce their overall risk for their investment portfolio, will just batten down the hatches, hunker down, and ride this out… And… If anything, look to pick up more of these risk assets at cheaper levels as we go along.

So… I was at the booth here at the Orlando Money Show, and a fellow walked up to me and said, “Gold is down $45, what do you have to say about that?” I said, “WOW!” sounds like a bad day at Red Rock for gold, did you buy some at $45 cheaper than yesterday’s price?” He was stunned that I came back like that… For he was simply trying to rub it in my face!

What happened yesterday to cause this bloodletting in stocks, currencies and commodities? Well, it just so happens to be the Weekly Initial Jobless Claims that first scared the bejeebers out of the risk takers… The Weekly Initial Jobless Claims showed that layoffs – which every analyst (except me!) was thinking were getting better – were picking up in January, with last week’s total at 480,000! This total got people/investors thinking that the rose-colored glasses they had been wearing regarding the US economy had to be stripped off of them!

Now… Fundamentally speaking… Had the currencies and commodities gotten back to fundamentals, and broken that chain that existed in the risk assets with stocks since the collapse of Lehman Brothers, then yesterday’s data would have deep-sixed the dollar, and sent the currencies and commodities soaring higher… Instead we had this to deal with!

Did you see where the Bureau of Labor Statistics (BLS) announced yesterday that they would have to make a one-time adjustment to the labor statistics, subtracting 824,000 jobs from the totals that they had added last year in error? You know… The “ghost jobs” that I had labeled years ago… I’m sure that announcement had a lot to do with the bloodletting yesterday also!

All this, and today we’ll see the color of the January Jobs Jamboree! The Jobs Jamboree will print this morning, and is expected to show more job losses to follow up last month’s 85,000 job losses… Of course I showed you last month that the “somewhat real figure” was 144,000 job losses, but we won’t let that get in the way of the BLS cooking the books!

I was talking to some wonderful, intelligent people last night about the Jobs Jamboree, and explained that the markets were always too dippy about the “number of jobs created”, for those figures never told you if the jobs created were high paying jobs, or low paying jobs… How could you make a call for the economy without knowing that?

So… I always said that it mattered less about the jobs created, but more about the Average Hourly Earnings and the Average Hours Worked… This is the data that the market participants should be really taking their direction from!

Enough on these job figures for crying out loud, Chuck! Can’t you think of something else to write about? Why, yes, I do believe I can!

Well… It looks like the Swiss National Bank (SNB) took the weaker currency price for the Swiss franc (CHF), and decided to take a double barrel shot at the franc, by selling it (intervening) overnight…

Shame, shame on the SNB! Selling your own currency! I had just highlighted the franc as one of my fave currencies yesterday, only to read about this intervention by the SNB overnight! UGH! Well, I’m reminded of a saying that can be used here. I used to work with a guy in the brokerage house with whom I began my investment career, (Stifel Nicolaus) who would tell me all the time… “Hey, if you liked the stock at $50, you’re going to love it at $45!”…

The debt problems of the PIGS (Portugal, Italy, Greece and Spain) took another chunk out of the euro (EUR) overnight… Quite frankly, this is beginning to sound like a broken record… Look, Greece is but 2% of the European Union… What percent is California to the US? Well, I don’t really know, but what I do know is that California is the 8th largest economy in the world, so, it’s percentage piece to the US would be much higher than 2%!

European Central Bank President, Trichet, tried his best yesterday, to convince the markets that euro region should not be punished for Greece’s debt problems… And in my opinion, he’s right! But… The markets will do what the markets will do, no matter what central bankers say…

I’m really beginning to grow tired of this debt talk and the euro taking hits over and over again because of it…

Of course, as I told the crowd yesterday in my presentation… “Yes, the dollar can rally, and will rally from time to time; think of it as circuit breakers, to keep the dollar from going into a tailspin on the slippery slope down.”

OK… Enough on that too!

In Australia overnight, the Reserve Bank of Australia (RBA), who just the other day surprised the markets and left their interest rates unchanged, made upward revisions to both GDP and CPI, and maintained that their internal interest rate, which will continue higher in 2010 to 5%…

Even this rosy picture, couldn’t stop the selling… So… I have to think that this is all panic driven, and profit taking, and then more panic driven…

Then there was this… Yesterday, I saw that former Bank of America Chief, Ken Lewis was being sued by New York Attorney General Andrew Cuomo for defrauding investors and the government when buying Merrill Lynch… I think the gloves come off here, folks… Under oath, I think Lewis will point to Paulson and Bernanke and say they made him do it, and then those two will have to answer questions under oath… Ahhh… We finally get to the cheese that binds here, eh?

To recap… The currencies and commodities have not broken the chain to stocks and are getting hammered as the BIG stock sell off that I’ve feared since June of last year, appears to be taking place…finally. Increased job layoffs were the Keymaster here, and we will get further info on the labor picture when the January Jobs Jamboree numbers get printed today…

Chuck Butler

Chuck Butler is President of EverBank

  • Jamison Banks

    “To recap… The currencies and commodities have not broken the chain to stocks and are getting hammered as the BIG stock sell off that I’ve feared since June of last year, appears to be taking place…finally. ”

    So . . . when do you expect currencies and commodities to ‘break the chain’?

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