110K Is NOT Enough!

Good day… And a Marvelous Monday to you! Well… I’m back to work today, but believe me when I say, I won’t overdue my time in the office. I still need my rest… And I really shouldn’t push things with the blood clot that I have in my operated leg. I’m on soooooo many blood thinners and shots in my stomach that I get worn out very easily!

Today is also a “soft” holiday… The U.S. Bond market is closed today to celebrate Columbus Day… Geez… Doesn’t anybody want to work these days? HA!

OK… Friday’s Jobs Jamboree wasn’t as negative as I believed it would be… The markets all hailed the 110K jobs created in September… They also got all lathered up about the upward revision to the negative 4K August print. It seems the Bureau of Labor Statistics (BLS) forgot to check the teachers that went back to work! WOW! What a screw up! But what else would you expect from the people that bring you the birth/death model?

So, the dollar rallied at first, because now all the knuckleheads believe the Fed won’t have to cut rates again… HEH, HEH, HEH! But let me tell you something now (and as Arnold says… You can hear me now and listen to me later… Although later may be too late!) But, even 110K jobs created isn’t enough to sustain a strong economy! Not even close! So, why did the media blow this all out of proportion? Because it’s a “feel good” story! I don’t see this report changing what I’ve said about what the Fed is going to do one iota! That’s it, that’s all, there ain’t no more!

As the day went on, I think traders began to “see the light” and once again began to let the air out of the dollar’s mini-rally. But that was Friday… In the overnight markets we’ve seen the dollar come back again… This time it’s all about the pre-G-7 meeting for the Eurozone, which began overnight in Brussels. This is really dumb. Traders are thinking that the Eurozone ministers are going to complain about the strength of the euro (EUR).

When will they ever learn? When will they ev….er… Learn? This is what the euro founding fathers created the euro for! To compete with the dollar as the world’s reserve currency, and to one day even replace it! They created it to remove the shocks of wide range currency conversions and to ease trade amongst themselves… Today, 80% of Eurozone trade is amongst themselves.

Can’t they see? Oh, can’t they see what that euro has done? It has done what they wanted it to do! So STOP YOUR… Hmmm, I can’t say that word… OK, let’s use “complaining”!

So… We went through a week of luke-warm if not weak data, and a technical correction in the dollar… What will this week have on the docket for us? Well… One thing I do know is this… We start the week in familiar waters with the commodity currencies. The loonie (CAD) is over parity, and that Aussie dollar (AUD) has hit 90-cents! WOW!

Speaking of the Aussie dollar, here’s a story that appeared on Bloomberg…

“Anyone who likes the Canadian dollar for its resource-rich and balanced-budget economy should be embracing the Australian dollar for the same reasons and the additional prospect of rising interest rates, according to the bond market’s biggest international investors.

“Even after the so-called Aussie reached a 23-year high against the U.S. dollar last week, investors say the rally is unstoppable amid record exports and unprecedented prices for coal and iron ore. The currency is getting an additional boost from the Reserve Bank of Australia, which shows no inclination to relax a monetary policy focused on curbing inflation.”

Sounds like the writer is a Pfennig reader, eh? But parity? That would be quite a stretch in my opinion… But I’m always very conservative.

I had a reader send me something that really opened my eyes… He jotted down some numbers given by a regional Fed Head… Here they are…

“78 million people (baby boomers’ first wave) retiring, and only 40 million next-generation kids entering the workforce, this year.

“Wouldn’t we then expect this situation to be reflected in some contraction in the ’employed citizens’ numbers over the next year?”

Yes… We should! But then again, the BLS might come up with some new report that makes up jobs out of thin air to make us “feel good”!

But seriously… We should be concerned about all this… The drag on Social Security… Medicare… The loss of tax receipts, and more…

OK… We’ll see the latest FOMC meeting minutes today and retail sales later this week among other data, like the stupid consumer confidence report. The Butler Household Index (BHI) says that retail sales should show a moderate pace of spending… Let’s say 0.3%… Not exactly what strong economies are made of… But, there will be some media outlet that drools over that number!

Ooh boy, I’m full of you know what and vinegar this morning! And it looks like it’s back to “Game On!” for carry trades. U.S. stocks are fueling the drive to take on risk again. The Japanese yen (JPY) is feeling the pressure of being the financing currency and all the selling involved in that.

I mentioned earlier that the Canadian loonie was back over parity to the dollar… The economy is strong as evidenced by a strong jobless rate… The jobless rate fell to 5.9% and the economy added a more-than-forecast 51,100 jobs in September. This news has traders believing the Bank of Canada (BOC) will refrain from following the Fed and cutting rates… I just don’t see how the BOC can even consider cutting rates with gold over $700 and oil over $80, and jobs being created at a stronger rate than forecast!

In Germany… I’m looking for a rebound in factory orders, after that awful showing in August, when they had the biggest drop in 16 years. A rebound will help the European Central Bank (ECB) with their stubbornness toward beginning a rate cut cycle.

Someone, last week, thought that Chris and I were singing from different song sheets when I wrote about the euro getting stronger and Chris was opining about the slowdown in the Eurozone economy… No… I agree that the Eurozone economy will slow down… But that doesn’t mean the euro will! Next stop for the euro 1.45… It may take a month or two to get there, but it certainly looks as though that’s where it’s headed.

And with the dollar mini-rally fizzling out… We should begin to see the price of gold start to pick up the pace again.

Recall about 10 days ago I wrote about a rumor that was going around that the brokerage that owns a bull was going to have to make a multi-billion dollar write-off because of mortgage losses? Well… On Friday it was confirmed. The write-down/off will be around $4 billion! OUCH! I think it’s safe to say that there will be some job losses here… And that’s sad… But then, the jobs were created because of all the mortgage business/subprime, that was being booked.

Speaking of mortgage industry layoffs… My fave newsletter, The Five-Minute Forecast had an interesting chart of mortgage industry layoffs on Friday. Let’s check in with Addison Wiggin and Ian Mathias and The Five…

“In September, mortgage lenders, construction companies and real estate firms fired a total of 27,169 people, according to the headhunter Challenger Gray & Christmas. In August, the number totaled 35,752.

“By comparison, the entire financial industry nixed 1,557 jobs in September 2006. ‘Even if the worst of the crisis is over,’ John Challenger, the firm’s CEO told the AP, ‘we could continue to see heavy job cuts in the financial sector through the end of the year.'”

By the way, Mr. Challenger… That’s a BIG “IF”!

So… Before I head to the Big Finish… It certainly looks as though the 1.40 level for euros was just too enticing for the bargain hunters! It’s just hard to keep a “truly inspiring currency” down!

Currencies today; A$ .90, kiwi .7650, C$ 1.1070, euro 1.4095, sterling 2.0380, Swiss .8455, ISK 60.85, rand 6.8360, krone 5.4275, SEK 6.5040, forint 177.20, zloty 2.6580, koruna 19.5275, yen 117.30, baht 31.40, sing 1.4720, HKD 7.76, INR 39.43, China 7.51, pesos 10.84, BRL 1.8030, dollar index 78.59, Oil $80.78, Silver $13.42, and Gold… $742.90

That’s it for today… WOW! What a game Saturday night! My beloved Missouri Tigers put on a show for a national TV audience. I had goosebumps watching them! And the smile on my little buddy’s face as he returned home yesterday after attending the game, said it all! Well… Gotta get ready for work… Sure hope this return to the office works out better than the first one! Thanks again to everyone that sent me notes, thoughts, prayers, and words of encouragement. They are all truly appreciated, and uplifting! OK… Let’s have a Marvelous Monday, and a Whirlwind Week, eh?

Chuck Butler
October 8, 2007

The Daily Reckoning