A Jobs Jamboree Friday

Good day… And a Happy Friday to one and all! Let’s see if we can make it a Fantastico Friday, eh? It’s a Jobs Jamboree Friday to boot! It’s our friend, Luke Garzia’s last day here in St. Louis, as he moves to NY, and on top of all that… It’s a perfect mathematical day… 4/4/08… 4+4=8!

OK… I’ve spent a lot of time on the soapbox this week, it’s time for me to step down, and quit getting my blood pressure boiling! But with more dolts running around than you can shake a stick at, it’s like shooting fish in a barrel! It’s just too easy to start going off on them, and then the next thing you know, I’m on the soapbox, and ranting and yelling at the wall again!

But not today! It’s going to be a Fantastico Friday! Well… It sure looks as though the dollar’s mini-rally could be fading away. Today’s Jobs Jamboree shouldn’t help the dollar any… But we’ll have to see what the Bureau of Labor Statistics has up their sleeve!

So… Speaking of the Jobs Jamboree, the “experts” have the March total at a negative -50K… That sounds about right to me… Maybe more like -35K, but that’s splitting hairs, eh? However, the thing to keep in mind here is that the risks are to the downside for this number. Why do I say that? Well… There was something in the ADP employment report the other day that caught my attention, and that is the fact that NON-Manufacturing jobs (service jobs which had been strong throughout 2007) were weaker, and to me that suggests downside risk.

Yesterday, we saw the weekly jobless claims jump up and over 400K… To 407K. That’s the worst reading since September 17, 2005, which happened to be the week following Katrina. I would suspect that the Easter week had something to do with this number being so bad, but… The trend in jobs is bad… And getting worse.

Maybe… Just maybe, the markets will come to their senses and realize that their euphoria over the Fed bailout of Bear Stearns, has been overdone. The problems are not going away folks… In fact, in my opinion, they are getting worse and now they are spreading.

So… This is the next problem for the dollar to face… A jobs market that is drying faster than it takes my hair to dry after showering! HA! Since I don’t really have much hair, that’s pretty darn fast! And, I believe the bad labor market is going to bring the Fed back to the rate cut table at the end of this month.

Speaking of which, Big Ben Bernanke, or triple B as I like to call him, spoke yesterday and reminded the markets that he is “ready to respond to whatever situation evolves”. OK… Alone that statement doesn’t really say anything… You have to read the rest of his statement to pull out this ditty, “there is considerable stress in the markets”. Now, put those two statement together and a Fed watcher, like me, would deduce that there’s a 50 BPS cut coming. I’m a Fed watcher, I’m a Fed watcher, watching the Fed cut rates down low.

I saw another item yesterday that pretty much flew below the radar screens of the media… And that was Triple B telling those that would listen to him that the Fed is preparing at some point to take away the safety net for investment banks… In other words, closing the lending window that was previously only available to banks, that has been available to brokerage houses.

Triple B did not (of course he didn’t why would he be clear and to the point?!) make it clear when the Fed would consider doing this… But… In my opinion if it’s sooner, he could be opening Pandora’s Box of bad things to the markets.

So, like I said above, it looks like the dollar’s mini-rally may be running out of steam… The euro (EUR) marched higher all day long yesterday, and followed up with more marching in the overnight markets… Overdone is overdone… And it was fine time the markets woke up and smelled the smoke from their overdone turkey… The dollar rally!

The euro’s rise was stalled a bit this morning when German Factory Orders showed a 0.5% drop from the previous month. This is all due to the stronger euro, but they (the Germans) will adjust to this.

And, with the weaker dollar… We have stronger Gold and Silver prices… Funny how that works, eh? Just kidding… We all know it’s a “dollar thing”… But, Gold sure looks better with that $900 level in its rear view mirror!

Swiss inflation is really putting the pressure on the Swiss National Bank (SNB) to raise interest rates. Inflation in Switzerland accelerated faster than expected in March. In fact, it was the fastest monthly pace in 14 years! OK, get ready for this… Because from that introduction, you would think inflation was out of control here, right? Well… Inflation rose to 2.6%. Nonetheless, this is higher than the SNB’s target of 2%… So… Hopefully the SNB will not rely strictly on the stronger franc (CHF) to combat this rise in inflation. A rate hike in Switzerland could all but end the short selling in francs.

Why you ask? Ahhh grasshopper, sit… You, see… When a low yielding currency is used as the funding currency of the carry trade, it is sold “short”, and the proceeds are used to purchase a higher yielding currency. Since the “short” currency’s yields are low, the borrowing costs are low too… (When you sell short, someone has to lend it to you to sell, thus you are borrowing the currency)… But if the borrowing costs begin to rise, that causes the trade to lose… And who wants a “losing” trade?

So… Grasshopper… If Switzerland’s interest rates would go higher, their borrowing costs would go higher. This would cause the carry trades using Swiss francs as a funding currency to unwind, which means the “short” would get covered, and to cover a short… You BUY the currency! Thus driving the price of Swiss francs higher! YAHOO! That’s it… That’s all there is!

I know that for a lot of readers this is “old hat”… But a reader reminded me yesterday that there are new readers all the time!

So… I’ll head to the Big Finish, with the dollar on the run, and the markets holding their collective breath for the Jobs Jamboree data.

Currencies today 4/4/08: .9180, kiwi .7870, C$ .9950, euro 1.5735, sterling 2.00, Swiss .9920, ISK 74.30, rand 7.86, krone 5.08, SEK 5.9525, forint 163.85, zloty 2.21, koruna 15.93, yen 102.20, baht 31.67, sing 1.3830, HKD 7.79, INR 39.96, China 7.0175, pesos 10.55, BRL 1.7195, dollar index 71.99, Oil $104.74, Silver $17.46, and Gold… $906.90

That’s it for today… Yesterday, I said that Big Ben had said something that actually was Treasury Secretary Paulson’s words… So I apologize for that error. Well… The sun is supposed to come out tomorrow… (There’s a song here, but I’m not going there!) My poor little river town… And my little buddy’s baseball fields have been under water… But we carry on. I have to complete my tax work this weekend… I’ve done them, just need to put them all together… What a pain! Next Wednesday I head to St. Pete, Florida. I’m going to have dinner with my friend the Mogambo Guru… That’s a highlight for me! It’s Final Four weekend… Great stuff there! So… I hope you have a Fantastico Friday, and Wonderful Weekend!

Chuck Butler
April 4, 2008