A Jobs Jamboree Friday!

Good day… And a Happy Friday to one and all! A Jobs Jamboree Friday to boot! This jobs report ought to be a doozy, given the fact that the experts have forecast a measly 100K jobs created in December, and the ADP report on Wednesday indicated that the job creation could be negative. Of course we know that the Bureau of Lies and Massaged Numbers, I mean, the Bureau of Labor Statistics won’t let a negative number enter into the picture!

A kind of nothing day in the currencies yesterday, although there was a bias to buy dollars; the trading range remained tight. The data yesterday didn’t give the markets any firm direction, as the ISM Services Index fell from the previous month’s number of 58.9, but remained in-line with the forecast of 57. The Weekly Initial Jobless claims jumped up to 329K from the previous week’s 319K. Factory Orders came in weaker than expected, and Pending Home Sales fell.

None of that seemed dollar friendly, but the moves were so small that given the fact that these are second tier economic reports, the markets shrugged them off. Today, however, is a top of the tier economic report for sure! I mean where else can you see if there will be future wage pressures? The average hourly earnings…and average weekly hours? I bet you thought I was going to talk about the jobs created, didn’t you?

The Japanese yen rallied overnight… One whole yen! A Japanese newspaper reported that they believe the Bank of Japan will raise rates this month… There’s also a thought going around that a rate hike could cause Japanese investors to close out their foreign holdings and buy yen. Hmmm… I can only wish that to be a fact, Jack! I think Japan’s economy has performed wonderfully the past two years… But there’s only so much that exports can do. The nascent signs of consumer spending picking up have faded away… And until the consumers spend some cash, Japan’s economy will do OK… But not great!

I think it all comes back to leadership… The new PM Abe, isn’t winning friends, and influencing enemies in Japan, and he needs to show that former PM Koizumi’s reforms can be added to, this might be the pill the Japanese consumer needs to kick start some spending.

Funny isn’t it that here I want the Japanese consumers to spend, and the U.S. consumer to stop spending and save? Well, these two are on opposite ends of the spending spectrum, and if they could meet in the middle, wouldn’t that be a grand?

Speaking of spending here in the United States, I was reading a report yesterday that was highlighted in Bill Bonner’s Daily Reckoning, and there was a classic line that falls in line with my story about the man jumping off the top of the Empire State Building. You know how I’m always laughing and throwing stones at the people that keep telling us the deficits don’t matter? Well… This report was all over the deficit like a cheap suit, and in talking about the deficit, the writer came up with this line…  Here it is… This is classic!

“Just like it’s not always easy to know exactly when a Chevy in a tailspin on an icy highway will make impact with the guardrail. But the fact of the matter is, when a situation is this much out of control, you know impact is guaranteed at some time… and better to be prepared now instead of waiting, when it could be too late to do a thing.”

That’s a great one! I have to see now if I can incorporate this into slides for my presentations… Luke? Jason? Anyone willing to take that project on?

OK… Think the euro isn’t the Big Dog like I’m always talking about? Well… Since Tuesday, the euro has lost ground to the dollar by three cents… And look around to currencies like sterling, the crowns of Sweden and Norway, Switzerland, Aussie and kiwi… All have given back chunks of gains versus the dollar. So, the question arises… Is this a new trend for the dollar? Or is it a dead cat bounce for the dollar? My money is on the latter of those scenarios!

Yesterday, I talked about Eurozone inflation, and how it had dipped below the European Central Bank’s (ECB) target of 2%, at 1.9%… There’s one thing to keep in mind here… This dip will be short-lived; given the fact that Germany instituted a 3% VAT (tax) beginning this month, and that will have an adverse affect on prices. Inflation in Germany, the Eurozone’s largest economy, will be back above 2%, and probably 2.2% by February… And that will be all the ECB needs to pull the trigger on another rate hike.

Commodities have experienced a rough go of it this week. The base metals, oil, and stuff have all been taken to the woodshed. A lot of this is tied to the strength of the dollar this week… So, again… Think about whether this is a new trend or a dead cat bounce.

Of course if fundamentals in the United States had changed in line with this move in the dollar this week, it just might be a new trend. But fundamentals haven’t changed. The Fed is still on tap to cut rates in the face of “real inflation” not the trumped up stuff the CPI report shows, and the deficits of both budget and current account, continue to be a big albatross around the United States’ neck.

Speaking of the Fed and cutting rates in 2007… Bill Gross of PIMCO (recall, I told you that PIMCO is the world’s largest bond fund), believes the Fed will cut rates to 4.25% THIS YEAR! The current rate in the United States is 5.25%. So, using new math, I calculate that to be 100 basis points… Or for those of you keeping score at home… 1%! That’s a huge move downward don’t you think? But then there are those that have been telling us for over six months now that the United States will enter into a recession in 2007. If we were listening then, we would have done things to protect our investments… But did we? Not gauging from the stock market’s performance… But never mind… It’s a Friday and I want to be in a good mood today!

I see that pound sterling has fallen to 1.94 from last week’s 1.98-ish level. Here’s another strange occurrence. The United Kingdom’s economy is still going strong enough to warrant at least two more rate hikes from the Bank of England, and sterling investors are selling? Give me a break! Your Momma don’t dance and your daddy don’t rock and roll! This just doesn’t make sense to me. So… If I’m right and the dollar’s move this week is nothing more than a dead cat bounce, then these current levels of sterling are bargain basement blue light specials!

Currencies today: A$ .7840, kiwi .6935, C$ .8490, euro 1.31, sterling 1.94, Swiss .8140, ISK 70.40, rand 7.1625, krone 6.33, SEK 6.9350, forint 194.20, zloty 2.96, koruna 21.13, yen 118.10, baht 35.80, sing 1.5350, HKD 7.7880, INR 44.31, China 7.8047, pesos 10.9050, dollar index 84.20, Silver $12.70, and Gold… $626.00

That’s it for today… I noticed gas has gone back up… But oil is falling in price. Hmmm… The NFL begins their playoffs tomorrow. Well… About a month from now, I’ll be heading to the Orlando Money Show… This show is huge! And it’s always nice to head south in the winter!  You can register by calling 800.970.4355. Make sure to mention EverBank and priority code 007506. Or, just go to the Money Show’s website http://moneyshow.com. I’ll be speaking on Thursday February 8, and Friday February 9. I’ll also be on a panel discussion on Saturday February 10. We’ll have a booth, with Chris Gaffney and Kristin Kuchem there to talk to you… So… Come to Florida in February! Have a great Friday and weekend.

Chuck Butler, January 05, 2007

The Daily Reckoning