A Jobs Jamboree Friday

And now… today’s Penning for your thoughts…

Good day, and a happy Friday to one and all!

Front and Center this morning: thoughts and prayers go out to the community, families and people in the Oregon college that saw a crazed gunman open fire and begin to kill and wound quite a few people. It’s so sad.

Well, it appears that the dollar has the conn today, there are a couple of currencies with gains, like the Canadian dollar/loonie, but the currencies with gains today are a rare sight. It appears that once again, Global Growth fears have driven investors to dollars. I always find this somewhat strange in that the U.S. contribution to the current problem, is usually a large portion of such problem, but yet, investors go to dollars.

In 2008 it was the same thing. The U.S. was the root cause of the financial meltdown, but investors bought dollars.  Well, anyway, it is what it is, right?  And. The dollar isn’t exactly kicking butt and taking names later this morning, it just seems to have the conn right now.

So, what was the “hit to Global Growth?” It was the rot on the vine of the two largest economies as witnessed in their PMI prints yesterday.  Recall that PMI is short for Purchasing Managers Index which is short for the Manufacturing Index. The U.S. changed their PMI to ISM a few years ago, but I still refer to it as PMI. I don’t know if you’ve been able to figure this out over the years, but I’m not good with “change”. HA!

Well, we had already talked about the Chinese PMI that printed before they headed out on a week-long National Holiday, and it has inched higher to 49.8 from 49.7, which was far better than the expectations, but in the end, the index number is still below 50. And for all you new to class, 50 is the line in the sand that’s used to separate a manufacturing sector that is either expanding (above 50) or contracting (below 50).

So, we can all get excited as school girls over teen sensation hunk, regarding how China’s PMI beat the expectations, but in the end, it was still below 50.

Speaking of 50. That’s about where the U.S. PMI printed yesterday. I’ve spent quite a bit of time recently regarding the chronicling of the fall of the U.S. PMI from 58 a year ago in August 2014, to the recent level of 51.1 in August 2015. Well, September, kept the trend of a falling PMI in place as the index number printed at 50.2.  Just barely above 50.

So, the fears here in the markets, is that this data will fall below 50 next month. So, you had the two largest economies in the world with one printing a contracting manufacturing sector, and the other printing and expanding one, but only by the skin of its teeth.  Global Growth took a hit.  And when that happens, the currencies run for cover.

Of course, gold should shine in times like this. But not in today’s environment, where paper trades dictate gold’s price. I’ve got some more to talk about with gold later in the letter today, but before I go on, I did want to mention that palladium is once again outperforming its brothers in arms, gold, silver and platinum.

Did you see the data yesterday for U.S. Vehicle Sales?  Well, it beat the expectations by a long shot! So, that explains palladium’s recent surge in price. In case you haven’t been paying attention in class as I’ve talked about this surge in price, palladium has seen its price rise from $572.25 on September 1, 2015, to $694.15 today. In one month, folks.

Some of you may be saying to yourself, that’s all good and that, but what about platinum? I thought platinum was also used in new cars?  Ahhh, grasshopper, you are so right, but there is a difference. Platinum is used to curb harmful gasses from cars, but particularly from diesel cars. And what’s been going on with diesel cars?  Ahem, have you heard of the scandal at VW?  So, right now, gas cars are more in demand than diesel cars, and thus the reason palladium is outperforming platinum.

Well, the price of oil is back to $45. I told you yesterday, that the price of oil has recently been in a tight trading range between $44 and $46.  I read last night that the price of oil hasn’t slipped below $44 since the start of September. You may recall that this price had fallen to as low as $37 in late Aurate hike,gust, but has since recovered and is now steady Eddie between $44 and 46.

I saw a quote from the great investment analyst and author of many books, Jim Rogers, who said that “when there’s bad news and something doesn’t decline, it usually means it’s at a bottom and will be turning.”  Then he went on to say, “Whether we’re at a turning point or not I don’t know yet, and I’m watching this very closely.”

For all you folks keeping score at home — U.S. inventories remain abundant, but the U.S.’s oil production has fallen 7 of the past 8 weeks. And to that news, Jim Rogers said:

Some companies are stopping drilling and production is actually going down in the U.S. right now. Shell is cancelling some drilling. All of these mean supplies will be going down in the future.

Well, I have to say that while I get a kick out of filling my gas tank without having to secure a co-signor, I also believe in my heart of hearts that the price of oil is too cheap given the costs to produce, and the costs to financialize the oil industry. And this cheap oil price is weighing heavily on the Fed’s wishes for higher inflation.

So, looky there! I made this far this morning without talking about the Jobs Jamboree that will take place here in the U.S. in a couple of hours now. And that has something to do with the dollar having the conn this morning, because Traders are really smitten by the Janet Yellen words last Friday, where she talked about how interest rates could go higher in 2015. So, these Jobs reports, even with them being trumped up with hedonic adjustments, are playing the part of “proof in the pudding” that the economy can handle a rate hike.

I’ve told you for a year now, that I just don’t get into the Jobs Jamboree any longer. It’s all smoke and mirrors folks, and if you want to be swayed by the smoke and mirrors, go right ahead, I won’t stop you, but you won’t see me falling for this hocus pocus.

I’m also not falling for the hocus pocus that’s being shoved in our faces by the Fed members all talking about rate hikes. How many times in the past decade alone have the Fed told us something that didn’t materialize, or just didn’t hold water?

I’m not attacking them here, I’m just pointing out that you can go back to before the Housing Meltdown and see that Ben Bernanke, then Fed Chairman, said things like:

We’ve never had a decline in house prices on a nationwide basis. So, what I think what is more likely is that house prices will slow, maybe stabilize, might slow consumption spending a bit. I don’t think it’s gonna drive the economy too far from its full employment path, though.

How’d that one work out?

If you ever have the time, simply look this stuff up on the internet. It will shock you how many times things like what I quoted above have been said, and yet the markets continue to come back to the well (the Fed) and take your words as the gospel. Look, everybody is wrong now and then. Shoot Rudy, I’m still wiping the egg off my face from the Treasury Bubble popping call I made several years ago. Or the thought that I had that interest rates would rise in the next 5 years. Sure they might eventually rise, but they’ll never return to the levels I thought they would in the next 5 years.

So, all I’m saying is that the markets are foolish, to put all their eggs in one basket. They should listen to several sources, and not just one.

Here’s where I am on the rate hikes: it’s written right here, for all to throw darts at in the future should it be wrong. Hey! I’ve been wrong before! I’m not going to let that stop me from telling you what I see going on here!

A year ago, when the Fed began this campaign to persuade the markets into thinking they would hike rates in 2015 not once but a couple of times, I might add, I told you that they were not going to hike rates in 2015, and if they did, it would be very small and they would go that only to save face with the markets.

Well, now I’m going out on the limb again here folks. Stay with me, for a minute. I still think what I said a year ago is correct, and now I’m thinking that we won’t see a rate hike in 2016 either!  As I’ve told you previously, I believe the U.S. economy will be returning to a recession very soon, and that means the Fed won’t be able to hike rates early in 2016, and once we get into the year, let me remind you that it will be an election year. Uh-oh!

Well, I really went ape over the thought of rate hikes this morning didn’t I?  See, what happens when you wind me up?

Oh, and before I go on here. The folks at Barclays send out a report once a week that tracks the U.S. GDP for the current quarter.  And this week, the 3rd QTR GDP is tracking 1.5%… That’s a HUGE drop from the 3.7% the U.S. claims economic growth printed in the 2nd QTR. Of course, the 3rd QTR just ended, and we’re into the 4th QTR now, if things begin to unravel as I expect they will the drop in the 3rd QTR GDP will just be the beginning.

So, it’s all about the Jobs Jamboree this morning folks. I’m not even on the trading desk, but I can feel it in the news stories that are showing up everywhere about how the Labor picture in the U.S. will give the Fed the needed fuel they require to hike rates. Hocus Pocus folks. There will also be other data prints this morning, but they’ll all get swept under the rug by the Jobs Jamboree folks. Data Prints like Factory Orders.

Hmmm… seems to me that this would be something the markets would take notice of, but I seem to think it will be thrown out with the bathwater. But look for Factory Orders to print negative. And then the rate hike campers can put that in their pipe and smoke it!

But remember, that the Labor Participation Rate, and the Avg. Hourly Earnings with the Avg. Weekly Hours are the more important pieces of the Labor prints today. Even if the markets don’t see it that way. They’ll eventually come around to my way of thinking. They usually do! HA!

I told you above that I had something to talk about regarding gold later in the letter, and here we are, later in the letter, so this had better be good, Chuck, because readers have waited and had to endure your ranting about rate hikes to get here! Uh-Oh, I sure hope the pre-billing didn’t over hype this piece.

But what we have here this morning are some snippets from a guy that I’ve quoted quite a bit over the years, David Kranzler. I first saw this on a note sent from the GATA folks, and it redirected me to David Kranzler’s company site that can be found here:

The king of high-frequency trading, Nanex’s Eric Hunsader, has been on a crusade lately to expose the problematic and illegal manipulative side of high-frequency/algo-driven trading. Nowhere is the manipulation of any market more blatant and in-your-face illegal than in the paper gold market.

Yesterday morning Hunsader tweeted out this, after the gold was taken down hard in the paper gold market: “I am amazed at how blatant a price manipulation algo is in gold futures this morning. Really affecting prices.”

Gold was smashed at exactly 8:20 a.m. ET when the gold pit at the Comex opened. The initial hit involved the dumping of 2,748 contracts, 274,800 ounces of paper gold, in the first minute of floor trading. The Comex is reporting only 162,221 ounces of “registered,” deliverable gold. Hmmm. … From 8-9 a.m.29,136 contracts traded, representing 2.9 million ounces of gold traded, most of it in the first 40 minutes after the floor trade.

Chuck again. yes, this is technical stuff, but shows you how the price of gold gets taken down by the paper trades. that have nothing to do with the supply and demand of physical gold.

And with that, I’ll get off this bus today, and send you on your way to a fantastico Friday!


Chuck Butler
for The Daily Reckoning

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