A Lost Decade for the United States?

Two things have happened in the past 24 hours that have moved the currencies and caused some very wild swings… So, let’s look at the “two things”, eh?

When I left you yesterday, the currencies had rallied back and were waiting for more data… The data that printed was not very good, led by the ADP Employment Report for June, which came in with a greater number of job losses than was forecast (-473K VS -395 forecast)… So, according to ADP the bleeding continues… Now we have to wait for the Jobs Jamboree that will print later this morning, to see what “games people play now, every night and every day now”…

So, the currencies moved a bit more with the data printing and showing continued rot on the vine… For instance, the ISM Manufacturing Index remained below 45, which is recessionary to me… But the real blow to the dollar yesterday came when G-8 Sources announced that CHINA HAS ASKED FOR G8 ITALY SUMMIT TO DISCUSS ISSUE OF NEW GLOBAL RESERVE CURRENCY…

You should have seen the dollar selling at that point! OUCH! The euro climbed to 1.4175, and took the rest of the currencies along for the rides! This was HUGE folks! There it was… On the G-8 Agenda!

However, seeing the damage that this announcement had done so quickly, the Chinese had to do something quick… And quick they were… China’s Vice Foreign Minister said he is “not aware of any plan to discuss alternative reserve currencies at next week’s G-8 meeting.” And the turn-around was on!

So, overnight, the dollar is firmer, and the euro has lost that 1.41 handle once again… These probes to the 1.41 handle are becoming more frequent, but with little staying power. So… There you have it… One item made the currencies soar… And the denial made them come back to earth, all within 24 hours… Jack Bauer would be proud!

While I’m talk about China, I was wondering if you all caught the interview on Fox (I didn’t, of course, it was pointed out to me by a reader!) where U.S. Rep. Mark Kirk, was interviewed and asked questions about his accompanying U.S. Treasury Sec. Geithner on his Magical Currency Tour last month to China… In a private discussion with Chinese officials, Kirk was told that the Chinese were extremely concerned about the likely near term decline in the dollar because of the “explosion” of government debt. And… As a reaction to this concern, the Chinese Gov. was creating a “fund” / reserve to buy oil… And another $80 Billion worth of Gold!

OK! And did you see Gold trade higher yesterday by $15? Well, it’s lost $8.50 of that gain overnight… Profit taking, and the denial by the Chinese has caused this sell-off…

The euro is also seeing some pressure this morning, as the European Central Bank (ECB) is meeting and most likely will have to admit that they will keep rates at ultra / record lows for some time to come, as the Eurozone remains in a recession.

As I explained on Monday this week, the Jobs Jamboree was moved to today, to avoid the markets being thinned out tomorrow. Apparently, the Bureau of Labor Statistics (BLS) wants everyone to see their work! HA! The “experts” believe that the Jobs losses will have increased in June, adding 20,000 lost jobs to May’s “BLS adjusted” number of -345,000… I would have to think that if this prints as forecast, that the “risk takers” will be happy enough, and continue adding risk assets like stocks, currencies, precious metals… Anything greater would probably put a lid on their propensity to spend on risk assets… For now, at least!

Oh… And one more thing on the job losses for June that will print this morning… If the “forecast” number of lost jobs prints… It would mean that the number of people working today, in 2009, would be about the same number of people that were working in May of 2000! Talk about a Lost Decade!  I wonder if the major media will pick up this fact? Now wouldn’t that be a big surprise to all those folks that were surveyed last week for Consumer Confidence? It surprised me to see that fact! The Lost Decade… Strange but true…

The strangeness of today though will be the fact that the Weekly Initial Jobless Claims will print, and probably show that over 600,000 jobs were lost last week, and unemployment claims were filed… So… How does the BLS come up with “only” 365,000 jobs lost for the month, when one week was 600,000? The games people play now… Every night and every day now… Never meaning what they say now… Never saying what they mean… And they wile away the hours… In their ivory towers… Till they’re covered up with flowers…In the back of a black limousine… – Joe South…

I’ve gone over the do goody-good bull of the BLS so many times in the past it makes my head spin, so I won’t go there again today… But, it makes no sense to me what-so-ever that the BLS still uses a stupid “survey” when they have the ADP and Weekly Claims at their disposal… I think I know why… But again, it just doesn’t make sense to me!

So… Keep an eye on the Jobs Jamboree for today…

Recall earlier this week I told you that Sweden’s Riksbank would meet on Thursday, and I said that: “With internal rates at just .50%, I guess they could cut, but what would be the point?” Well… The Riksbank surprised the markets this morning, and did cut 25 BPS bringing their internal rate to just 25 BPS or 1/4%… I would think that any good that Swedish krona buyers saw in the past 5 days, will be wiped out by this news, as the rate cut at this time has to signal “bad stuff” for the economy… The only thing left for the Riksbank now is to implement Quantitative Easing, which if they aren’t afraid to cut rates to 25 BPS, they certainly won’t have any “moral” problems with Quantitative Easing…

And like I said for the U.K., Switzerland, and U.S. when they announced their Quantitative Easing… “Hey, Japan’s been doing it for over a decade now, and look how well it’s worked for their economy!” I shake my head in disgust, that anyone with an ounce of brain power would go down the same road as Japan with regards to how they responded to their economic meltdown of the 90’s… But we have… Step for step… Beginning with the $150 Billion in stimulus checks… And moving on to larger sized measures from there…

I’ve told you all this before, but for new readers they might not know… That in the 90’s I was a currency and foreign bond trader… I watched the Japanese introduce stimulus after stimulus, and budget gadgets after budget gadget! And, like I said, look at how well it worked in their economy?  History may not repeat itself, but it rhymes according to Mark Twain… And what we’re doing with our economy rhymes with what Japan did in the 90’s…

Oh! I know, the rose colored glasses wearers will say, “but Chuck, we reacted “much earlier” in the recession than the Japanese did” Yes… We did, so, what does that mean? That instead of a greater than decade economic funk that we’ll experience something shorter in time? OH, so a 5 year economic funk is worth adding Trillions to our National Debt? I don’t think so…

With regards to the interest rate policy that adds to these woes… Janet Yellen, president of the Federal Reserve Bank of San Francisco, went further than other policymakers in assuring that the Fed is not likely to push its interest rate up in the near future. Ms. Yellen was speaking to reporters and said.” it is “not outside the realm of possibility” that the central bank will let the interest rate remain close to zero for several years.”

Oh great! Just go ahead and fuel that future inflation… And rack up the deficits… We can go on like this forever, right? NOT! There’s no way this can go on forever! And… If the markets were doing their job, it wouldn’t be going on now, without major pain in the yield on Treasuries and the value of the dollar! When out of the 29 largest nations in the world, the U.S. has the worst debt/GDP ratio, you’ve got to take a step back and say Whoa, there partner! Unfortunately, no one (except Ron Paul) in Washington D.C. is doing that… This is getting completely out of control, folks… Completely out of control!

The markets always do what the markets should… Just not always when they should… I learned that a long time ago, from my old, old boss, Ed Bonawitz, and I’m reminded of that all the time…

Like remember when I was calling for an end to the Carry Trade, and a Japanese yen rally, 2-3 years before it finally happened? The markets finally did what they were supposed to do, it just took 2-3 years!

Well… The euro has been in a steady downward move since I came in this morning. I turned on the screens and the single unit was trading just below 1.41… It’s now moved down to 1.4060… No biggie, but a steady downward move in the past two hours…

A long time reader sent me a note yesterday regarding yesterday’s Pfennig… “Uriah Heep, The Ventures, Soros, Rivlin, Sylvester, and Lucy!   All in one Pfennig” It caused Cranium Spin!

Yes, I was on a roll yesterday… I don’t think I was on quite the same roll today…

And while I don’t like to head into the Big Finish on a “down note”, I’ll have to today, as it’s beginning to get late… The “down note” is from “down under” (get it?) Australia’s Trade Deficit widened in April to A$556 million ($448 million worth), as coal exports fell… This news caused a weakening in the A$ overnight… But remember, this is from April… And in April, China was just beginning to show signs of their stimulus working… I’ll bet a dollar to a Krispy Kreme that next month this number will be narrower and if not, then the following month we’ll see the narrowing… So, no need to be alarmed here, there’s nothing to see here, move along! It does provide cheaper levels of the A$ though!

And… I just noticed this, so I won’t end it on the A$ story… The price of Oil fell out of bed yesterday, moving from over $71 yesterday morning to $67.85 this morning… WOW!

The Daily Reckoning