Aussie Job Creation Soars!

Good day… And a Tub Thumpin’ Thursday to you! I just realized yesterday that July was slip-slidin’ away from me just like June did, and I had better get to work on my two presentations for the Vancouver Show coming up in two weeks. 

OK… The currencies, for the most part, remain in a tight trading range… The euro pops up to 1.5750, and then falls back to 1.5665, and with the euro in a trading range the other currencies are experiencing the same treatment. That is, except for… Drum roll please… The Aussie dollar (AUD)!

Yesterday, I told you how the Aussie dollar’s recent economic data had softened and the thoughts that the Reserve Bank of Australia (RBA) would end their rate hike cycle. These thoughts had stopped the Aussie dollar’s potential rise to parity and put it on the back burner… But, not anymore! Here’s the skinny.

I’ve long talked about the job creation machine in Australia, right? Well, there were thoughts that the June employment numbers would soften like some of the recent economic data… WRONG! Aussie jobs gained 29.8K in June versus the forecast of 10K. This job creation machine is on a roll! OK… So now we look for the latest CPI (inflation) report that prints on July 23. If CPI remains high, the RBA might be pushed to raise rates at the August 5 meeting. It could be too soon, following the reports, but it could happen… And that thought is what has the Aussie dollar knocking on the 96-cent door this morning!

OK… RealtyTrac tells us this morning that foreclosures fell 3% in June from 56% to 53%. Hmmm… Seems to me that we should still be on Amber with regards to foreclosures… 53% is an astronomical number, don’t you think? And here’s some more bad data… Bank repossessions almost tripled from a year ago! UGH! RealtyTrac tells us that 1 in every 502 U.S. households were in some stage of foreclosure.

Oh… And the markets still believe the Fed is going to fight inflation with higher interest rates? I know you can’t say the markets are “wrong”… But I can say they are total dolts for taking the Fed’s bait, hook, line and sinker! Why, just yesterday I told you how Big Ben Bernanke is going to keep the Fed’s lending window open, and I surmise that this is simply because he “knows” the troubles the financial institutions are having out there. Just yesterday the ratings agency, Fitch, announced that they were placing Merrill Lynch on ratings watch negative… There are some major debt/credit problems out there dear readers… Remember last August? That’s when the you-know-what first hit the fan for mortgage debt… Could this August hold more of the same meltdowns?

A recent survey by Bloomberg shows that those surveyed believe the Fed is on hold until next year, as the economy will stall in the second half of this year. Folks… This just shows you how these surveys can get stale. The economy has already stalled! Richard Berner, co-head of global economics at Morgan Stanley, believes “the Perfect Storm returns” for the U.S. economy, as consumers are poised to pull back.

Again… If it weren’t for the stimulus checks, this economy would have circled the bowl a long time ago.

Last week, the Swedish Central Bank, Riksbank, raised interest rates 25 BPS… This was lost in the shuffle of the U.S. holiday, and all the stuff that happened on Thursday. Well, this morning, Sweden announced that the CPI had risen again to 3.2%, matching a 15-year high. Thus, we could see the Riksbank back at the rate hike table in the future. The Swedish krona (SEK) has had a very nice performance so far this year, as it is up slightly right now, but was up much more before last week’s sell off of the euro (EUR), which took the “little dogs” along for the ride. I would continue to look for Sweden to push the envelope versus the dollar, along with its kissin’ cousin Norway.

Speaking of Norway, their inflation rate pushed to a 6-year high at 2.4%… I would think Norway’s Central Bank, the Norges Bank, would also revisit the rate hike table this year… But, these two might be too closely aligned with the euro right now, and thus, as the euro goes, so go these two.

The Canadian dollar/loonie (CAD), pushed even higher yesterday, and is now knocking on the door to 99-cents… This is such a strange move by the loonie, in that it couldn’t buy a bid when gold was $935 and oil $145… But now that these two commodities have softened, the loonie catches a bid… Strange, but true.

U.K. pound sterling (GBP) has really seen the dark side of all the bright lights that shined on the currency about two weeks ago… Recall, that then, traders believed the Bank of England (BOE) would reverse their rate cut, and pound sterling traded at $2 again… Ever since then it has been in sell off mode, and last night was no different, as house prices keep tumbling. It was reported that U.K. house prices fell by 2.0% during June, and were down 6.1% in the last quarter. As I said the other day, the BOE has painted themselves into the same type of corner as their brothers-in-arms at the Fed. The BOE can’t raise rates to fight inflation, and they can’t drop them either as the economy teeters.

The European Central Bank (ECB) issued a statement overnight regarding the high price of oil and its affect on the Eurozone economy. Let’s listen in… “‘Although the high price of oil has had a negative direct impact on the euro area current account, it appears that increased demand from oil-exporting countries has had a mitigating effect.” OK, that’s central bank parlance for: the Eurozone has benefited significantly from rising demand from oil-producing countries in recent years, and this has partly offset the negative impact of rising oil prices on the Eurozone economy.

There are rumors going ’round that someone’s underground, and… Geez Louis, I don’t know what happens when I do that, my fingers just keep typing and voila a song appears! OK… Let’s try this again… There are rumors going around that there’s a new way to “bail out” a financial institution. It’s called “making an investment”, and this “investment” is made by the government/Fed. Oh Come on… How stupid do these markets guys think the public is? If the government/Fed makes the $75 billion infusion in Freddie and Fannie, it’s the same was bailing them out in my eyes!

And here’s their stage to present these “ideas”. Big Ben and U.S. Treasury Secretary Paulson address U.S. lawmakers today. The subject? Ahhh grasshopper, it just so happens they will address the lawmakers on “their” response to widening credit-market losses… (Like the ones at Freddie and Fannie).

Oh, and this also plays well with the recent rhetoric by Paulson claiming that the Fed needs wider ranging powers… Oh brother! We need Big Ben with more powers like we need a hole in our heads!

Currencies today 7/10/08: A$ .96, kiwi .7575, C$ .9885, euro 1.5710, sterling 1.9745, Swiss .9685, ISK 75.29, rand 7.69, krone 5.1325, SEK 6.01, forint 146.82, zloty 2.0820, koruna 14.9450, yen 107.20, baht 33.65, sing 1.3610, HKD 7.80, INR 43, China 6.8425, pesos 10.30, BRL 1.6080, dollar index 72.75, Oil $136.35, Silver $18.15, and Gold… $929.90

That’s it for today… Last week, the St. Louis EverBank group participated in a “pinewood derby” charity event. My trading group won first place trophies for the Best of Show (their car) and the Best Pit Crew. Here’s the skinny… Chris Gaffney headed up the group that made the car into an eerily accurate duplicate of the “deathmobile” from Animal House, and they made the Big Cake that the deathmobile drives out of! Then the pit crew all dressed in togas! They were a sight to see! I’m trying to get the web people to post some pictures of them and their car! Toga, Toga, Toga! This has been a long week so far for me, so I’m glad that it’s almost over, but first… Let’s get to tub thumpin’! Have a great day!

Chuck Butler
July 10, 2008

The Daily Reckoning