Cinco de Mayo!

Good day… And a Happy Cinco de Mayo to one and all! We celebrated Quattro de Mayo yesterday at the Butler House… We finally got a chance to celebrate my good medical news, and just did Cinco de Mayo one day early!

Well… The Jobs Jamboree on Friday was interesting in that it wasn’t as bad as forecast, losing only 20K jobs in April… Folks… That’s still negative job growth, but that mattered none to the dollar bulls, who claimed that the storm clouds have been lifted and shouted for everyone to get back into the dollar pool!

But for everyone that still thinks this is a recession that we’re going through (and we can add former Fed Chairman, Big Al Greenspan to that list), there were some disturbing pieces of the Jobs Jamboree that the media failed to mention. Long time readers of this letter know that I’ve always tried to shy away from the media hype of the total jobs created drama. Instead I’ve always focused more on the Average Hours Worked, and Average Hourly Earnings for clues to the economy… And here is where the dollar bulls should have taken note.

Weakness in manufacturing is still quite evident as this sector lost 46K jobs, but more importantly, the hours in their workweek fell from 41.2 hours in March to 40.9 hours in April. The overall economy lost some time in their workweek too… And even more alarming is the fact that hourly gained only 0.1%, not the 0.3% forecast, and not even close to inflation.

OK… So… The idea here is that we still had a negative jobs growth number and the other pieces looked weak too. I would hope the markets would take a step back and see it for what it really is.

I think though, that with the unemployment rate falling to 5% (even though we all know that number is trumped up) the Fed is probably going to be on hold next month. But, that’s six weeks away, there’s a lot that could come up in that time… So more on that thought as we go along.

The European Central Bank (ECB) will meet this week, and once the markets turned the calendar and saw the ECB meeting they began to focus their attention to the fact that Eurozone interest rates have a wide positive interest rate differential to the dollar and, more importantly, will most likely remain that way, as the ECB will keep rates steady as she goes this Thursday.

Warren Buffett was in the news this weekend, and with all the stuff he had to say, I pulled out the stuff that means something to us… Let’s listen in…

Warren Buffett had this to say… “If I landed from Mars today with a billion Mars dollars, or whatever they call them on Mars, and I was thinking about where to put my money, I wouldn’t put it all in the U.S. currency.” He went on to say, “The U.S. is going to continue to follow policies that make the dollar weaker.”

OK… Now you’ve got some BIG NAMES, Jimmy Rogers and Warren Buffett on the Marquee lights, with the “also starring” list of names witch include yours truly all singing from the same song sheet.

Someone sent me a note this weekend, and asked a good question… With the carry trade back on the books and the low yielders getting sold again, the high yielders don’t seem to be getting the same love this time around. Does that mean the carry trade is buying something else these days?

Ahhh Grasshopper… Yes, it does… It means that the funds are going toward U.S. stocks… So, stock jockeys have that going for them… But as quickly as the carry trade was put on and pushed stocks higher, it can turn around like we saw in March, when the high yielders got sold. As I’ve gone on record as saying many times… I believe that a trade considered to be as “risky” as the carry trade is setting stocks and whatever assets are being bought at the time, for big losses. There are just too many “unknowns” in risk events out there to get too fat and sassy about the fortunes of U.S. assets.

Another Bear Stearns, and this turns on a dime… And don’t tell me “that won’t happen” I’m not saying it will… All I’m saying is the downside risk here should be the driver of this bus.

Unfortunately, “downside risk” isn’t helping the Japanese yen (JPY) or Swiss franc (CHF), as they get sold to finance the stock purchases. It’s gotten pretty ugly for these two in the past week.

OK… I’ve been a little worried about the Indian rupee (INR) lately, as it slowly lost ground to the dollar in the past month. I’m sure that a lot of that movement was driven by the weaker euro (EUR)… I’m also thinking that there was some intervention involved when the rupee was gaining nicely versus the dollar. That’s just a guess on my part, but it sure looks like and smells like intervention.

Bank of America put out a note to investors this weekend, which highlights their affection for the rupee. They point to the soaring inflation rate, which just printed at 7.57%, and believe the Central Bank will have to raise interest rates… Thus, pushing rupees higher versus the dollar. Hmmm… Sounds about right to me!

I have a long time friend in the bond business that sent me a note the other day regarding the Treasury’s announcement regarding bond auctions…

“The Treasury will be un-retiring the three-year auction and maybe the seven-year auction as a slowing economy requires more Federal borrowing.”

Hmmm… You know, the Fed’s statement the other day wasn’t exactly “sold on the economy”… And this note of needing more borrowing by the government, leads me to believe the Fed is just pulling straws, and that the Treasury is left to do the dirty work.

In other words… The Fed is well aware of the economy cards it holds… It’s just bluffing. I wonder when the markets will call the Fed’s bluff?

So… All the stimulus checks are “in the mail”… Or as I see it the $150 billion tax. I’ve gone on record here and in dozens of interviews regarding how I feel about this “stimulus package”, but, Ty Keough sent me a note last week that cracked me up. This is Dave Barry’s Take on Government Rebate Checks…

Q. What is an Economic Stimulus Payment?
A. It is money that the federal government will send to taxpayers.

Q. Where will the government get this money?
A. From taxpayers.

Q. So the government is giving me back my own money?
A. Only a smidgen.

Q. What is the purpose of this payment?
A. The plan is that you will use the money to purchase a high-definition TV set, thus stimulating the economy.

Q. But isn’t that stimulating the economy of China?
A. Shut up.

Currencies today Cinco de May A$ .9415, kiwi .7835, C$ .9825, euro 1.5480, sterling 1.97, Swiss .9485, ISK 76.50, rand 7.6070, krone 5.1250, SEK 6.0425, forint 163, zloty 2.2250, koruna 16.30, yen 105.10, baht 31.65, sing 1.36, HKD 7.7945, INR 40.60, China 6.9875, pesos 10.46, BRL 1.6490, dollar index 73.33, Oil $116.70, Silver $16.62, and Gold… $866.85

That’s it for today… Thanks to everyone for the notes on Friday. Yes, it was a great weight taken off my mind… Got to see a great game Friday night with my beloved Cardinals coming out on top. Great company at the game too! Two of three from the Cubs ain’t too shabby! My darling little granddaughter was at the house yesterday… What a CUTIE! I don’t think she knows what to think of me at this point; she tries to avoid me at all costs! But then why would she be any different from any other woman that I’ve ever known? HAHAHAHAHAHAHA…

So… It’s Cinco de Mayo today… Celebrate wisely. A few years ago I carried on about Cinco de Mayo, and told a story about when I was in Cancun and so on… One reader was very upset with this… So, every year since, I think about how upset this guy was with me… And say… Have a great Cinco de Mayo today!

Chuck Butler
May 5, 2008

The Daily Reckoning