Commodities Sell Off as the Dollar Rally Continues

The commodities continue to be under the dollar’s pressure cooker these days. I have a long time friend that says he believes this commodities sell-off is stronger than I give it credit for… Hmmm… I didn’t see that coming! Sure, the commodities and commodity currencies ran fast against the dollar since June, and all for good reasons, given the FOMC’s willingness to bring inflation into the US economy, which to me would only mean that a technical correction is in store… But my friend, insists it will be more than that… So, there… You have been warned.

Quite frankly… A much cheaper gold price – especially now as we head into the Christmas season or whatever holiday season you observe – would be welcomed by yours truly, as there are more gold purchases in my future, and to get it much cheaper is like manna from heaven!

But does it all make sense, given what I mentioned above that the FOMC is looking for inflation to inject into our economy? No… But since when, going back to the financial meltdown, does anything the markets do make sense?

This morning, German Investor Confidence, as measured by the think tank ZEW, printed stronger than expected. This is the first positive print of German Investor Confidence in seven months! ZEW is a pretty interesting group of brainiacs, as they aim to project developments six months ahead… So… If they are bang on with their report, six months from now, Germany will be kicking up its heels!

The euro (EUR) attempted to rally on this data, and it did … Albeit briefly… The dollar is swinging a mighty strong hammer these days… Wasn’t it just a month ago, that I told you that I had not seen the negativity toward the dollar that bad? And look, one month later, the negativity toward the dollar is about washed under the bridge. Just shows to go you that short-term forecasts are not very dependable…

Ireland’s debt problems continue to weigh heavily on the euro, and the euro-alternatives, like Norway (NOK) and Sweden (SEK)… Again, this makes no sense, given the stronger fundamentals of these two countries versus the dollar, the euro, the yen (JPY), etc…

I looks as though the pledge to support Ireland that was made by several countries at last week’s G-20 meeting, is waning… Come on, boys! You promised! No reneging now!

Yesterday, the Aussie dollar (AUD) had a nice rally going, climbing back to 99-cents and beyond, but by the end of the day, the rally was thrown to the side of the road, and the car, driven by the US dollar, drove off! And then last night the Reserve Bank of Australia’s (RBA) minutes of their last meeting printed, and weren’t exactly “hawkish”… In fact one of the statements in the minutes were enough to drive a stake into the heart of the Aussie dollar… When discussing rate hikes, the RBA said, “a case could be made for waiting a little longer.”

Of course, those minutes were pre-RBA out-of-meeting rate hike… So, I guess that “case” didn’t hold any water! But… That was then, and now that the Aussie dollar is under pressure, the markets are focusing on “little longer” statement… UGH!

Shoot Rudy, even the Japanese yen isn’t participating in this dollar rally. The yen is back to an 83 handle, and looking like it will fall even more versus the dollar…

Yesterday, here in the US, retail sales for October were very strong… Very strong indeed! Retail spending in the US rose for the fourth consecutive month in October, up 1.2% from September. The reading was well above the 0.7% gain expected by the market going into the report and is the biggest monthly increase since March. And like I told you yesterday… We’re Americans; we spend!

I found it interesting in the report though, that autos were a big part of the rise, along with the rising gas price… Are they giving cars away again? Inquiring minds need to know, because there’s a new car in my beautiful bride’s future…

Have you ever played the game Clue? We used to say that if you lost the game you were: Clueless! Well, sometimes I have to wonder how many games of Clue are being played and lost with our friends (NOT!) in the cartel? Here’s a good example of what I’m talking about… The Cartel’s new Vice-Chairman, Janet Yellen, told The Wall Street Journal that “Quantitative Easing is justified because of low inflation and a 9.6% rate of unemployment. It shouldn’t be considered as some sort of chapter in a currency war.”

Hmmm, maybe one day she could show us all just how printing money and introducing inflation to one’s economy isn’t detrimental to one’s currency… But the real trick would be to show how printing money corrects our 22% (not 9.6%, that the government likes to use), unemployment problem…

US Treasury yields continue to rise, with the 10-year rising another 7 basis points to 2.89%… And don’t think for a minute that these rising Treasury yields are catching the eyes of foreign investors who have been champing at the bit for better yields… And these rising yields are also responsible for the current dollar rally.

You know… These rising Treasury yields are puzzling to me given the FOMC’s announced $600 billion pending purchases of Treasuries… But then, maybe not… Think about it… What’s one of the things that can get bond yields rising? The selling of the bonds… Price goes down, yield goes up… So, maybe the FOMC’s QE announcement is scaring bond holders into selling… Maybe, you just never know, eh?

The data cupboard here in the US is chock full-o-data today, including my faves, Industrial Production and Capacity Utilization… We’ll also see the color of the October TIC’s data (net security purchases by foreigners). And rounding out the main data prints will be PPI for October (wholesale inflation) I think we’ll see PPI continue to edge upward. However, the Cartel members are not concerned with this PPI increase, for they do not believe that corporations have the ability to pass along price increases.

Like I said last week… these Corporations are dummies, or Clueless… The realized that with the recession they couldn’t raise prices, so they simply shrunk the items and sold them for the same price! Something I noticed last month when I picked up a prescription for a month’s supply of a medication I take… What used to cost $20 (with insurance) now costs $40 (same insurance)…

Then there was this… I was reading my friend John Mauldin’s newsletter the other day, and came across something that really illustrated the games people play with the labor numbers… Let’s listen in…

The seasonal bar which the payroll data must jump was (inexplicably and dramatically) lowered from prior Octobers.

Thus, in October 2009, the BLS set the bar at 870,000 jobs, similar to the 840,000 it anticipated in October 2008. This year, by contrast, it lowered the bar to 768,000. Mumbo, jumbo, payrolls presented “an upside surprise” of 100,000.

According to John Williams at Shadow Government Statistics, the BLS’s fiddling with the figures via what he calls “seasonal-factor games” actually created 200,000 phantom jobs last month. John cites such finagling as the reason his prediction of an October decline and a rise in the jobless rate was wrong. It also explains why seasonally adjusted payrolls were revised upward by 110,000 in September, including 56,000 in August.

And as Ty Keough reminded me yesterday, when I shared this info with the desk… “It was an election month, right?”

Yes, Ty, it was! So… now we have to see what “seasonal adjustments” the BLS can come up with next month!

To recap… The dollar rally continues to take no prisoners, with even the Japanese yen losing ground to the dollar. The commodities and commodity currencies are taking the brunt of the dollar strength, and there are thoughts that this commodity sell-off could go deeper… German Investor Confidence surprised to the upside for the first time in seven months, and the Fed Heads are playing a game of Clue again.

Chuck Butler
for The Daily Reckoning

The Daily Reckoning