Did the Jobless Rate Really Fall?

I’ll probably be all alone when I make this statement, but, then I don’t follow the trumpeter anyway… What a crock the Jobs report was last week! When will the major media figure this all out? Probably never, because they don’t have real investigative reporters any longer… But here’s what I’m talking about, folks… The Jobs Jamboree reported that 120,000 jobs were created in November… (The previous month was revised upward from 80,000 to 100,000) So… On the outside, things looked OK… But remember, it takes far more than 120,000 jobs each month to support a strong economy.

But then the thing that just creeps me out printed: the unemployment rate, which showed it had dropped from 9% to 8.6%… My local newspaper (shame on them) ran a headline in bold print that said, “Surge in hiring, pushes unemployment rate down”… What a crock! OK… Even if you weren’t someone that followed this stuff, wouldn’t you question that statement? How could 120,000 new jobs push the US unemployment rate down by 0.4%? Ahhh grasshoppers, here we go… Long ago, in a far away galaxy, the US changed the way they counted what they called “unemployed people”…

When people who have been unemployed for a long period of time, see their benefits run out, and simply give up looking for work, they are no longer counted as “unemployed”… Makes sense, right? NOT! So… The big chunk of the unemployment rate drop was a decline of 315,000 in the work force… Which means… The euphoria over the jobs report is a crock… I will admit, and am happy to say that jobs do seem to be trending in the right direction, but they are a long way from stimulating the economy… And… I will not sit idly by, twiddling my thumbs while the major media plays along with the government’s will to make us all feel good, so we go out and spend!

A quick look at Shadowstats.com tells me that John Williams continues to count those 315,000 people as unemployed, which means “the real unemployment rate” remains around 23%!

Well… As with the recent Jobs Jamborees, the appearance of a stronger jobs market pushed the dollar down on Friday… At first it was a swift move down, but then after profits were taken, the dollar settled back down, and was down on the day, but not by much.

There was little in the way of news coming from the Eurozone, so it was all quiet on the Western Front… The latest Eurozone Summit will take place this week on Friday, but there will be several smaller meetings taking place ahead of the summit. For instance, German Chancellor Angela Merkel, will meet with French President, Sarkozy, today… And then US Treasury Secretary Tim Geithner is going to arrive in Europe this week, and lend his expertise at dealing with debt… (Long time readers know all too well, that I was laughing inside when I typed that last line!)

I don’t think we’ll see a hoola-hoop idea come out of the Summit… But I do think we’ll see some hard line statements from the leaders of Germany and France, regarding the need for further Eurozone integration, and the need for tougher penalties for those who do not meet fiscal rules… If the Eurozone leaders can agree on tougher budget rules, I think the markets will feel a bit more comfortable with the euro. Sort of like pulling on a tight collared shirt…

Adding to more comfort with the euro (EUR) was news this morning that the Italian Cabinet approved an emergency package of austerity and growth measures yesterday. The measures call for an improvement in the budget by 30 billion euros…

And don’t forget what I told you last week about this week’s European Central Bank (ECB) meeting, in which I went out on the limb, and said that I thought new ECB President, Mario Draghi, would follow last month’s surprise rate cut, with another one, going back-to-back with rate cuts, thus erasing the two rate hikes in the past year. The way the markets have been trading on rate cuts these days, is to reward the currency of a country that cuts rates to promote growth…

I know, I know, that’s a really a strange way to think about a currency’s value after it has just been debased, but… That’s what’s going on these days. I’ve told you all about this before, and how it was similar to what went on in the early 2001 and 2002…

Speaking of rate cuts… The Reserve Bank of Australia (RBA) too will cut rates, with their latest rate cut being announced tonight. (Tuesday, for them). And I understand that the markets have already priced in this rate cut, or so I’m told… So… To illustrate what I’m talking about with the rate cuts and the currency rewarding… The Aussie dollar (AUD) is up by 1/4-cent this morning… And the rate cut is priced in… Now, something that could throw a spanner in the works here is a statement by the RBA that would sound very dovish… I think we’ll hear the RBA state that they are OK with rates here… (The RBA doesn’t meet again until February!)

One thing to keep in the back of your mind regarding Australia… They are only 1 of 14 countries that hold the top rating (AAA) from all three main credit rating agencies… Fitch was the last piece of the puzzle for Australia, when they raised Australia’s long-term foreign currency grade to AAA on November 29th…

One currency that isn’t gaining on the dollar in recent trading sessions is the Japanese yen (JPY)… I really was rough on the yen last week, but not without reason… So, if the Eurozone leaders can give the markets some room in their collars this week, the Japanese yen should continue to weaken versus the dollar, for the so-called safe haven trades would be reversed…

The Chinese renminbi (CNY) is also weaker versus the dollar today, which is strange to me, in that usually we see that — after a US visit to push the Chinese for more currency movement — a short period of time passes, where the Chinese would keep a lid on the renminbi just to show the US who’s boss, and then get back to allowing stronger moves, albeit small ones… So, I think enough time has passed…

I see where the Indian government has announced that they are going to take measures to protect the rupee (INR)… Hmmm… Isn’t that akin to saying that you’ll close the barn door, after the cows are already all over the fields? The rupee has lost more than 10% in the past three months! Where the heck were the government measures to protect the currency during that time? Now… You know me… I don’t want to see governments sticking their hands in the cookie jar, and intervening in the markets… Let their currency trade where the markets see value… So, what I’m talking about here is the Indian government saying that they will protect their currency now, after it has already lost 10% in the past three months!

OK… So, with the Federal Reserve stating that interest rates will remain near zero for some time, the ECB cutting rates, and the rest of the big countries of G-10 holding dovish statements, things don’t look good for people that are looking for yields… There is ONE G-10 country, though, that does maintain a tightening bias… Canada… I would look for The Bank of Canada (BOC) to be the only G-10 central bank to hike rates next year…

So… Let’s do the chalk board comparison here… Canada has a AAA rating… The US doesn’t… Canada has a tightening bias… The US doesn’t… Canada’s economy is driven by commodities… The US’s isn’t… Canada plans on balancing their budget within the next five years… The US isn’t even talking about it…

So… When you’re talking about safe havens, don’t Canadian dollars/loonies (CAD) seem to have more qualifications? Sure, the dollar is the reserve currency of the world, and the loonie isn’t, but we’re talking about dollar alternatives…

Speaking of safe havens… The Swiss franc (CHF) is seeing more weakness on thoughts that the Swiss National Bank (SNB) is about to take additional measures to weaken the currency… Not much of a safe haven when the central bank doesn’t see it that way!

Then there was this… Ahhh, you knew it would happen, right? Oh, I guess I should tell you what I’m talking about… OK… Remember all the hub-bub about the CFTC voting on the positions limits? Well… The CFTC (Commodities, Futures Trading Commission) did vote to limit positions 3-2 (not very convincing) but pushed off to the future the implementation of the rule… Now, you may recall me going into convulsions over the short positions in the precious metals markets that held by a few dealers that manipulate the markets…

Well… According to The Wall Street Journal this morning… “Two Wall Street trade groups — the Securities Industry and Financial Markets Association and the International Swaps and Derivatives Association — on Friday filed joint lawsuits against the Commodity Futures Trading Commission. The groups are seeking to throw out the rules creating new limits on traders’ speculative positions or for regulators to be forced to justify the necessity of the rules before they go into effect.”

Well… I guess when the US District Court for the District of Columbia (where the complaint was filed) meets… They’ll hear that even the CFTC didn’t wholeheartedly believe in the limits… But, I think if the people like you and me begin to send off letters for position limits, that maybe the District Court judge will see it our way!

To recap… The currencies are pretty range bound this morning, after running higher on Friday, after the Jobs Jamboree, which was a crock. The new and improved Eurozone Summit will take place this week, with several “side meetings” taking place before the summit, along with a guest appearance from US Treasury Secretary Tim Geithner. We have central bank meetings this week that will see two rate cuts… The ECB and The RBA will both follow their last rate cut with another one.

Chuck Butler
for The Daily Reckoning

The Daily Reckoning