It's a Jobs Jamboree Friday

Good day, and a happy Friday to one and all!

Well the afterglow of the Yellen speech on Tuesday is still burning for the currencies this morning, even in the face of a Jobs Jamboree that will take place in a couple of hours. The Big Dog euro has found its way back to 1.14 this morning, and the Chinese renminbi saw another appreciation, albeit not as large as the previous two nights appreciations, in the fixing last night, marking the best week for the renminbi in a month of Sundays. 

Gold continues to lag the currencies in price, but as I will point out later in the letter, it’s not about the price of gold, folks. it’s about staying power, protection and a store of wealth. We’ve got to get beyond being so concerned about the price of gold currently, and set our sights on the future. What does it hold for us? And will gold help us then? Well, since it has “been there” for holders for more years than you and I can count, I would think it would be there in the future too.

It’s a new month, and quarter today. A fresh start on things, and a redo from the start of the year.  And after discussing the Shanghai G20 agreement with you all yesterday, I read many more reports talking about it, and I came away with an even stronger conviction that an agreement was reached in Shanghai to weaken the dollar, a la the Plaza Accord in 1985.

Look at it his way. Frank, Chuck and Chris, have all written and talked at conferences about how global economic growth has come from the emerging markets, as the Big economic engines of the U.S., Europe, and Japan have all faltered. The Fed rate hike and talk of more rate hikes had the dollar soaring, which was eventually going to shut down the Emerging Markets financially, and then where does any economic growth come from?  The G20 members had to do something or else the global economy goes into a depression.

It’s difficult to believe that a simple thing like weakening the dollar would keep the global economy from a depression, but that’s how I look at it. The Emerging Markets have the economic growth that the rest of the developed world needs, to shut it down would be like killing the goose that laid the golden eggs.  So, with it being a new month and quarter, we have a new trading pattern that has been taking place in the background but is now being brought out for all to see. Sell dollars seems to be the walking orders.. But not too quickly, not too harshly, they certainly don’t want investors to panic.

So, like I said above the currencies are still taking liberties with the dollar, but it all seems to be a controlled set of moves, which it probably is, given the U.S. doesn’t want the trap door to spring on the dollar. Some kicking it down the stairs is OK, but no springing of the trap door. This morning, the Eurozone printed their final report on PMI’s for February (manufacturing index) and it bumped higher to 51.6. Keeping its head above water, which is a good thing! And is helping the euro hold to 1.14 for now.

Well the U.S. isn’t the only country with a debt problem. In the U.K. I’ve talked about their debt for a long time, and even said that as long as the U.K. didn’t address their debt problem, the pound sterling would continue to lag other currencies. Yesterday, the U.K. printed their Current Account Deficit, and there’s something here I want to point out. The U.K. Current Account Deficit (CAD)  printed at 5.2% of GDP for 2015.  I was taught by wise man years ago who pointed out to me that when a country carries a CAD that reaches 4.5% of GDP, that country will experience a currency crisis.  Well, 5.2% is greater than 4.5% even using the new math that allows kids to kind of get the answer correct, so that would mean that the pound is due for a currency crisis. These things don’t happen overnight folks, so keep an eye out for this going forward.

And with the dollar taking a ride on the slippery slope these day, you won’t see pound weakness vs. the green/peachback, but what you will see is how the pound weakens against its non-dollar counterparts. The euro, franc, krone, krona, and so on. And in doing this, the other currencies will outperform pounds. So, just keep that in mind, going forward.

The Russian ruble saw a huge downward move overnight. As the Saudi King made an announcement that Saudi Arabia would not freeze their oil production unless Iran and others join them. And while the announcement didn’t hurt the price of oil, it sent shivers down the spines of the Russians who thought they had an agreement with the Saudis. If I were the Saudi King, I would be careful who you break deals with.

The Chinese printed their PMI’s last night too, and as I thought yesterday, they saw a bump up in the index number with the index rising to 49.7 from 48.3, the previous month! WOW! Now that’s a nice “bump up”. And kind of reinforces the strong appreciations that were bestowed on the renminbi at the fixings this week. There remains quite a few economists and analysts that believe that the Chinese economy is still going to collapse. I’m not one of those, and probably won’t change to one of those either!

Speaking of PMI’s, the U.S. Data Cupboard has the U.S. version of a PMI that they call the ISM that will also print today, but will be in the shadows of the Jobs Jamboree, that is unless something surprising prints. And given the forecasts I doubt surprises are in the cards today.  Some economists are thinking that the regionals have fared better in March, and therefore, the ISM could have its best month in over a year! I’m from Missouri, so you’re going to have to show me this data, but if it is the best month since August 2014, well, kudos to the manufacturing sector. I might remind everyone that the dollar began to fade after the G20 meeting Feb. 26-27, and therefore the weaker dollar would go a long way toward helping the manufacturing sector.

Well, here we are. April 1, 2016. It’s April Fool’s Day, and a Jobs Jamboree. No worries, I’ve grown up since Monday when I realized that these two things would coincide. But it’s still very funny, eh? The Jobs Jamboree, where the BLS (Bureau of Labor Statistics) takes a couple of SURVEYS and then mixes in their “adjustments” in an attempt to give us an idea of where the labor sector is each month. 

So, here’s the skinny on the Jobs Jamboree today. The experts have forecast a gain in jobs created of 205,000. Any sizeable number north or south of that forecast would move the dollar according. Longtime readers know that I’ve always contended that the number of jobs isn’t important, for we don’t always know exactly what kind of jobs they were. There is better reporting of this information these days, but the markets don’t read it, they simply go on the total number. No, it’s not right, but it’s what they do.

I’m a firm believer that there’s more to look at here, and it starts with the Avg. Hourly Earnings. One would think that given the strength of the labor markets, and forgetting about the types of jobs that have been the collector of those jobs, that it’s getting about the time that wage pressures begin to build. The Avg. Hourly Earnings annualized is only 2.2%, and until we see this number grow strongly, wage inflation will not happen, and nor will the Fed’s wish for higher inflation happen. The Avg. Weekly Hours Worked is also important, as is the Labor Force Participation rate. These are the things the markets SHOULD focus on, but it’s just easier to look at some trumped up BLS number and make an opinion to trade one way or the other.

Gold is flat this morning, after gaining nearly $8 ($7.90) yesterday. I talked about the price of gold above, so I’m going to get into the other thing I mentioned on gold that I had for you today. I received my latest Things That Make You Go Hmmm, from the great mind and writer, Grant Williams on Sunday, and it’s taken me a few days to get through it, with family and such here. And when I got to the part that he goes through inflation and gold, I had to really slow down to take it all in. 

In his letter, he explained that in 1934, you could have a $100,000 physical folding bill in your pocket. The caveat of the $100,000 bill, was that it was backed by gold, which meant that you could exchange it, if you wanted to, for $100,000 worth of gold coins, that at that time had a mandated price of $20.67, would be worth 4,837.93 in Gold 1oz coins. So, here’s where it gets interesting; $100,000 in 1934 dollars would be worth $1,769,485.07, thanks to the inflation of past and present Fed members. But those 4,837.93 gold 1oz. coins would be worth $5,902,273.83 today. OMG! Now are there any other questions about holding gold?

Well, I saw a headline news story titled: Russia Has Acquired a Taste For Gold. And I just had to stop what I was doing and read it. Nothing new here to you and me, but, maybe you’ll see that more people are waking up to smell the coffee. So, here’s the link to the article on Moneyweek.com, and here is the snippet:   

Yesterday, a fund manager friend sent me a chart containing a conundrum. It has two lines. One shows the gold price over the last two years, and the other the CRB metals index. The CRB is down by 30%. The gold price has fallen by a third of that. He asked me why I thought that was. The answer might be partly the same as it usually is when gold moves separately to other metals, I thought. It has safe-haven characteristics, and so when markets are volatile, investors (such as those on the MoneyWeek staff!) buy.

Look more closely, said my friend. It isn’t private or institutional investors buying. It is Russia. Russia’s total reserves in US dollars have fallen recently (as you’d expect given the oil price collapse), but its holdings of gold are up by 30% since 2014. Russia now holds as many ounces of gold as the gold exchange-traded funds (ETFs) do. In June alone, it added 800,000 ounces – the equivalent of some 12% of global annual gold mine production according to seekingalpha.com. That’s a lot of gold – and a buying speed that looks ambitious given the implosion in the oil price.

Why is Russia dumping its other reserves for gold? A quick answer might be that it felt it had to sell Treasuries in the face of Western sanctions last year – as South Africa did in the face of anti-apartheid sanctions. But that’s not enough of an answer – Russia bought gold in huge volumes before the threat of sanctions and has kept buying even as that threat has retreated.

Chuck again. I think the article missed a very important thought, and that is that Russia too, wants a seat at the table of countries owning large amounts of gold, that will decide the next financial system.

That’s it for today. Get ready to go out and have a fantastico Friday, and be good to yourself!

Regards,

Chuck Butler
for The Daily Pfennig

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