Japanese Canaries in a US Economic Coal Mine

Yesterday I told you how the overnight markets were selling dollars, and the NY traders were buying them, causing these swings in the currencies. The trading ranges aren’t huge in any sense of the imagination, but, they do cross significant levels each time… For instance, the euro (EUR) has crossed back and forth through the 1.51 level four times this week, and the Swiss franc (CHF) has crossed back and forth through parity a few times this week.

Yesterday was no different than the trading theme we’ve seen this week… When I signed off yesterday morning, it was a “full on” risk day… But the NY traders saw differently, and took profits. In the overnight markets, the commodity currencies have rebounded.

The main event today is the Jobs Jamboree… The forecasters are pretty adamant that the job losses will show that they are dwindling… And the media will be all over that like a cheap suit… But what they will fail to see is the fact that there probably aren’t that many jobs left that can be cut! Not without the US having soup lines… So, it won’t be as if things are getting better as the media will try to shove down our throats… Instead it will be simply a rearranging of the deck chairs on the Titanic. We’ve gone from 600,000 job loss months to 125,000 job loss months… When did 125,000 job loss months bring about parades and confetti? Expect the jobless rate to remain at 10.2%, and that should tell you all you need to know.

If the trading theme remains in place that has sent the dollar to the woodshed whenever there is good data, because it tells traders and investors that the global recovery is on better terra firma, and that the paltry yields in the US should be thrown to the side of the road, and higher yields found in countries like Australia, Brazil, New Zealand, Norway, etc.

Wait, I started a thought there, and went off on a tangent… If the trading theme remains in place, and the Jobs Jamboree prints as expected, and the media begins throwing confetti, the dollar will end the week getting sold… But that all remains to be seen.

I told you yesterday that the markets were waiting for European Central Bank (ECB) President Trichet’s, statement following the rate announcement. It was thought that Trichet would keep rates unchanged and then announce that stimulus was being removed from the economy, Which, in essence is about the same as a rate hike, for it will slow the economy, just the same…

Well, Trichet did leave rates unchanged, and then went about discussing the end of the long-term emergency loans and tighten the terms of its final 12-month tender… Let me explain that… You see, the ECB had fixed the 12-month loan rate at 1%… But now the rate will go back to being tied to the ECB’s key interest rate… So… When rates do begin to rise in the Eurozone, the 12-month loan rate will rise too.

I think this is the groundwork for tighter rates in the Eurozone… But, as a prudent central banker would do… Trichet will take it one step at a time, and see what the affects of this move have on the economy, before the key interest rate gets moved upward. Providing price stability… Wouldn’t that be nice to have a central bank that provided price stability? I mean if a central bank isn’t going to provide price stability, what good are they?

I had better stop there, I get going on the Fed Reserve, and you never know what might come out of my head!

You know how I always chastise the US officials for blaming China for the global imbalances? Well, China has begun to fight back… They have in previous statements told the US to fix their own problems and leave China alone… But now, a Chinese newspaper ran an article that quoted Chinese officials claiming that the US dollar and not the renminbi (CNY) is to blame for the global imbalances, saying that sustained US dollar weakness was to a considerable extent, holding back the recovery, and policy adjustment of other countries.

WOW! That’s an arrow right to the heart of the problem, folks! But what else can the US do? They know all too well that the deficit spending requires a cheap dollar, so it provides a discount for foreign purchasers of Treasuries with those paltry yields!

When you spend what you don’t have, you have to finance the spending… I’m reminded of a book that’s titled: Debt is Slavery: and 9 Other Things I Wish My Dad Had Taught Me… A great quick read, and one that every young person should have to read!

But… The US government? Well, they’re Big Boys; they don’t need no stinkin’ book to tell them that spending what they don’t have causes problems!

Gold took a hit yesterday, falling about $10… But it remains above $1,200, so no wink and nod from me… Remember, the dips below $1,200 should be looked at as buying opportunities… Of course we could very well see a “correction” at any time, which could knock off 20% of gold’s price, but Shoot Rudy, you could get old, and gray waiting for that correction! But it will come one day… Will it come when the god gets to $1,300 or $1,400? Or will it come now? That’s the question you have to sort out for yourself… I can’t help you with that one!

Oh! By the way, I just came up with the $1,300 and $1,400 figures; I have no idea if gold is going that high. It should… But, that remains to be seen also!

Once again, a writer is pointing a finger in the wrong direction… The Wall Street Journal printed an article by a writer that claims the deficits in the Eurozone countries like Greece, Italy, and Belgium are dangerously close to causing the Eurozone recovery to fail… Yes… That’s true… But…

Ahem… Have you looked in your own backyard? How about the deficits in California? They ARE THE 8th LARGEST ECONOMY IN THE WORLD! But we have New York, Illinois, and others that are far bigger than Greece and Belgium for crying out loud! Why isn’t someone other than me, writing about this?

Big Ben Bernanke is groveling on Capital Hill this week, as he tries to show lawmakers that he did in fact “save the world” and that the “financial crisis would have been worse without the Fed”… I guess that’s to each person’s opinion… I know that I get letters slamming me whenever I say that if the Fed weren’t around we would have been in bad shape, which we were, but we would have reached a bottom and recovered without running our national debt to the brink of bankruptcy… But that’s OK… That’s my opinion, and in no way, shape, or form will you get me to change it, especially when you attack me for that position! I’m pretty stubborn… Ask my beautiful bride, who won’t admit it, but is even more stubborn then me!

Are you following the stories around the emails that the scientists sent back and forth to each other that basically rips the global warming idea apart? Pretty amazing stuff… And to think we’ve spent billions on this, and the President is going to Copenhagen to still discuss this what we now call “Climate Change”… They dropped the global warming title, because, well… Oh, never mind… The point I was trying to make is that once again, billions of taxpayer money was spent on this.

OK.. Back to the task at hand… For about seven years now, I’ve been telling you about how the US seems to be following Japan… I’ve told you about the stimulus and deficit spending that Japan instituted in the ’90s to get their economy “back on track”, with no positive results to date. The yield curve moves through time almost mirror each other between Japan and the US and so on…

This came from an article written by the famous Ambrose Evans-Pritchard… “Miners used to keep canaries in coal mines as an early warning device. If the air was so bad that it killed the canary, the miners would soon be next. Japan may be the canary for the out-of-control deficit spending policies now being pursued in the United States and the United Kingdom.”

Yes… That’s so true… And… I’ve been telling readers that for seven years!

To recap… The Jobs Jamboree holds all the cards today… If it plays out like I think it will, then the dollar will end the week getting sold. The commodity currencies have rebounded overnight from the US session selling yesterday. And China is turning the blame finger around to the US for the global imbalances.

The Daily Reckoning