Jobless Claims Rise Back to 400,000

The sweet sounds of risk taking have been playing the past few days, and unless the trap door gets sprung again today, the euro (EUR) will most likely end the week on the good foot, as James Brown would say… After a couple of weeks of euro bashing, the euro has quietly rallied… And it can all be pinned down to the idea I told you about the other day, regarding a rumor about recapitalizing European banks…

Apparently that wasn’t just a rumor, and the plan is gaining supporters… This was a plan that was hatched at the ECB by the president who was on the way out — Jean-Claude Trichet… Yes, he got slammed by quite a few people yesterday for keeping interest rates unchanged… But, he’s got a job to do, and that job is to follow the mandate handed down by the Maastricht Treaty… It’s all about price stability, and with inflation at 3%, his hands were tied.

So… The markets have treated that like water under the bridge… And it’s a risk on day… The markets really like this recapitalization plan… And they are rewarding the euro… And we all know what that means, right? That means the other currencies get to rally too!

We also had the Bank of England (BOE) re-implementing quantitative easing for their economy… I don’t know why, but the markets just love QE… The stock jockeys love it, and the dollar bears love it… So… We’ll finish the week with the markets in a good mood, because the BOE implemented more QE, and the ECB wants to recapitalize European Banks…

Now… In the “old days” these things would be very damaging for the associated currencies… But not today. Not since pre-2008, have we really had trading on fundamentals on terra firma. But hey! I’m not complaining about a return of risk takers…

Gold and silver found their legs yesterday about mid-morning, and rallied throughout the day. These metals are both flat this morning… I think metals traders are waiting on the Jobs Jamboree…

And that’s what we’re going to talk about next! The Jobs Jamboree! It’s here, it’s here! We’ve waited all week for this data, and it’s finally here! OK, Chuck, curb the enthusiasm! It’s too early in the morning to get all lathered up! OK… I promise to settle down. So, here are the facts that you’ll need to know going into the printing of the Jobs data this morning… The experts believe the overall gain in jobs for September will be a measly 55,000… Of course 55,000 is better than the previous month’s big fat zero jobs created! And the unemployment rate is expected to remain at 9.1%… Of course that’s the government’s figure… I prefer to use John Williams’ figure of around 23%… Now, that sounds more like it, eh?

Don’t know who John Williams is? Ahhh grasshopper, you must be very new to class! Go to ShadowStats.com and read about the way John Williams calculates government data… And then come back for more fun and games with the Pfennig!

OK… This is the part where I normally give my take on the experts’ forecast for jobs… I have to think that if the total is 55,000 it will have had to have gotten a HUGE boost from the birth/death model… Yes, the funny little games the Bureau of Labor Statistics (BLS) plays with the jobs data each month… For instance, last month’s total was 0, right? Well, the BLS added 87,000 jobs out of thin air to reach 0… The games people play now, every night and every day now, never meaning what they say now, never saying what they mean…

Did you see where the government’s mortgage companies, Fannie Mae and Freddie Mac, announced yesterday that 15- and 30-year mortgage rates had plunged to record lows? That’s interesting, isn’t it? Rates are at record lows, but housing is still searching for a bottom. No… Low rates are NOT what’s keeping people from buying houses, or remaining in them… Employment, or lack thereof, is the culprit… But the Fed Heads, minus 3 dissenters, don’t see it that way… They prefer to think that they can still direct the economy… Ahhh, if it were just that easy… But it isn’t!

And, the Weekly Initial Jobless Claims did get an upward revision yesterday… Recall I talked about this yesterday, saying that the first time claims fell below 400,000, but I expected an upward revision, which did come, but put the final number at 395,000… However, last week’s total rose to above 400,000 once again… Until we correct this, our economy has very little chance of recovering…

Well… Canada will also print their jobs report for September, this morning… While not on the same scale as the Jobs Jamboree here in the US, the Canadian jobs report is important to Canadian dollar/loonie (CAD) holders. Last month, Canada reported a strong jobs creation report for August, and I’m thinking, from what I’ve been researching, that Canada will follow up August’s strong report with another one for September. And news like that should boost the Canadian dollar/loonie.

That, and the fact that the price of oil has rebounded this week. After falling to a recent low of $75.67 on Tuesday, oil has rebounded to $82 this morning. So, the petrol currencies of: Canada, Norway, UK, Mexico, Russia and Brazil, all get the shackles removed from them, that were placed by a falling oil price the past two weeks…

Well… I’ve talked about this until I’ve been blue in the face this week… But… I carry on, despite my blue face! It looks like the US Senate is advancing the bill that intends to punish China for undervaluing the renminbi (CNY) to a vote next Tuesday… Again, I plead with the lawmakers to stop, and think about what they are doing here… Besides ticking off our financier… They are wasting our taxpayer money by talking about doing this at all! I explained yesterday that the World Trade Organization (WTO) will find the legislation to be unlawful… But… It looks like our esteemed lawmakers (NOT!) are going to go ahead and take this to a vote… Hopefully, it will die there, with a no vote… Hopefully!

Unintended consequences… We’re always dealing with unintended consequences… The China thing has a mess of them! But something that doesn’t have unintended consequences, something we all knew would happen when the Brazilian Central Bank cut interest rates… Inflation is soaring… The inflation rate was already above the ceiling target that the Brazilian Central Bank had placed, when they cut interest rates last month… I said it then, and I’ll say it now… They will be sorry they did that… They cut rates to stem the real’s (BRL) appreciation, although they said they cut them to promote growth, we all know why the rates were cut!

So… Inflation for September is expected to rise to 7.32%, from the previous print of 7.23% in August. Hmmm… Well… The Brazilian Central Bank and the government are on the tight wire, one side is ice, the other is fire… Good luck to them… Don’t fall! You cut rates for the wrong reason, and now, this just doesn’t feel right, does it? Is the altitude getting to you? I bet it is…

You would think that in a country like Brazil, where they once saw hyperinflation — and it’s not that long ago, really (1990) — they would be ultra-sensitive to inflation, like the Germans are… I bet the boys and girls at the Bundesbank (Germany’s Central Bank) had a good chuckle when they heard that Brazil had cut rates while their inflation was soaring…

OK… Chuck, talk about something else, I can tell your blood pressure is rising talking about the Brazilian mental giants in government and the central bank…

Well… The Aussie dollar (AUD) is closing in on 98-cents again, after falling to 95-cents earlier this week… The blow the rate cut campers received from the strong retail sales data that we talked about, and the Reserve Bank of Australia (RBA) statement that watered down rate cut talk, has really helped the Aussie dollar… But the real help came in the form of a recovering euro… Let’s not ever forget the Big Dog syndrome…

Then there was this… If you give a mouse a cookie… Lawmakers in Washington have figured out a way to pay for the president’s $447 billion jobs package… And that’s to add a 5.6% surtax on annual income of more than $1 million. But guess what? The president said that he’d still want other tax increases…

Now… I’ve been telling you, dear readers, and audiences that I address, for years now that our taxes were going to go up… Because when you get down to it… You can raise the revenue (taxes) and depreciate your currency to address long term budget deficits… And I’ve said over and an over and over again that we as a country will need both, higher taxes and a depreciated dollar to make ends meet in the future… Which is why I talk about the letter I wrote to little Delaney Grace, where I apologize to her for her lack of freedoms, and tax burdens that have been put before her generation because we failed to address them. I read that letter to the people in Vancouver a few years ago… I almost cried…

To recap… The plan to recapitalize European Banks is gaining support, and the markets like it, which is good for the euro, as it gets ready to post its best week’s performance in about a month! With the euro rallying, the other currencies follow. Gold and silver rallied yesterday, but are flat so far this morning. The Jobs Jamboree is today, and probably won’t give us a warm and fuzzy about the jobs market. And inflation is soaring in Brazil… Go figure… They cut rates when they shouldn’t have!

Chuck Butler
for The Daily Reckoning

The Daily Reckoning