Jobs Collapse!

Good day… A Marvelous Monday to you! Oh boy! Friday was a doozy! It all started from the abysmal Jobs report for August, and the dollar got creamed, along with stocks. Currencies and precious metals all had smiles on their faces for the day… Or in other words… They rallied like there was no tomorrow!

OK… Let’s first talk about the jobs report for August… For the first time since 2003, when the United States was in the midst of rate cuts, we lost jobs in August. Recall on Friday I said that the forecasters call for 100K jobs was going to be disappointed… Well, I would say that a -4K in jobs created is called disappointing!

And the rot on the vine was spread out all over… Manufacturing lost 46K jobs… Construction lost a ton, and even government jobs were lost! But, hey! The unemployment rate remained the same 4.6%. How that happens is beyond me… But the important thing to think about here is that the economy is headed for a ride on the slippery slope… I don’t care what Paulson, Bernanke or Jim Cramer have to say… This economy is on the slippery slope!

All the talking heads were out trying to spin this story so it didn’t seem so bad… But the markets knew… And then… Big Al Greenspan decided to throw his two cents worth into the ring. Big Al, as stated here once before when he attacked the deficit, seems to have left the “dark side” and come over to our side. Here’s Big Al…

“The behavior in what we are observing in the last seven weeks is identical in many respects to what we saw in 1998, what we saw in the stock-market crash of 1987.” He then went further to say this: “The expansion phase of the economy is quite different, and fear as a driver, which is going on today, is far more potent than euphoria.”

Ok… Big Al… But what else would we be feeling at this point other than fear?

At one point on Friday, the rumors were all around that the Fed was going to cut right here right now… My colleague, Chris, said that’s not going to happen… And he was right! But, there was this eerie feeling at that time that we could very well see a surprise cut. But it didn’t come… Talk about telling the markets that they are full of panic! That’s exactly what the Fed would have told the markets had they gone through with an out of meeting rate cut.

The Fed Heads have really backed themselves into an ugly corner… And they had better come out of it with both guns “a blazin'” on September 18th when they meet next. By this I mean the rate cut had better be something of significance… Say… 50 BPS! It’s absolutely amazing to me that these guys thought the housing meltdown had bottomed out, and the jobs market was strong. Remember, the past meeting minutes that I chopped up? Oh well, we just depend on these knuckleheads to guide us through, and provide price stability…

Oh, and here’s one for the Fed Heads and their “strong labor markets”. Countrywide is going to cut 10,000 to 12,000 jobs… But wait! Because Countrywide is the largest mortgage lender in the country, their job losses will carry over to other mortgage companies, and when it’s all said and done there could be 100,000 jobs lost in the mortgage industry according to Josh Rosner, managing director at the NY Investment Research firm Graham Fisher & Co.

It won’t just be felt in the mortgage industry either! As we saw in Friday’s Jobs Jamboree, construction workers lost a ton of jobs. And that will carry over to any industry that merely touches the mortgage industry.

In a Tale of Two Economies… Canada posted their jobs created report for August too on Friday, and they posted 23,300 jobs created! Now, before you send me emails making fun of 23,300 jobs created… Let’s remember this is Canada… They are NOT on the same scale as the United States, Eurozone, or even Japan. 23,300 jobs created is a great number for Canada!

So… Canada has hot commodities going for it… Strong economic growth… And a strong labor market… Sounds to me like it’s all good for Canada right now…

So the currencies had their way with the dollar on Friday… The euro (EUR) was up one cent on the day. And at one point in the day, was very, very close to 1.38 before running out of gas on the day… Even Japanese yen (JPY) got in on the fun with the dollar, and was very close to pushing through the 113 handle.

The precious metals of gold and silver weren’t laggards either! As I signed off on Friday, I told you that gold had climbed back above $700. Well, it didn’t give any of that move back on Friday, and in fact added to it as the day went along. For my friend John Mauldin’s view of this I turn to his weekly newsletter that I’ve highlighted here several times in the past. ( Here’s John…

“And quickly, speaking of gold, it is soaring. It closed at over $700 today, in partial reaction to the awful employment numbers, which was not good for the dollar. But there is another interesting story going on in the background, pointed out to me earlier this week by that South African gold maven Prieur du Plessis. He points out there is a massive build-up of call options in the October and December Comex gold contracts, similar to a period in November 2005 prior to the gold price surging by more than 50%. Smart money? Maybe. But the recent 6% move or so may not be all there is in the “barbarous relic.”

OK… Back to the currencies… It looks as though the Bank of England’s (BOE) pause for the cause with regard to rate hikes will have to be temporary, as PPI remained above 2% at 2.4%… Maybe, some will say that it’s falling and the BOE is off the hook here… But, in my mind, it just shows that their work is not finished. I look for pound sterling (GBP) to move higher still.

Japanese GDP was awful in the second quarter at -1.2%. You can hear the currency barkers saying… “Gentlemen, start your carry trades”! With this awful printing, you can forget about a Bank of Japan (BOJ) rate hike any time soon, and if borrowing costs remain low, the carry trade lives on.

So, if the carry trade is back on the board, then kiwi (NZD), krone (NOK), rand (ZAR) and other high yielding currencies will be back on the rally tracks. But for how long this time? Well… That all depends on the money, honey. Another credit crunch, and you just know there’s another one waiting to happen out there, and risk aversion will return to the markets and knock the stuffing out of the carry trade once more. Back and forth we go… Sort of like a teeter-totter…

The U.S. data cupboard doesn’t have a lot to offer us this week… The trade deficit tomorrow, and then nothing really until Friday… So, we won’t have data to provide us direction this week… Sometimes that’s not a good thing for the dollar, because investors have a chance to look closely at the rot on the vine.

And one last thing before I head to the Big Finish… Sweden’s Riksbank did indeed go ahead and raise rates on Friday… Good for them! They didn’t allow the ECB’s pause affect their decision! This is one of the reasons I’ve touted Sweden for two years now… A strong Central Bank! The krona (SEK) should continue to move in a positive direction versus the dollar.

Currencies today: A$ .8225, kiwi .6930, C$ .9475, euro 1.3790, sterling 2.0310, Swiss .8425, ISK 65.20, rand 7.2250, krone 5.7225, SEK 6.7930, forint 186, zloty 2.7610, koruna 24.4590, yen 113.60, baht 32.28, sing 1.5240, HKD 7.78, INR 40.64, China 7.5190, pesos 11.13, dollar index 79.98, Silver $12.75, and Gold… $712.90

That’s it for today… A good weekend for my beloved Missouri Tigers, but an awful weekend for the Cardinals, UGH! And the Rams didn’t fare too well either! I go to the cancer doctor today for a check up, I hope he likes what he sees! Little Delaney Grace came to visit yesterday, she sure likes sitting outside with the General! Time to hit the “send’ button, it’ll be busy at the office today and I’ve got to leave early to see the doc. So, have a Marvelous Monday, and wonderful week!

Chuck Butler — September 10, 2007

The Daily Reckoning