Jobs Data Sends Currencies and Gold Lower

Good day… And a Marvelous Monday to you! Congrats to the fans of the Big Blue, NY Giants, who are the Super Bowl Champions, after a very entertaining game. It’s very foggy out this morning here in St. Louis, reminds me of the time my beautiful bride and yours truly were driving home from Des Moines to St. Louis and a very dense fog was everywhere… Not wanting to stop, I cracked the car door open and kept an eye on the white line, which would keep me on the road… Thinking back now, that probably wasn’t a very safe thing to do, eh?

Well… Speaking of things that probably aren’t safe to do… Jumping on the government’s “strong data bandwagon” probably qualifies… But that’s not stopping the lemmings — or as my friend, Bill Bonner, calls these people the “sheeples” — from jumping on the bandwagon… That’s why I back off and say, “something smells strange here”… And so I begin to dig into the numbers…

Now, let me first tell you that the current government/administration isn’t the first one to cook the books in an election year, so, I’m not just picking on the current administration. I’ve always maintained that the books were cooked, and get extra burnt during an election year. Yes, wouldn’t you do the same thing? Get reelected is the call to order, and there’s no better way to do that, than to show the sheeples how much better they are today than four years or whenever ago…

You know this is all leading to the major story from Friday… The Jobs Jamboree… Where the Bureau of Labor Statistics, (BLS) told us that 243,000 net jobs were created in January, and that the Unemployment Rate fell to 8.3% from 8.5%… OK… Maybe, just maybe, the net jobs are close to being correct… The thing that the government doesn’t tell us is that the employment to population ratio isn’t keeping up with the unemployment rate.

And, the unemployment rate is a joke… I’ve gone over this so many times in the past, so, here’s the Reader’s Digest version of this explanation… As people give up looking for work, they are no longer counted as “unemployed”… Well… In January 1.2 million people dropped out of the labor force… Yes, that’s right, in one month, 1.2 million people dropped out of the labor force, so… The unemployment rate drops… And this will continue to occur the rest of this year, folks… So, now you know!

Look… I’m not saying this report wasn’t a good sign for jobs… All I’m saying is that we shouldn’t be holding any ticker-tape parades for the labor picture in this country…

So… Why am I all in a fuss about this, today? Well… To watch the reaction to the jobs data was like watching everyone rush out to buy a Milli-Vanilli record… Boy are they going to be really disappointed when they find out it was all a sham…

OK… So, on Friday, the sheeples ran to stocks, and bought them like they were funnel cakes at a state fair. Bonds got whacked, but that’s fine with me, because they should get whacked… But currencies, save for the true commodity currencies of Australia (AUD) and New Zealand (NZD), got whacked… But the real trip to the woodshed was for gold (& silver)… And that hasn’t stopped this morning, as gold has lost over $50 of its price since the Jobs Jamboree on Friday!

However, having blinders on right now is probably not a very safe thing to do… And stocks look pretty shaky when you consider that profit margins are circling the bowl, having suffered their biggest quarter-to-quarter drop in the 4th QTR of 2011, since the financial meltdown in 2008… I’m not a stock jockey, so I’ll just leave that at that…

The Aussie dollar pushed the envelope very close to $1.08 on Friday, and the New Zealand dollar/kiwi, traded through 0.83-cents… But, those lofty figures from Friday have been wiped out this morning. The Aussie dollar saw their latest retail spending data weaken, which is probably that last nail in the coffin as far as whether the Reserve Bank of Australia (RBA) will cut rates tomorrow or not… At this point, I would say, why not? Everyone else is cutting rates to promote growth, and it doesn’t hurt their currency…

OK… For new readers… I’m not into countries that debase their respective currencies… But, the markets have turned to a “promote growth at all costs” mentality… So we have to play along… Yes, the “plays along with others” is important in our grades!

I do believe that after this weak retail spending data in Australia, and the price action since, that the rate cut has now been priced in… So, sell on the rumor, buy on the fact is probably in play here.

Look how long I’ve gone this morning without a mention of the euro (EUR)! Not that I was saving the best for last! Another week has gone by without an agreement in Greece with private creditors… And now this past weekend, the Trokia (which is a slang term for the three organizations that have the most power in Greece. And consists of: The European Commission, The IMF, and the European Central Bank (ECB) saw their plans for new austerity measures in Greece rejected by Greek party leaders… So, this is all unraveling very quickly, folks… The Greeks can’t come to an agreement with private creditors, nor can they agree with the Trokia…

Things are pretty dire in Greece… And yet the euro remains above 1.30… Doesn’t that give you any indication of what the markets think of dollars right now? Not that it will always remain that way… Remember, when the year began, I told you that I wouldn’t be surprised to see the euro fall to 1.18, or rise to 1.40…

I would also remind you that I tell you all the time that when picking currencies to own, you want to find countries with sound fundamentals, good fiscal positions, something that the rest of the world wants, or has ties to China…

Friday, we also heard St. Louis, Fed Head, James Bullard, say that the Jobs Jamboree probably removes the need for additional quantitative easing (QE)… Of course he called it “bond buying” as QE is now a dirty word, in Fed Head circles…

OK… One of my chartist friends (whom I’ve talked about before), Scot Pluschau, sent me a note on Friday about how the volume indicators are screaming bearish in the Dollar Index… Here’s a snippet from his post:

“As for this week’s Commitments of Traders Report in the Dollar Index, the Commercials got to bang the register a little liquidating 9,703 short contracts that they were piling on near the highs. As of this report they are short 47,734 contracts and long 3,302, which is greater than a fourteen to one NET short position. This is still a very bearish structure of the COT report as far as I’m concerned.”

Then there was this… Did you see what David Stockman, the former Budget Director under Ronald Reagan, had to say last week regarding Big Ben Bernanke’s testimony before lawmakers? Well… Stockman was full of you-know-what and vinegar, when asked about Bernanke, and he let loose… Remember this is David Stockman talking, not me! (For the legal beagles.)

Bernanke giving politicians advice about fiscal stability is “about as useful as an arsonist’s lecture on fire prevention. His radical zero interest rate policy has destroyed the bond market, crushed the yield curve and eviscerated any resolve to address the deficit on Capitol Hill.”

He went on to say this about the debt… “Basically, they’re going to be facing down a $7 trillion decision and it’s going to hit [the] economy like a ton of bricks if you let the everything expire. And if you don’t you’re going to be borrowing $1 trillion a year and wondering how long Bernanke can keep printing the money. It’s a giant trap that’s been created.”

But when the government can cook the books and print a strong jobs report, everyone takes their eyes off the ball… We need to remain focused on the ball!

To recap… The Jobs Jamboree had the stock jockeys planning a ticker tape parade on Friday… 243,000 net jobs were created in January, with the Unemployment Rate falling to 8.3%… Chuck digs deeper into these numbers and shows that the ticker tape parade should be saved for the NY Giants! Looks like the RBA will cut rates tonight (tomorrow for them) but maybe the rate cut is already priced in. And Greece seems to be unraveling quickly here, folks…

Chuck Butler
for The Daily Reckoning

The Daily Reckoning