Jobs Jamboree Disappoints!

Good day… Well, that was an interesting Super Bowl game, eh? First one to be played in the rain, and the rain sure had a lot to do with all the turnovers. Congratulations to the Colts and their fans!

I see Chris couldn’t keep the euro above 1.30 on Friday, so let’s all blame him! HAHAHAHA! Seriously though, this is beginning to look like the May through October 2006 trading pattern, which was nothing but BORING! The market participants are confused right now. The take two steps forward on the economy and the Fed’s direction, and then one step back, no one knows. For just when it looked like the economy was falling to its knees in December, it now looks like it has received a second wind. So, what will the Fed do? In December it was all over except for the crying regarding the thoughts of a rate cut. But now? Well, that’s a horse of a different color!

So… Home, home on the range… Where the dollar and euro/yen play. But the bias for the dollar is still weaker, and that’s all that counts!

Friday’s Jobs Jamboree sure didn’t work out the way the “strong economy campers” thought it would. While December’s total was revised upward to 206K, January’s total jobs created came in a paltry 111K, and the unemployment rate ticked up to 4.6%. Of course, you could get me started on how that unemployment rate is a cooked up and massaged number. Besides my problems with the birth/death model or what I refer to as “ghost jobs”, I just wish the Bureau of Labor Statistics (BLS) would do something about counting the “real” unemployed. I won’t go into that now, but I’ve talked about it before, and I always beat it to death in my presentations.

So, the labor market isn’t as strong as everyone thought, eh? I think that when all the dust settles on the labor market, we’ll see it generate moderate gains in 2007, which would certainly play well with slower growth as we move through 2007. The real meat however is in the Average Hourly Earnings… And here, the gain was only 0.2% versus 0.3% forecast, and the annual gain was 4%.

Now… If you compare the annual earnings gain of 4% versus the current inflation figure of 2.6%, you can see that wage earners are keeping their heads above water. But what if you compare the 4% versus the “real inflation” which I’ve been harping about lately, 10%? Uh-oh… No wonder the Savings Rate has gone negative in the United States! Think about that… I think you’ll need an oxygen tank and mask to survive when you’re that far under water!

But, still, the dollar rallied on Friday… Go figure! I guess dollar bulls got all lathered up when factory orders for December jumped to 2.4% doubling the previous month’s total. However, we did see the U. of Michigan Confidence weaken to 96.9 from the preliminary number in January of 98.

OK… The European Central Bank (ECB) and Bank of England (BOE) both meet this week and I expect a rate hike from the ECB, and if we see a follow up rate hike from the BOE, we’ll put those thoughts of the BOE’s rate cycle coming to an end to bed! The Reserve Bank of Australia (RBA) will also meet, but they’ve been stuck in the mud recently…and even though the fundamentals in the economy tell me that a rate hike should be made, I don’t think the RBA has the stomach for an 80-cent currency just right now.

I say 80-cent currency in regards to the Aussie dollar, which would most likely take out that figure if the RBA hikes rates.

The pound sterling certainly looks as though it has run out of steam on its run to “two”. And that may be… For now! There’s just too much economic activity going on in the United Kingdom right now for the BOE to sit too long after their surprise rate hike last month. I would still look for the pound to hit “two” and even surpass it in 2007.

I see that the U.S. Treasury’s Undersecretary, Adams submitted his resignation on Friday. I guess he couldn’t bear the thought of carrying on the farce of talking about a “strong dollar policy” while beating on the Chinese to allow their currency to rise versus the dollar, and longer!

G-7 ministers meet this week, and I’ve spent a ton of time talking about the European ministers wanting to have a long and meaningful conversation about the weak yen at this meeting. If they get their way, I would certainly think that yen has a strong reaction. If not, well a ride on the slippery slope down looks to be in the cards.

There’s not much in the U.S. data cupboard this week, most of the meaningful waves will come from Europe. We will see the ISM non-Manufacturing side today, which most of the time is a non-event… But then you never know!

Looks like gold and silver saw some profit taking on Friday after several days of strength. The dollar got some strength on Friday even though the data was not good, which played into the sell off too. So… To me, this certainly looks like a good place to get on the gold and silver bus. You can wait, but then you’ll miss this bus that has cheaper levels than what we saw last week!

Currencies today: A$ .7745, kiwi .6811, C$ .8435, euro 1.2935, Sterling 1.9575, Swiss .80, ISK 68.50, rand 7.2550, krone 6.2750, SEK 7.02, forint 196.70, zloty 2.9950, koruna 21.76, yen 120.70, baht 34.55, sing 1.5340, HKD 7.8080, INR 44.08, China 7.7619, pesos 10.95, dollar index 85.12, Silver $13.34, and Gold… $646.80

That’s it for today. I sure did have a great time this past weekend visiting my friend, Jay in Oklahoma City… NBA game on Friday night, Oklahoma Sooners game on Saturday night, and a visit to the race track yesterday before heading home in time to see the Super Bowl with friends and family! WHEW! I’m worn out! I didn’t get a chance to see all the commercials during the Super Bowl, but the Anheuser Busch commercials, with the crabs… And the spin-off of the “Hitcher” movie cracked me up! Have a great Monday and week!

Chuck Butler — February 05, 2007

The Daily Reckoning