Jobs Jamboree Friday!

Good day… And a Happy Friday to one and all! A Fantastico Friday in my books, as we had a day without rain yesterday, and… Mr. Trichet did jawbone the euro (EUR) back to life, as I hoped he would do yesterday… After all that craziness from Big Ben this week, things sort-a got back to the awful fundamentals of the United States.

OK… Front and center this morning, I’ve got to tell you that European Central Bank (ECB) President Trichet set the record straight yesterday, and reminded the world’s traders that U.S. rates are low… But Eurozone rates could be going higher, and increasing the already wide interest rate differential that exists between the dollar and euro.

Trichet warned that inflation was high, and probably going higher, and then reminded everyone that the ECB’s mandate is to maintain price stability. There’s two ways to go about that… Turn the money supply spigot off, or raise rates. With the economy slowing in the Eurozone, he can keep the money supply spigot trickling as to not completely kill the economy, but raise rates. The ECB might not get around to raising rates in this cycle, but the threat to do so is there, and the markets have to take that seriously.

So… In taking that threat seriously, the markets sold dollars and bought euros for the first time in two days… And the euro’s rise was something to behold. The single unit sat at 1.5385 when Trichet began to talk… And soon afterward, it was well into the 1.55 handle!

It wasn’t all Trichet though… The Fed’s Vice Chairman, Kohn, had some very strong words about the lending landscape. Let’s go to the tape..

Kohn noted that bank loan quality would worsen and that bank write-downs would increase. He also expressed concern that loan losses might spread. Now before I go on, let me say that the “banks” he’s talking about are all those that participated in the mortgage “Ollie, Ollie Oxen Free” the past few years. Let me say also that EverBank did NOT participate in the subprime, fancy-free mortgage loan business. We stayed the course with our tried and true principals. Yes, we didn’t make as much money as the “other” guys the past couple of years, but then, we don’t have the losses to book now either!

Anyway… Kohn, sounded like he was a Pfennig reader. I just get a kick out of others that finally come around to my way of thinking that we may have averted a major meltdown, but the problems aren’t going away… And… We’ll have another “Bear Stearns” from all of this.

To follow up what Kohn had to say… First quarter mortgage delinquencies were reported by the Mortgage Bankers Association, showing a rise to 6.35%, a record high in data back to 1979. These delinquencies threaten the banking system folks… And on top of that the economy as a whole.

So… We saw a huge turn around in the currencies on our Thundering Thursday. If you had sailed around on the ocean and were gone for a week, and just came back, you would think that nothing had happened, except a stronger bias to sell dollars.

OK… Continental announced job cuts of 3,00 yesterday… And… A BIG homebuilder here in St. Louis, Taylor, Morley, Simon closed their doors! It’s a sign of the times… I saw a funny sign yesterday that was titled: “A sign of the times… Beer costs less than gas… Drink Beer, Don’t Drive!” That’s funny!

Under the heading “That’s NOT so Funny”, is the news that the SEC is going to investigate AIG on their accounting of subprime mortgage contracts. Here’s where my thoughts are headed on all of this. Recall about seven years ago, when one corporate scandal after another hit the news? I have the feeling that we’re heading right back to that awful time. It all just depends on how many rocks the investigators want to turn over.

Another Fed Head – Lacker – chimed in yesterday and struck a nerve. Let’s go to the tape here…

In a striking insider’s critique, Lacker said that lending programs the central bank has created to combat the credit crisis distort private markets, encourage risky behavior and could endanger the Fed’s independence. Federal Reserve Bank of Richmond President Jeffrey Lacker’s remarks show that some inside the Fed share concerns that outsiders have raised about the Fed’s actions – in particular its rescue of the investment bank Bear Stearns.

Whoa there partner! Those are some harsh words… But… It sounds like Lacker has become a Pfennig reader!

The weaker dollar yesterday sent oil prices climbing to the tune of $6 on the day! I looked at some stuff last night and saw that our friend, Jim Rogers, was speaking again, and said that the bull market in oil has “years to go”. I agree… The demand has amped! I know that some will point to the United States and say that there aren’t lines at gas stations, etc., but the slack in demand here is being taken up – more so by India and China..

Speaking of China… A former colleague from the old Mark Twain Bank brought a thought to my attention yesterday and that is… With the election period on its way, the guys with the bats that are always beating on China to allow greater appreciation with their currency, will be tied up, and focusing on getting re-elected rather than beating on China. Therefore, China gets a “get out of jail free card” and therefore, I suspect the appreciation to slow for the rest of this year.

The good news just keeps coming for Australia… After four consecutive months of seeing their trade deficit narrow, they had a blip in March. But April was back on track with a very strong $1.6 million positive shift… The deficit narrowed to $957 million in April, with the narrowing representing the largest positive shift in the balance since 2006.

The real key here for the Reserve Bank of Australia (RBA) is the fact that there was a 5.8% increase in exports, of which a large portion was coal. The value of coal rose 23% in April. That all spells more inflation and will eave the RBA with no other choice but to raise rates.

U.S. stocks got a boost yesterday from the Weekly Initial Jobless data, which showed that jobless claims fell from 375K to 357K last week… Jen was funny when she said, “Sounds like they just messed up the numbers.” HA! But seriously, when does it makes sense for the stock jockeys to come out and dance in the streets because jobless claims were still over 350K in a week?

So… Today is a Jobs Jamboree Friday. I bet you were wondering when I would get around to that, eh? I’m going to go on record here (with my conspiracy theories) and say that the Bureau of Labor Statistics (BLS) “got the call” this week to create ghost jobs like nobody’s business. With the economy teetering, the last thing it needs is to have an awful Job Creation month. Right now, the “experts” are forecasting a negative job creation month of -40K… You may recall that last month we had a negative -46K month, so there’s no way the powers that be can spread sunshine all over two consecutive negative months.

OK… So maybe I’m reaching here… But if it happens, and the BLS does create some ghost jobs to make the report look better, I’ll be letting everyone know that I knew they would! If they don’t, I won’t have to, because the outcome will be bad enough for the economy to swallow.

A reader sent me a note yesterday and said that I needed to check MSN’s Jim Jubak’s sources. I laughed… You see, the reader watched a snippet on MSN from Jim Jubak yesterday and he basically said the same stuff that was in the Pfennig about the Fed… But I doubt he reads the Pfennig. Jim Jubak has been a long time Fed basher and a pretty good source of logical reasoning… But in case you want to see what the reader was talking about… Check this out…

Currencies today 6/6/08: A$ .9575, kiwi .7665, C$ .9820, euro 1.5597, sterling 1.9550, Swiss .9625, ISK 75.90, rand 7.8260, krone 5.0925, SEK 5.98, forint 157.25, zloty 2.1680, koruna 15.78, yen 106.10, baht 33.10, sing 1.3640, HKD 7.81, INR 42.77, China 6.9231, pesos 10.30, BRL 1.6260, dollar index 73.12, Oil $129.88, Silver $17.30, and Gold… $887.65

That’s it for today… Well, folks… It’s the one year anniversary of the worst day of my life… The day my good friend and doctor called me on the phone and told me that I had cancer. It would be a week before I could actually talk to you about it… A lot has happened in the last year… The most important thing is that I’m still here, which I was determined would happen when I was told the news. The other important thing was what I found out about the people around me… And you, dear reader. The great doctors, and all those thoughts and prayers… I’m one lucky person, and I’m well aware of that!

OK… Before I get carried away here… Today is also the anniversary of “D-Day”. If the movie Saving Private Ryan is anywhere near the reality of that day, I can’t even imagine the sacrifice of those soldiers. Amazing… Let’s think about those people today…

And then, let’s make this a Fantastico Friday! Have a Nice Day!

Chuck Butler
June 6, 2008

The Daily Reckoning