Jobs Jamboree Friday

Good day… And a Happy Friday to one and all! It’s a Fantastico Friday for me, as I made it to work today! We have about eight inches of snow on the ground, and the worst part of the trip for me was the parking lot! They had pushed all the snow up against the walkway. It was piled three feet high. Now, how was I supposed to cross that? Ahhh… I flagged down the guy spreading salt, and had him clear me a path!

Yes, I’m back in the saddle this morning, writing from the desk, like I used to… That’s why it will go out a little later than usual this morning.

Well… More interesting data yesterday, caused some wild swings in the currencies… At one point in the morning, it looked as though the euro (EUR) would lose the 1.48 handle it had gained overnight… But then the single unit bounced… Then fell again… Then bounced again. Late in the afternoon all that falling and bouncing had ended, and the euro was pushing its way toward the 1.49 level again.

Yesterday, the data cupboard gave us some highs and lows. Personal income, for instance, rose more than personal spending… Now that’s something to cheer about… Yay!  But then the weekly initial jobless claims surged from 300K the previous week to 375K last week. Uh-Oh… Is the job loss scenario beginning? Hard to tell with just one report, and the fact that it was a holiday-shortened week. We’ll have a better idea today, when the Jobs Jamboree prints January’s report card.

As I said yesterday, I fully expect the report to show a very disappointing job creation number for January. Less than 100K… With the unemployment rate remaining at 5%. However, we’ll have to see what the Bureau of Labor Statistics has up its sleeve. Hey Rocky, wanna watch me pull a rabbit out of my hat? Nothing up my sleeve… That’s what the BLS reminds me of… A Rocky and Bullwinkle cartoon… Say Moose and Squirrel!

OK… Seriously… No wait, I was serious! OK then, try to act like a professional! HA!

I’ll tell what the media will pick up on with the Jobs Jamboree… Recall that December’s number was an awful 18K. So, let’s say January’s comes in at a paltry 75K… The media will say that job creation rose… And probably throw in a zinger of “at the fastest pace in months” sort of thing. They can’t be serious can they? We need at least 150K a month just to keep pace… But don’t let that get in the way of their “feel good” story!

The other major piece of data will print later this morning is the ISM (manufacturing) Index. Recall that in December, the ISM fell below the 50 level, which marks the line in the sand for whether we have contraction or expansion. I expect January’s to remain under 50. The Chicago manufacturing index yesterday fell more than expected, so January’s national index has a downside risk, eh?

This was the piece of data that pushed me to make the call that the recession train had left the station here in the United States… This and jobs, and insolvencies, etc. etc.

OK… I have to tell you that I’m really becoming a “risk aversion” thinker. In other words… I think “risk aversion” is slowly creeping into the markets, and soon it will overtake them. Why, I hear you asking? Because of the liquidity and credit problems in the United States. The Fed is trying its darndest to respond to the bad news, but soon, the Fed will run out of arrows in its quiver. Without an offset to the bad news, the risk assets like the carry trade will find that they are no longer on terra firma.

Yen (JPY) and Swiss (CHF) are at the head of class to benefit from such shaky ground for the carry trade. I believe this more now than I ever have! OK… You wanted serious! You got it!

On the other side of the coin… Currencies that have benefited from the carry trade (i.e. Iceland (ISK), South Africa (ZAR), Brazil (BRL), New Zealand (NZD), Australia (AUS), U.K. (GBP)… All have to wonder what’s in their future. Well… As I look out on the horizon, I think the countries that can assure the markets that they will maintain their rate differentials to the rest of the world (mostly the U.S.) will be able to counterbalance the “carry trade” label. Here, I’m talking about Aussie, and kiwi. But, that doesn’t mean they get to go Ollie, Ollie oxen in free!

The Swiss franc has a six-week winning streak on the board. Six straight weeks of gaining versus the dollar… Does that tell you that what I just said about risk aversion could be already in the cards?

Remember last week when I mentioned that with interest rates falling so low in the United States and expected (by me) to fall even further, the dollar could replace the yen as the funding currency of the carry trade? Well… My friend, Bill Bonner, wrote about this very thing yesterday… Let’s listen in…

“No one knows the future, but it doesn’t look like this bull market is going to stop very soon. Speculators can now borrow dollars at rates considerably below consumer price inflation…and then put them into gold, which is rising at 20% per year.”

Yes… Gold, which has risen from $260 eight years ago… And now sits at $920. Mr. Bonner – and his co-author of Financial Reckoning Day and Empire of Debt, Addison Wiggin – called gold the trade of the decade about eight years ago. Talk about calling a rising asset right! WOW!

One of the major Bond Insurers, FGIC, had their rating downgraded from AAA to AA. That’s like a slap on the wrist… There’s more rot on the vine here… And soon it will be exposed!

Our friends (NOT!) at OPEC decided to keep oil production at the current levels today. They turned their backs on President Bush’s request to increase oil production. These guys at OPEC may not be our best buddies, but they didn’t just fall off the turnip truck either! They know what the President wants… He wants the oil market flooded with oil to bring the price down… I don’t think that dog is gonna hunt folks!

I’ll make this note, and then head to the Big Finish… The euro, as I see on my trading screen, just touched 1.49! WOW! This move came right after a speech by German Finance Minister, Steinbrueck, who said “Europe’s biggest economy (Germany) is ‘robust’ enough to withstand an economic slowdown in the U.S. as companies have become more competitive and have ample credit.” He went on to say… “The economic situation in Europe ‘and especially in Germany’ is not comparable to that in the U.S.”

Well… We’ll see, won’t we? I tend to walk in the same circle as the Finance Minister, but Europe won’t get to skate through the U.S. recession. Let’s not go that far! But, withstand it… Yes… I’ll go there.

Currencies today: A$ .9015, kiwi .7920, C$ 1.003, euro 1.49, sterling 1.9915, Swiss .9275, ISK 64.20, rand 7.3775, krone 5.3880, SEK 6.35, forint 172.70, zloty 2.4140, koruna 17.40, yen 106.40, baht 31.16, sing 1.4140, HKD 7.7975, INR 39.36, China 7.1860, pesos 10.80, BRL 1.7525, dollar index 75.07, Oil $91.68, Silver $17.17, and Gold… $933.50

That’s it for today… I just heard that there are so many accidents on the roads this morning, that I could very well end up being the only one here today! Imagine that! That would be crazy! And fruitless for me to stay! It’s Super Bowl weekend! I personally don’t give a hoot who wins this year, and I do not like either team… But wouldn’t it be something if the Giants could pull off a win, and spoil New England’s unbeaten record? I doubt it happens… My little buddy was excited last night with the prospects of school closing today, and a snow outside! He’ll be outside probably all day… Of course if we told him he had to go outside and say, shovel the driveway, he would complain about the cold! But sledding and snowboarding here he comes! I hope you have a Fantastico Friday! And your Football Team wins on Super Sunday!

Chuck Butler
February 1, 2008

The Daily Reckoning