LCMI Drops for 4th Consecutive Month

And now… today’s Pfennig for your thoughts…

Good day, and a Tom terrific Tuesday to you!

Well, the dollar certainly seems to have righted the listing ship that was so evident a couple of weeks ago. Last Monday, the Dollar Index reached a low for the last 12 months, and since then, the dollar has rebounded. The bounce has been akin to a superball bounce! Is it a “dead cat bounce”? (no cats were hurt, it’s just a markets saying). Maybe, because if there was the so-called Shanghai Accord, it did not call for the dollar to return to its strong trend!

I believe it’s just one of those things that happens when an asset like the dollar, begins to fade within its strong trend. You have these rallies that look like the fading is over, and then something comes along and puts the asset right back on rocky terrain. So, I guess we have to now wait for that “something” to come along.

I say that, because I see all the signs that I saw in 2001, when I wrote the white paper, “The Decline of the dollar”. Not to be confused with the book that friend, Addison Wiggin, wrote (that I did the forward for!) few years later, titled: The Demise of the Dollar.

Well, the euro wasn’t able to hold 1.14 yesterday, and the news coming out of Greece was actually pretty good,  for their debt situation that is, not for the pensioners but then, they’ve had it pretty good for a long time now. So, let’s go through this…

Greek lawmakers passed pension and tax reforms on Monday. Yes, these are unpopular with the Greek citizens, but it’s what happens when you live high on the hog without funding for so long. I’m not knocking the Greek people, they took what the government was giving them. What I’m really trying to get across is that the government should have known better, but thought that debt didn’t matter, right? And now, as my mom used to say, they made their bed, now they have to lay in it! And that means finding a way to keep the economy afloat, which requires cuts in government spending, and where is the fat on the Greek debt hog? That’s where they went first. But this news from Greece should help them with their requests to restructure their debt that’s on the Eurozone Finance Minister’s table right now.

It’s not unlike the uneasy feeling everyone here in the U.S. is going to get when the U.S. government realizes they can’t continue to pay for the 10,000 baby boomers that retire every day for the next 15 years and begin to draw on Medicare, and Social Security. But that’s nothing to worry about now, right? NOT! This is the time to deal with this! Before it gets unbearable and unsustainable, which it may already be!

The price of oil has dropped almost $2 since yesterday morning, and the price of gold lost $24 yesterday, but is up $4 this morning in early trading. Ed Steer likes to call days like yesterday, when gold got whacked by $24, days “Da Boyz Are Back In Town Again” which reminds me of the song by Thin Lizzy. But seriously, Chuck, can you stick to the subject here?  Alright, but I bet everyone wanted to hear about the time I got to go backstage and meet Thin Lizzy, when they opened for Queen.  So, the low tick in gold trading came in the after-markets trading, so “Da Boyz” as Ed calls them, had to work overtime to get gold where they wanted it yesterday.

I read recently that gold imports by China have fallen off their strong pace of the past decade. Hmmm…  I have to wonder if that’s China telling us that to throw the markets off the scent of their gold imports. Or if that’s really true. For if it’s true, it means the physical demand for gold is down, and I’m not seeing that, but then again I haven’t been around enough to ask our metals guru, Tim Smith, if he’s seeing a decline in physical demand.

The drop in the price of oil sure didn’t put the kyboshes on a Russian ruble rally. I found this to be interesting, in that the ruble has been the proxy for the petrol currencies’ reactions to the price gyrations of oil. I don’t get what happened to the price of oil yesterday. I read that nearly 1 billion barrels of oil per day are being lost due to the fires in Alberta, Canada. That cuts Canada’s oil production in half! Now, in a land where price discovery is all important, shouldn’t that many barrels of oil per day being lost, drop supply and drive the price of oil higher? Yes, it should, but, instead, we saw the price of oil drop $2 overnight. Huh?

None of this whole scenario is good for Canada though. Homes, structures, lives lost, and then add in revenue for the country, and you have a real problem. I read where 2,400 structures have been destroyed in the fires. That’s really sad, for the people there. But I have no control over what goes on there, so I have to stick to talking about what effects it could have on the Canadian dollar/loonie. The loonie so far, has been resilient in the face of the destruction from these fires, but for how long can it remain resilient? That’s the $64 question this morning.

Another thing weighing on the loonie right now, is the latest CAPEX report from Canada. CAPEX is Capital Expenditures, the lifeblood of any economy. And CPEX spending is down again this year, following a down year in 2015. Declining investment in energy equipment is the biggest culprit here. I’ve long told you all how important CAPEX spending is for an economy. And here in the U.S. our CAPEX spending is just plain awful, with companies opting to spend their money on stock buybacks instead of new equipment, etc. Just another reason I’m not of the opinion that the dollar can continue being strong.

The Big Boss, Frank Trotter, sent me a note yesterday that he pulled from an article in Barron’s that highlighted Australia.  Interesting don’t you think, given that just a couple of weeks ago, our Currency of the Month was the Australian dollar? Well, none of that helped the Aussie dollar (A$) wrap a tourniquet around the bleeding that was caused by the Reserve Bank of Australia (RBA) cutting rates last week, when not many people, including Chuck, thought they wouldn’t move rates. The Barron’s article was not unlike the Currency of the Month piece we did last month.

The New Zealand dollar/kiwi is trading in sympathy with the A$, which means it’s getting sold too. UGH! The Chinese renminbi was allowed to appreciate in the fixing overnight, but the move was so small, it hardly registered on my currency movement screen! And with the renminbi seeing appreciation, the Indian rupee, and Singapore dollar were also able to carve out some gains this morning. But all the moves, except in Russian rubles, in the currencies have been small in size.

Well, did you hear about what happened in Brazil with the Senate reviewing the impeachment process? A rouge Senator decided that he would throw a spanner in the works, and cried out that there were procedural errors in the impeachment process, which for a short time had the markets thinking that the impeachment of President Dilma Rousseff was going to have to start all over again, and that took the real from 3.52 to 3.67, but soon the Senate majority squashed the rouge Senator’s claims, and the impeachment process was back on track to have a vote tomorrow, and the real rallied back to 3.52 (remember the real is a European priced currency, so as the price goes lower, it returns greater value in dollars). The rouge Senator, proved to be a tempest in a teacup for Brazil and the real.

Soccer Hall of Famer, Ty Keough, sent me a note yesterday with some quotes from P.J. O’Rourke, the political satirist, about negative interest rates. And this one hits the nail on the head as far as I’m concerned.

In a sane world, government would quit trying to stimulate the economy. Economies are stimulated by people, not political policies. Government is a henhouse, not a hen. The barn doesn’t lay the eggs, the chickens do.

Government could start by cleaning out the barn. Shovel up all the government economic stimulus political policies and dump them on the politicians.

What government should be doing is protecting its citizens, defending individual liberties, guarding property rights, providing rule of law, and keeping taxes, regulatory burdens, and trade barriers low.

If that – and only that – were what governments were doing, the free market would take care of the rest.

Wish I had said it first! But at least someone said it, so I can reprint it! HA! German Industrial Production for March did NOT meet expectations, but it wasn’t bad enough to put the kyboshes on a positive first quarter for Industrial Production in Germany. And that thought is what has the euro underpinned right now. Yes, it wasn’t able to hold 1.14 yesterday, but the single unit is still within spittin’ distance of 1.14, and it’s a far cry from parity to the dollar!

Japanese yen lost another whole figure in overnight trading. With yen at 109 and change for the first time in about month, one has to think that a short squeeze has happened here. Yen traders must have been short dollars and long yen to drive the price of yen higher the past few weeks, and all it takes is one short dollar trade getting reversed for profit taking or the fact that it was getting long in the tooth, and the snowball effect begins to take place. As I said yesterday, the Japanese government or Bank of Japan (BOJ) haven’t done anything, said anything, or even had pictures of them distributed to the media, (HA!), to make traders want to sell yen. So this has to have been generated by a short squeeze of the dollar/yen cross.

The U.S. Data Cupboard, as I told you yesterday, was bare on Monday, and had little for us to look at until we get a piece of real economic data on Friday in Retail Sales. However, what the “little” the cupboard did have yesterday was this crazy little thing called love… no wait! It was this crazy little thing called the LCMI. Labor Conditions Market Index, which does a far better job of illustrating what’s going on in the U.S. labor market than the silly and outrageous BLS Jobs report.

The LCMI for April declined for the fourth consecutive month, falling -0.9 points month on month. It appears that the “help wanted online index” looks to have peaked late last year, despite what the BLS jobs report reflect. I’ve told you for a long time now, that there’s no rhyme or reason to pay attention to the BLS surveys and their hedonic adjustments, but for those of you who still want to, then this LCMI should straighten that desire out.

Remember when I used to mock Bank of England Gov. Mark Carney when he would talk about rate hikes for the U.K.?  I used to say that there was no way he was going to be able to hike rates, and that he should stop talking about it, getting the markets all lathered up and driving the value of the pound higher. Well, I came across this on Bloomberg via Ed Steer who pointed it out to me, and thought, well, this certainly plays nicely in the sandbox with my earlier thoughts on the U.K.’s soft economy and why Carney wouldn’t be able to hike rates. It can be found here, or check out the snippet today: 

U.K. stores had their steepest sales decline since 2008 last month as British consumers shunned the country’s shopping streets.

Like-for-like sales fell 6.1 percent compared with April last year, business advisory firm BDO LLP said in its monthly report. Fashion retailers were hardest hit, with sales dropping 9.2 percent as stores ended seasonal discounting toward the end of the month.

The figures confirm recent evidence of difficult trading for U.K. retailers. Clothing merchant Next Plc cut its sales forecast for a second time this week, shortly after the collapses of department-store chain BHS Group Ltd. and formalwear retailer Austin Reed. Cool spring weather, muted wage gains and uncertainty surrounding the upcoming European Union referendum have caused consumers to defer purchases.

‘Retailers are concerned that consumers aren’t inclined to spend at the moment because of the overall economy,’ Charles Allen, an analyst at Bloomberg Intelligence, said by phone.

Chuck again. Well, I could sit here and pat myself on the back or I could raise a ruckus about me being right, but instead I’ll just sit here being humble! AS IF!

That’s it for today. Thanks again for reading the Pfennig, I hope you have a Tom terrific Tuesday, and be good to yourself!


Chuck Butler
for The Daily Pfennig

P.S. “If you want to be informed rather than disinformed, go to The Daily Reckoningwebsite and sign up for the free Daily Reckoning letter.” That’s what one leading author said about the free daily email edition of The Daily Reckoning. Don’t miss out another day. Click here now to sign up for FREE.

The Daily Reckoning