Loonies To Parity?

Good day… I hope you all had a wonderful weekend. Mine was relaxing, and if it weren’t for the huge storm that came through on Saturday afternoon, making a mess of our backyard, would have been very relaxing! Now onto other things!

Friday’s Jobs Jamboree was quite the “feel good story” eh? According to the Bureau of Labor Statistics (BLS) and the media, the U.S. economy generated another 157,000 new jobs in May, beating the experts’ forecast for an increase of 134,000 jobs. April’s gain was revised to 80,000 from 88,000 and March’s increase was trimmed to 175,000 from 177,000. That jump in May looks pretty good wouldn’t you say?

But wait, what’s this that I see? The BLS added 203K jobs with their birth/death model… So, without the “ghost jobs” the data would have shown a -46K loss of jobs… But would that have kept consumers spending? No. Would it have kept consumer confidence soaring? No. So, let’s just create some jobs, and make everything peachy!

My friend, John Mauldin, talked about jobs in his weekly newsletter (www.2000wave.com) last Friday, and came up with this jewel that I thought played well with my theory that job creation isn’t what it’s made up to be. Here’s John talking about job creation not being gangbusters like Fed Head Janet Yellen keeps telling everyone:

“And new research by both Ray Stone of Stone and McCarthy and Sheryl King of Merrill Lynch suggest this is indeed the case. Please refer directly to their research for the exhaustive details, but the bottom line is simple. Detailed data in the Bureau of Labor Statistics (BLS) Business Employment Dynamics (BED) release, which comes out with a two-quarter lag, show employment growth of only 19 thousand in 2006Q3, while the nonfarm payroll tally for that quarter was over 450 thousand. More recently, the BLS’s more timely Job Opening and Labor Turnover Survey (JOLTS) for April – last month! – showed job openings rose only 24 thousand, with this series essentially flat since last August. The JOLTS report also showed that new hires in March (this data subset is released with a one month lag) fell 29 thousand.”

OK… Enough on that jobs stuff… Now for the good and happy news! Last week, was Oh Canada week in the Pfennig, as it seemed that I talked about Canada and the loonie (CAD) every day! You may recall me talking about how if the Bank of Canada come through with the rate hikes I believe they will make in the next year, that it could be the push the loonie needs to reach parity with the greenback. Well, as I was reading foreign newspapers this weekend, I came across this story that appeared in the “Province” on Saturday.

“The Canadian dollar soared through 94 cents U.S. Friday for the first time in three decades.

“Its latest surge was fuelled by Prime Minister Stephen Harper’s suggestion the government could live with the strong currency, even if manufacturers can’t, and a prediction by a major bank that the loonie is heading toward parity with the U.S. dollar.

“That parity will be reached by the end of the year, Jeff Rubin, CIBC’s chief economist, said in the bank’s forecast.”

It then went onto tell us, “Between red-hot commodity and energy markets and huge capital inflows associated with an avalanche of merger and acquisition deals, the Canadian currency has plenty of octane left to take a concerted run toward parity against the greenback and hold it into at least the first quarter of 2008,” Rubin said.

WOW! But remember, as I said last week… Any move toward parity, will be met with resistance from the Canadian government.

OK… Now onto the scary news… Ty sent me a link to a story in the USA Today on Friday regarding the deficit. This sounds very much like the information I give to my audiences, so it’s nice to see someone else pounding the drum!

USA TODAY, 6/1/07… “The federal government recorded a $1.3 trillion loss last year – far more than the official $248 billion deficit – when corporate-style accounting standards are used, a USA TODAY analysis shows.

“The loss reflects a continued deterioration in the finances of Social Security and government retirement programs for civil servants and military personnel. The loss – equal to $11,434 per household – is more than Americans paid in income taxes in 2006.

“‘We’re on an unsustainable path and doing a great disservice to future generations,’ says Chris Chocola, a former Republican member of Congress from Indiana and corporate chief executive who is pushing for more accurate federal accounting.

“Modern accounting requires that corporations, state governments and local governments count expenses immediately when a transaction occurs, even if the payment will be made later.

“The federal government does not follow the rule, so promises for Social Security and Medicare don’t show up when the government reports its financial condition.”

OK… Even with the Jobs Jamboree coming in higher than expected, and the ISM Manufacturing Index rising to 55, the dollar couldn’t mount much of a rally on Friday, except of course versus the Japanese yen (JPY). Oh, and one other piece of data from Friday… Personal Income fell… And Personal Spending rose… Same-O, Same-O.

Gold and copper have seen some nice gains since Thursday, and that helps the other base metals get back on the rally tracks, which also helps the “commodity currencies” Australia, New Zealand and Canada. And as I look across the desk at the currency screens, I see those three trading higher versus the dollar.

Pound sterling (GBP) is moving higher again after a bout of indecisiveness in traders on whether the Bank of England (BOE) will in fact come right back to the rate hike table and raise rates at their meeting next week. Traders have come back to the thought, held by me, that the BOE will indeedly-do raise rates this week. And thus, the pound sterling moves higher versus the dollar!

We’ll only see the color of April’s factory orders in the United States today – and they are expected to be pretty low. This is not a market-moving piece of data, so even if it comes in weak, I don’t expect it to cause a huge sell off in the dollar today.

Currencies today: A$ .8330, kiwi .7455, C$ .9465, euro 1.3468, sterling 1.9880, Swiss .8160, ISK 62.10, rand 7.1350, krone 6.02, SEK 6.9250, forint 185.50, zloty 2.82, koruna 21.04, yen 121.90, baht 32.80, sing 1.5280, HKD 7.8040, INR 40.53, China 7.6490, pesos 10.72, dollar index 82.17, Silver $13.70, and Gold… $671

That’s it for today… The Highway Department is getting ready to start tearing up major pieces of the highway that runs in front of our building… I’m sure glad I don’t use that highway! Unfortunately, half of the people that do will be using my highway now! UGH! Cardinals actually come home from a Winning road trip! YAHOO! Of course these days it’s far easier to name the players who aren’t hurt than the ones on the DL! Should be an interesting week, so stay tuned… Same bat time, same bat channel! Have a great Monday and week!

Chuck Butler — June 04, 2007

The Daily Reckoning