Stealth Quantitative Easing

Well, Friday’s Jobs Jamboree was quite interesting to say the least. I had already told you about the forecasts for a HUGE drop in job losses for July from 467,000 to 325,000… But the number, according to the BLS, was 247,000!!!!!!! Way to go corporate America! Geeze Louise, I wish it were that full of seashells and balloons! This smells of yesterday’s fish, folks. OK, let me get this straight… The forecast was for 325,000 job losses, and an unemployment rate of 9.6% (up from 9.5% in June). And the jobs lost were 247,000, a difference of 78,000, and the unemployment rate fell to 9.4%… So, the BLS is telling me, and you, that 78,000 jobs not being lost, was equal to 0.2% (9.6 to 9.4)? Come on! I didn’t just fall off the turnip truck!

So… You know what? I’m not even going to go down the road I usually travel of digging into the numbers, and pointing out what buffoons the BLS people are… No! I’m going to take the road that tells me to smile, and be happy about the fact that the job losses have peaked, and maybe, just maybe, we’re on the road to recovery… How about that?

Of course the little guy on my other shoulder is telling me to say something about how Corporate America rushed to the exit doors with jobs cuts to prepare for the tough row to hoe, which was to be 2009, and therefore maybe, just maybe, cause you never know, all the jobs that can be cut have been cut, there are no more to cut, without going out of business!

But you won’t hear that from US officials, who took Friday’s Jobs Jamboree as an opportunity to remind everyone that this wouldn’t have happened without the stimulus. Hmmm… The current administration is in real bad need of a “win”… You know… Something that makes them look like they know what they are doing, so they can get the Health Care plan shoved down our throats. I won’t say anything else about this, because it’s not for this discussion… But in my backyard with neighbors all around, I let them all know how I feel, for sure!

So… Last week, I told you that given the way currencies and stocks had traded together as risk assets for the last nine months, that should the Jobs Jamboree print as forecast, it would be negative for the dollar. I WAS WRONG! OK… Let me play this out for you… For the last six months, any time a piece of data gave the impression that the US could weather the recession/depression the dollar got sold. Remember, the only reason people/investors were holding dollars was as a “safe haven” play with Treasury purchases… So, if things were looking brighter there was no reason to hold the “safe haven” purchase. Treasuries were unwound, and dollars were sold.

But… Friday’s Jobs Jamboree played out differently! The strong data (I know, there were still 247,000 jobs lost, it’s not like it was 0!) caused this HUGE dollar buying binge, and it went fast, and furious, and all day on Friday! The euro (EUR) traded through the 1.43 and 1.42 handles like a hot knife going through butter. Japanese yen (JPY) fell through two big figures, too, along with pound sterling (GBP)… It was ugly for the Big 3… The selling carried over to the Swiss franc (CHF), and Canadian dollars (CAD)… Not as ugly as the Big 3, but a noticeable loss just the same.

Not all currencies got sold though… The high yielders like Aussie (AUD), kiwi (NZD), and Brazil (BRL), all held onto – and in some cases added to gains – versus the dollar. I have to clarify something I wrote about on Friday, as I had more than a few questions about what I was saying… In speaking about the Australian government issuing inflation-indexed bonds again after a six-year hiatus, I said that it was a sign… Well, I should have gone further and explained that if the Australian government is going to sell inflation-indexed bonds, then they see the need to do so based on their inflation projections, and if they see inflation, the Reserve Bank of Australia (RBA) will see inflation and adjust interest rates higher accordingly. Higher interest rates for Australia are like manna from heaven for the Aussie dollar.

So… Risk asset appetite is changing… It’s getting picky… And only wants yield; tired of the paltry yields that Treasuries provide, or most government bonds for that matter! Our Foreign Bond Trader, Don Ries, tells me that he is swamped with calls for Brazilian bonds, which have a nice yield advantage.

To prove this further… Gold and silver were sold, along with the currencies I already talked about, that have no yield! Shoot, Rudy! Even the Mexican peso (MXN) is on the rally tracks, and that they don’t even have a huge yield advantage! But they have a yield advantage, and that seems to be the line in the sand right now… So, currency traders should be wearing shirts that say: “Got Yield?”

Speaking of Australia… I also noticed that they had a bond issue last week. They did a 4+ year Treasury auction of $800 million 6.5% bonds. The reason I mention this is to point out the difference of the auction size between Australia and the US and the yield… Hmmm…

I guess I can’t avoid saying this, so I might as well get it out there… Equities are certainly the choice of investors right now, too. I just can’t help but think this is a one HUGE trap for equity investors… But that would involve more conspiracy theory, and I’m not going there today.

There is no data scheduled to be printed today, so the markets will deal with Friday’s trading, and begin to look at the central bank meetings this week, which are dominated by the Fed meeting on Wednesday… Norway’s Norges Bank will also meet on Wednesday. It will be interesting to hear what the Fed has to say after their meeting on Wednesday.

And then there was this… I call this: Stealth QE… Let me see what you call it after reading.

Well… Have you ever wondered who was buying all those Treasuries that the US keeps forcing on the markets? If we follow the results of the auctions we know they were all bought… And the markets continue to think… “I guess deficits aren’t anything to worry about”… BUZZZZZZZZ! Wrong! Thank you for playing, there’s a nice parting gift for you at the door… Johnny… Tell them what they won! You see…

It was uncovered this past weekend by a guy named Chris Mortenson that the past auction of $28 billion in seven-year Treasuries had a twist to it… A large chunk was purchased by Primary Dealers to the tune of $10 billion worth of the auction, and then, very quietly, without fanfare, and right under the noses of the currency traders and media, who are supposed to be following up on this stuff. The Fed bought it all back from the Primary Dealers… That’s quantitative easing, folks, they monetized the debt, and with all the fanfare of being more transparent, they did it under the dark of night in a back alley. Shame, Shame, Shame!

Is this not a sad state of affairs… Not only did the Fed HAVE to monetize the debt, they did so in a way to manipulate the markets, and pull the wool over the eyes of the public! Would this have been a “failed auction” if the Fed hadn’t worked out this deal with the Primary Dealers? I think so! And the Fed dealt a blow to currency holders by pulling off this shell game! And the calls for the current administration to be transparent, along with the Fed… All comes back to haunt them… So… I hope the major media picks this story up… I know for a fact that some of them read the Pfennig, and laugh at my claims of market manipulation… Let them all laugh, one day they will be crying.

I shake my head in disgust… Oh, and for all of you who think I’m trying to tell you something that isn’t true… I’ve got facts; so don’t even think about calling me out on this!

OK… Enough of that! OH! I see that Paul Krugman thinks that Big Ben Bernanke should be approved for another term as Fed Chairman. If I were Big Ben, I don’t know how I would take that… Hmmm… I better think about that one!

Of course, if I had any say in the matter, I would fire them all! Anyone that had anything to do with the bailouts, stimulus, brokering banks and broker deals, deciding who remains open and who closes their doors… Fire them all, I say! I won’t even go down the road regarding the politicians.

Data this week will include the Trade Deficit, Productivity, Unit Labor Costs, and Monthly Budget statement, which ought to be something to see… We’ll also see Retail Sales, which you would think would be better, but given the Chain Store retailers report last week, Retail Sales would certainly be a question mark…

The Daily Reckoning