Tomorrow is Being Called "Judgment Day"

And now… today’s Pfennig for your thoughts…

Good day, and a tub thumpin’ Thursday to you!

A quick look at the currencies and metals this morning tells me that the markets are already in a defensive shell awaiting Friday’s Jobs Jamboree. I’ve read quite a bit about this Friday’s Jobs Jamboree, and while I’m still committed to “not giving two hoots about what the BLS’s surveys and hedonic adjustments tell us” I still have to deal with the fact that the markets do give two hoots about it, and what I’m reading tells me that there are a lot of eggs being placed in this month’s Jobs report basket. I’ve even read where the markets are calling tomorrow’s Jobs Jamboree the “Judgment Day”. Well, the only “Judgment Day” I know of is in the Book of Acts 17:31.

A lot of eggs have been placed in the Jobs report’s basket, as we’re back to the same stuff the markets were all lathered up about a few months ago, saying that this week’s jobs report will determine if the Fed feels that the economy is strong enough to hike rates in June.

I can’t believe this is happening again!  Didn’t the markets get the stuffing knocked out of them with this thought process being so wrong a few months ago? Then why get right back on that horse? Fool me once, it’s your doing, fool me twice it’s my doing. But, it is what it is, right? And if the markets want to get all lathered up over surveys that get run through the massaging table before going public, then we just have to sit and watch it all happen. But that doesn’t stop me from telling you that I think that they are all dolts!

Judgment, Schudgment Day, is what I say! But, as I said above, the markets are already backing off on volume traded and positioning and the dollar is looking like it still has the conn, but not as strongly as the previous two days.  Japanese yen is trading back over 107, the euro has lost another 1/2-cent but the Aussie dollar, which has spent the previous two days in the woodshed, as wrapped a tourniquet around the bleeding for now. Gold is down again this morning after losing $6.70 yesterday.

Getting back to the Jobs Jamboree tomorrow, or “Judgment Day” according to the markets, I was exchanging emails with my friend, the retirementor, Dennis Miller, yesterday, and I got on my soapbox and started preaching to the choir.  And then afterwards, I thought, this discussion would be better served, sharing it with you, dear Pfennig Reader!  So… here goes…

Dennis: In my article tomorrow, I am not joking when I say Janet Yellen is the most powerful woman in the world. (chuck here: you should check his letter out!)

Chuck: something I used to say when Bernanke was there, and that is that we, as a country would have been better off if they never were created. let the markets set the interest rates, they know what they should be!  And we would have never had this mess to begin with!

And then I was reading an article on LinkedIn by Danielle DiMartino Booth, which I would like each and every one of you to take the time to read you can find it hereAnd she wrote something that plays well with my let the markets set the interest rates:   

A new generation of revolutionary central bankers must be called to arms for all of our sake. Their battle cry: We commit to never returning rates to zero or below again, to never let be money be free and forever ensure there is a true cost associated with borrowing. Release the markets to set interest rates now and forever!

Talk about perfect timing!

So, I’ve done all this talking this morning about “Judgment Day” tomorrow, and haven’t talked about what the forecasts are calling for. I think that’s because I really don’t care about the “numbers” any longer. The one that I do care about is the Labor Participation Report, which shows that we’re at 1977 levels of labor participation.  But for those of you keeping score of the BLS surveys and hedonic adjustments, well, the so-called experts believe that in April, the total jobs created will be 200,000.  The ADP Employment Report printed 193,000 jobs created in April. I would say that number is pretty close to where we’ll see tomorrow’s print. But who knows what wild hair the BLS will have for adjustments?

Does 200,000 meet the “Judgment Day” level that the markets are thinking will be enough to get the Fed to hike rates in June?  I shake my head in disgust that we even have to deal with this stuff.  My answer is no. and yes, that’s my final answer!

And why is it that I say that?  Well, let’s see. Yesterday, I told you about Fed Atlanta President, Dennis Lockhart, who said that the rate hike in June was a “live option”. Then San Francisco Fed President, John Williams, said that he would support such a move (rate hike) at the next meeting provided the economy stayed on track.     

Hmmm… funny thing about these guys talking rate hikes at the June meeting… they are NOT voting members this year.   But the markets don’t seem to care one iota, and it’s all been about the dollar rebound since Lockhart first talked. I do believe that a voting member and hawk, Fed St. Louis President, James Bullard is to speak this week still, should be interesting to hear what he has to say.

Oh, and that comment by Williams about providing the economy stayed on track. Now that’s interesting, was he talking about staying on the track that has Durable Goods Orders negative each month, along with Capital Goods Orders?  Or maybe he was talking about staying on track with manufacturing that has only seen one positive month since August 2014?  Or the economy that has produced so many Corporate closings and bankruptcies in the past year? I think you get my drift here.

I’m sure he’ pinning his colors to the labor mast, for that seems to be the only thing we’ve got going here in the U.S. right now. And I don’t think that’s enough to move the Fed to the rate hike table in June.  But I’ve been wrong about the Fed’s moves before (December), and I might be wrong about this meeting in June, but does it make their moves right? Oh, for heaven’s sake, I really don’t care anymore what they do, or don’t do, I’m tired of talking about them!

The price of oil rebounded in the past 24 hours from $43.67 yesterday morning to $45.12 this morning. But the hold that the dollar has on the currencies right now, hasn’t allowed the oil price rebound to benefit the Petrol Currencies. And the Russian ruble continues to get whacked again.

Since it’s Cinco de Mayo today, we might as well spend some time talking about Mexico and the peso.  I don’t know if you follow the peso or not, but as recent as Monday of this week, the peso was in rally mode, that began last week when all the currencies were taking liberties with the dollar. But since Monday the trap door has sprung on the peso again, now what could that be in reference to? There’s been no real data prints. Yes, the dollar has rebounded, but that doesn’t usually work against the peso that much.

Ahhh, grasshopper here’s my take on the peso drop. It coincided with the result of the Tuesday Indiana primary results here in the U.S. And who was the Big Winner on the Republican side? Trump, and what has Trump had to say about Mexico?  A lot, and I’m not going to get into the politics of this, only to say that the Trump victory, I believe has investors, and traders in pesos running scared.

The U.S. Data Cupboard yesterday, had the ADP report like we talked about above, and Factory Orders, which I told you we would see an improvement in since March manufacturing was better, and that’s exactly what we saw in Factory Orders for March, which grew at 1.1% after a downward revised February negative result of -1.9%. Since April manufacturing backed off the surprise in March, I expect this data to back off when it prints again next month.

We also saw the Trade Deficit here in the U.S. for March, and it dropped by quite a bit, from $47 billion in February to $40.4 billion in March. Unfortunately, that’s not all good news, because imports dropped 3.6%, and this is used as an indication of domestic demand.

Let me straighten this stuff all out for you. We had Manufacturing, and Factory Orders rebound in March, and the Trade Deficit drop also in March, and what else dropped in March? That’s right the value of the dollar! The dollar dropped in value during March, and amazingly enough these data prints that depend on a weaker dollar to rise, did so!

It’s not so much that we need a weaker dollar, but we need a dollar that’s fair priced, based on its fundamentals, and we haven’t had that in a few years now. So, when I say, “weaker dollar” I mean from its lofty status that had no fundamental backing on why it would be so “lofty”.

Of course, looking long term, we need a much weaker dollar so that we can inflate away our debts, but we can’t have the dollar fall off a cliff to achieve that goal, just years of weakness and begins to boil. You know, like the frog in the pot of water on the stove. If you turn the heat on high immediately the frog jumps out, but if you gradually turn the heat up, well you know the rest.

So, I’m sure you’ve heard of Stanley Druckenmiller, right? I believe I’ve used some of his quotes before. Well, I found this on Bloomberg, and it talks about how Druckenmiller is increasing his allocation of gold. I thought you would be interested in this, and you can read it all here, or you can be satisfied with the Snippet:

“Stan Druckenmiller, the billionaire investor with one of the best long-term track records in money management, said the bull market in stocks has “exhausted itself” and that gold is his largest currency allocation.

Druckenmiller, speaking at the Sohn Investment Conference in New York on Wednesday, said while he’s been critical of Federal Reserve policy for the last three years he expected at that time it would lead to higher asset prices.

“I now feel the weight of the evidence has shifted the other way; higher valuations, three more years of unproductive corporate behavior, limits to further easing and excessive borrowing from the future suggest that the bull market is exhausting itself,” said Druckenmiller, who averaged annual returns of 30 percent from 1986 through 2010 at his Duquesne Capital Management.

As bankers experiment with “the absurd notion of negative interest rates,” Druckenmiller said, he’s wagering on gold. “Some regard it as a metal, we regard it as a currency and it remains our largest currency allocation,” he said, without naming the metal.”

Chuck again.  Thanks to Ed Steer who pointed this article out to me this morning.

That’s it for today. I hope you have a tub thumpin’ Thursday, and be good to yourself!


Chuck Butler
for The Daily Pfennig

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