US Jobs Data an All-Around Disappointment

Good day. Yes, here I am! After a week of recovering from one nasty cold, a holiday and then planned vacation days, I’m back! Sorry about the bummer news from Thursday. I wish I never had to do that, or ever do it again! I want to say a great big heartfelt thank-you to everyone who responded to the Thursday news with thoughts, wishes and prayers. They are — and will always continue to be — truly appreciated!

But life goes on and doesn’t stop for anyone, so let’s get to the markets and see what Mr. Market has up his sleeve for this morning. Front and center this morning, we had the jobs jamboree last Friday, and once again, the jobs created the previous month were a disappointment.

Folks, the forecasts alone were disappointing, but then the totals were even more disappointing! The forecasts were for 100,000 jobs to have been created; the actual was 80,000. Of course, I use the word “actual” loosely because it is the Bureau of Labor Statistics (BLS) that totals up the numbers. They have been known to fudge the numbers a bit. In fact, for June, the BLS added 124,000 jobs out of thin air. In fact, that makes over 500,000 jobs added by the BLS in the past three months. You can do the math — without these “ghost jobs,” the employment data are even worse than stated, and the stated data are pretty darn bad!

So going back to the way things were circa 2008-11, whenever the economic data from the U.S. were bad, the markets would reward the dollar, yen (JPY) (used to reward Swiss francs (CHF)) and Treasuries. They call this a flight to safety. Safety my — whoa there, Chuck! You can’t say that! This is a “family letter”! OK, I didn’t say it, but I’ll bet a dollar to a Krispy Kreme that everyone knows what I’m saying! Hopefully, those boarding this “flight to safety” are doing so only for the short term.

The euro (EUR) has been sent to the woodshed, and rightfully so. But remember this: The euro was sent to the woodshed in 2005, again in 2008, again in 2010 and somewhat at the end of 2011. Each time when things looked bleak, and most people wouldn’t touch euros with someone else’s 10-foot pole, the currency showed its resiliency and rebounded. Now, just because that happened those four times in the past doesn’t mean it will for sure do so again. It just was a reminder of the resiliency.

Speaking of resiliency, eurozone exports for May flew past the forecast of 0.2%, and posted a 3.9% increase in exports versus April! So the exporters in the eurozone are saying, “Go ahead and mark down the euro. We’ll increase exports!”

The Australian dollar (AUD), while it did see selling last week in conjunction with the euro sell-off, has retained $1.01, and I did read that some foreign investors were seeking safety in the A$, instead of the dollar, yen or Treasuries. Remember when I wrote about how I looked at the A$ as the new Swiss franc?

Back to Mr. Market — I’m reading and hearing some rumbling from the primary dealers (you know, the ones that get to deal with the Fed). You see, the Fed extended their Twist & Shout — I mean Operation Twist — in which they sell short-term bonds and buy longer-term bonds in an effort to keep mortgage rates low. But they need the primary dealers to play ball with them.

I read this weekend that the primary dealers’ offerings to the Fed of the long-term bonds were down 40% from their highs back in October. Hmmm, seems that these primary dealers and others that deal with the Fed are choosing to keep their long-term bonds, rather than sell them.

And on top of that news is the news that a Reuters poll of primary dealers shows that expectations for QE3 have jumped from 50% last month to 70% after the disappointing jobs data last Friday. August or September is about when I thought we would see this all come down, due to the weakness in the economy and the presidential election campaigns. Let’s not forget that around this time, we’ll be experiencing another debt ceiling debacle, which I would think, given the election year, would be even more of a beat-down than last year’s debacle.

So that makes getting through the “dog days of summer” even tougher, because we’ll be waiting for all this to take place, and the days will drag on. Speaking of August, the first week of August has traditionally been the Butler family vacation time. We will do an abbreviated version of that this year, with half the family. Can’t wait! My longtime friend and co-worker Jen Mclean is on her family vacation this week, which means Chuck is nailed down to his seat for the week!

This scandal that has been discovered regarding the fixing of LIBOR rates is really something, eh? First of all, LIBOR stands for the London Interbank Offered Rate. The Economist magazine says that “as many as 20 big banks have been named in various investigations or lawsuits alleging that LIBOR was rigged.”

I’ll tell you my take on the whole thing. These big banks don’t really have a lot of public credibility right now, and this makes things even worse! One of these days, we’ll be reading about another scandal discovery, and it will be regarding the short positions that the bullion banks have in gold and silver — mark my words on that one, folks. One day, it will happen. Apparently, one whistle blower, which we had, isn’t enough for the CFTC (Commodity Futures Trading Commission — the regulators). But when the public finally stiffens their back and demands answers of their lawmakers, then and only then will we get to the bottom of this scandal.

This past weekend, Ed Steer posted an article written by entrepreneur, market analyst and gold trader Jim Sinclair regarding this scandal. Here’s a snippet of that article, but it says it all: “Anyone who does not see today’s gold market as a rig is blind or brain-dead. All the lining and conniving mean only that the price will go higher. Just as Morgan’s ‘whale’ count not fight the markets, the cartel cannot fight gold as we have a flight away from all fiat currencies.”

Since I mentioned gold and silver, JMR Doug, sent me a Mogambo Guru T-shirt. Tre cool! It has some classic Mogambo lines on it like “This investing stuff is easy, whee!” And it highlights the Mogambo’s fave investments: gold, silver and oil. And of course, it wouldn’t be a Mogambo shirt without his famous line “We’re all freakin’ doomed” I can’t wait to wear that on the patio and explain to my drinking buddies what it all means! Of course, they’ve heard it all before — so many times, they steer me away from any conversation about markets, economies or debt.

I see that gold has slipped below $1,600 again. I read this past weekend that $1,630 seems to be the line drawn in the sand for gold. Hmmm… Somehow, I’m not buying that as a long-term line in the sand.

In an ever-apparent election year move, the U.S. president is expected to ask Congress to pass a one-year tax cut extension for individuals earning less than $250,000 a year. I don’t mention this to talk politics. I mention this, because the U.S. is drowning in debt, and one way you can throw a rope toward debt is to increase the revenue, which means higher taxes. And while I’m not wishing and hoping and thinking and praying for higher taxes, I feel that they are unavoidable. So, I would prefer we begin to bite the bullet now, rather than make moves like this, which have no use — not when unemployment is 23% and such a large number of people are receiving government assistance.

The Swiss franc continues to get sold, and I would think that the Swiss National Bank (SNB) is behind the selling. The SNB is selling francs to keep the cross to the euro from getting out of whack. When the euro dropped 2 cents last week, the franc had to keep in step or have the 1.20 cross rate ceiling become an issue.

The Chinese cut interest rates again last week. According to Bloomberg, “Chinese Premier Wen Jiabao said downward pressure on the economy is still ‘relatively large’ and the government will intensify its fine-tuning of policies even as measures taken since April are helping stabilize a slowdown.” Now, I know I’ve been gone a lot lately, but remember what I told you a couple of weeks ago, that a Chinese adviser said that the Chinese economy had bottomed in the second quarter. The real worry here is just how low that “bottom” is. It will probably be the lowest in three years. Chinese observers are reporting that the stabilizing moves made by China already are beginning to show some results. So the key here is for the markets to not panic when the second quarter GDP prints. But I’m sure they will. So the opportunity here is that the renminbi/yuan (CNY) is going to be cheaper.

I had sent a note to Chris last week about Canada’s manufacturing and the overall appearance of a stronger domestic demand in Canada than here in the U.S. The Bank of Canada (BOC) is once again highlighting the growth in the economy and in jobs, and saying that interest rates might have to be increased. But the markets aren’t buying it. Fool them once, but not twice. Recall that the markets got all lathered up over remarks BOC governor Carney made about hiking interest rates only to not have that come to fruition. But that’s OK. I still like Canada. The banking sector is second to none, they have commodities that other countries want and need, and good domestic demand. The results may not show in the Canadian dollar/loonie (CAD) right now.

Then There Was This: Speaking of rising tax burdens for U.S. consumers, I saw this in The Washington Post and was really ticked off. But then that’s because my beautiful bride buys almost everything over the Internet!:

“U.S. states increasingly are enacting laws to require shoppers to pay sales tax on Internet purchases. A bill under consideration in Congress would make online sales tax the norm nationwide. For states struggling in the troubled economy, this could mean $23 billion in new revenue each year, according to the National Conference of State Legislatures.”

Chuck again. Yes, get ready, the tax burdens to deal with our debt are coming. And in 2001, when I started screaming about rising debt — and have screamed so loud about it for over 10 years now, so much so that my voice is about gone — I warned people that this is what would come for us, our kids and grandkids. But back then, it was popular to say that deficits don’t matter. I guess they do now, eh?

To recap: The currencies got taken to the woodshed on Friday, after the Jobs Jamboree was so disappointing. The so-called flight to safety was intact. That trip to the woodshed has carried over to this morning’s trading, but not as harshly as last Friday. The A$ has maintained $1.01, and that kind of confirms my claim that the A$ is the new Swiss franc! And the taxes are coming… are you ready?

Chuck Butler
for The Daily Reckoning

The Daily Reckoning