Where Have All the Rate Hike Talkers Gone?

And now… today’s Penning for your thoughts…

Good day. And a Marvelous Monday to you!

The dollar is being chased down the street by the Big Dog, euro, and all the little dogs this morning. The dollar lost the conn it held early Friday morning, once the Jobs Jamboree began.  So. There I was just a walking down the street, singing, I told you that the economy wasn’t strong.  It looked sad, it looked weak, and it bordered on bleak.  Doo, wah diddy, dum, diddy do.

I guess by now you heard or saw that the jobs report for September showed that only 142,000 jobs were created.  But that’s not all folks, if you order now, I’ll give you two more numbers that will curl your hair!   Yes, first of all there was this 2-month revision in jobs previously reported as created by the BLS. It was a negative 59,000.

Yes, so in the previous 2 months, where the BLS reported strong labor numbers, they really weren’t that strong, now were they?  But, at the time, the dollar got strong, because the report pointed to a rate hike.  So, was there a dollar adjustment made on Friday to offset what it had gained previously on the “wrong numbers?”

Well, there was at first. The euro shot higher through the 1.13 handle, only to see things calm down as the day went along and end up around 1.1255.   gold was the main benefactor. At one point in the day the shiny metal was up $23.  WOW!  So, there was some “adjustment” to the dollar strength, but nothing that matched just how much strength the dollar had gained on those previously erroneous numbers.

OK. I promised you two numbers in addition to the jobs created and have only given you one. Here’s the second one. Manufacturing jobs dropped 9,000, and I read that to date, there have been no Manufacturing jobs created. YIKES!  I guess that pretty much should have been figured out, given the rot on the Manufacturing Index’s vine that I’ve pointed out.

So, where have all the rate hike talkers gone? Long time passing!  Yes, I know that one bad apple don’t spoil the whole bunch, girl. And one bad jobs print doesn’t mean that Armageddon is about to unfold either. But the 59,000 adjustment to take away jobs previous reported as created, kind of sets things in motion, now don’t they?

To follow up on the weak Jobs number.  Fed Member, Williams, who earlier in the week, was talking about rate hikes still to come in 2015, said this, last Thursday night:

Some of the reporting I see on this, or the commentary, is 170,000 that’s disappointing. Well, it’s disappointing maybe relative to what someone was predicting, but it’s still actually a sign of an economy that’s improving.

Way to go Mr. Williams, that’s a good rationalization for your stance on rate hikes.  But, there’s something there that I’ve always said I thought happened, but could never really confirm. And that is that the Fed gets the indication of the numbers before they print.   Oh. and the number wasn’t 170,000, it was 142,000, with an actual, now write this down because it doesn’t happen all the time, but with an actual downward revision to the Birth/ Death Model of 34,000 jobs.

You may recall that in 2014, 840,000 jobs were added by the BLS in total. Then in January of this year, they had to do the old “downward revision of -275,000. So, these hedonic adjustments just make a mess of things don’t they? For those of you keeping score at home, this year, the BLS has added: 900,000 jobs, and don’t forget that this is happening in a year when it is reported that there are more business deaths than births.

So. The markets came away from the Jobs Jamboree, dazed and confused. For this was supposed to the first of 3 Jobs reports that would seal the deal for a rate hike in December.  What to do? What to do? Well, I told you above what they did, the currency traders that is. They sold their dollars. The Bond Traders, well, they said, “see we told you that there would be no rate hike.” And they proceeded to take the 10-year Treasury yield below 2%… WOW!  The yield briefly dipped to 1.97%, but has settled back in this morning at 2%…

Well, I’ve been asked this question by quite a few readers, and thought, I shouldn’t just share my opinion as to the answer with just them. So, now you, dear reader, are included! How’s that feel to be included? HA!

OK, I have to put on my serious hat here.  A couple weeks ago, the Fed left rates unchanged, and in the press conference following the announcement, Fed Chair, Janet Yellen, to all the world, sounded dovish.  So, right off the bat, one would have thought that the stock market would just celebrate the no rate hike, and the dovish words. But something funny happened on the way to the forum.  And Investors, instead of celebrating these “gifts” the Fed left them, began to panic.

The thought went like this: “If she’s leaving rates unchanged, and sounding dovish, then she must know something bad is about to happen, because we were told that rates were going higher”.  And stocks have sold off for the most part since.  And then last Friday, the Jobs Jamboree, left most investors wondering what was going on in the U.S.  The 142,000 jobs created in September, were so below what was expected, and they took their confusion with everything out on stocks. Currencies soared, gold soared even more. And then…

Late in the day, stocks rebounded. Funny how that happened, eh?  So, people asked me what was up, and I said, “I wouldn’t doubt it one iota, that the PPT (Plunge Protection Team) wasn’t behind the stock market rebound. Just my opinion, and I could be wrong.

Alrighty then. A weak Jobs report, I don’t care what Fed Member Williams calls it, I call it weak, and the rate hike thoughts get dumped, and that’s what it’s all about this morning.

I wish I could sit here this morning and tell you that the currencies are rallying for this reason and that reason, that’s all based on their own respective economies. But that’s not what’s happening. This is strictly a “sell dollars” trade, and the currencies are the beneficiaries.

For instance, the Eurozone printed their final numbers for a composite of Services and Manufacturing PMI. And it was revised downward -0.3 points to 53.6. I would think that getting a report like this would have caused some slippage in the euro. But not today folks!

Speaking of the euro. I read this on the Bloomberg this morning. “Best euro forecaster breaks from pack to predict sustained rally.”  Well, you knew that would catch my eye.  So, I checked it out, and Mizuho Bank Ltd. Which was the best forecaster according to ranking that Bloomberg puts out. And here’s my version of what they said: that there’s no reason that the euro can’t continue to show resiliency and push the envelope on the euro’s price to a fair value of $120.

And here’s what they actually said:

The euro is underpinned by real demand as the Eurozone is, and will likely remain, the world’s largest current account surplus area.   

Hmmm…  I think I’ve heard that somewhere before. No wait! I’ve got it! It was ME! I told you all that when the euro was much stronger, but the economies as a whole weren’t that strong, I said that the euro’s strength came from the fact that they had a Current Account Surplus and the U.S. didn’t. And then the Greece thing and ruined the euro’s party. But now, we can get back to fundamentals, and they are looking better in the Eurozone. Their PMI is rising, while the U.S.’s PMI is falling, and then there’s this Current Account Surplus.

The Russian ruble is kicking some major tail this morning and taking names later. The price of oil has ticked up above $46 again, but that can’t be everything here. Oh! I know!  It was the old Chuck talks either bad or good about something, and the opposite happens! HA!  In case you missed it, Sunday’sPfennig was all about the Russian ruble. And I wasn’t exactly kind to the ruble’s chances of breaking out of the trading range it has been stuck in for months now.

So, print that, Chuck, and then watch the ruble book a HUGE gain the next day!  Oh brother! Just shows to go ya, that fundamentals are a lost art in currencies these days!

The Chinese are still on their week-long National Holiday. It will be interesting to see where the renminbi goes with all that’s happened while they were on Holiday. I would tend to think that the renminbi has some catching up to do, but since we never really know what the Chinese have on their minds with regards to the direction of the renminbi, we’ll have to wait-n-see, eh?

The Aussie dollar has gained enough to move back above 71-cents. And Kiwi is pushing the envelope on being the best performer overnight (difficult to top the ruble’s performance though). Australia and New Zealand both still have interest rates that beat the interest rates of the U.S., Eurozone, Japan and Britain, and when the rate hike talked fled for cover on Friday, these two popped up in price. Sure their interest rate differentials aren’t like those enjoyed by countries like: Brazil, India, and Russia, but then there’s something to be said about a country or countries that don’t have soaring inflation, which is the reason that interest rates would be so high in that particular country.

Well, the U.S. Data Cupboard had a couple of other things for us on Friday, but they were swept under the rug, as I suspected they would be. The Avg. Hourly Earnings were flat vs. the previous month (August), and the Avg. Weekly Hours Worked actually went down a bit.  So, no wage inflation here, move along these aren’t the droids you’re looking for.

And in the normal course of business, the markets would look at the August Factory orders and cringe when it printed worse than expected which was -1.2%, and it came in at -1.7%…  And the previous month’s 0.4% rise was revised downward to 0.2%..   But, not on Friday, as the Jobs Jamboree held all the cookies.  Oh, and the Labor Participation Rate fell to 62.4% from 62.6% in August..  So, labor is going nowhere, fast, folks.  So, who still thinks a rate hike is coming in 2015?

And then there’s this one last thing on the Jobs report, sorry, but I have to put this is here, it’s very important.

OK, David Rosenberg, who is someone I bow down to and say, “I’m not worthy”. OK, maybe that’s carrying on too far Chuck. But you get the picture, eh?   Well, my friend, John Mauldin, who’s come around to Chuck’s thoughts on the coming recession for the U.S. Economy, quoted David Rosenberg in his Friday letter last week. let’s listen to what David Rosenberg had to say about the drop in the Avg. Weekly Hours Worked:

Adding insult to injury and revealing an even softer underbelly to this report was the contraction in the workweek to 34.5 hours from 34.6 hours in August, which is effectively equivalent to an added 348,000 job losses.

So take the headline number, tack on the downward revisions and the loss of labor input from the decline in the workweek, and the “real” payroll number was [a minus] 265,000. You read that right.

WOW!  But. The country can’t deal with a negative jobs print right now. So, it’s all in the games people play now, every night and every day now, never meaning saying what they mean, never meaning what they say.

Gold is giving back $5 of its lofty gain on Friday, this morning. But silver, platinum and palladium are still booking gains. In fact, palladium is now back above $700! On Friday, I had told you that palladium had gone from $572 on Sept 1, to $707.55 this morning. This move in palladium has been really stealth-like, except here in the Pfennig!

I did see this on a GATA Dispatch from the GATA folks on gold. Check this out!  A German Banker says that GATA is right about gold Market rigging!   Let’s listen in:

The chief market analyst for Bremer Landesbank in Germany, Folker Hellmeyer, tells financial journalist Lars Schall that central banks have made it their business to manipulate the gold market, that Asia’s physical markets for gold will prevail eventually over the Western paper gold markets, that central banks should vault their gold on their own nation’s soil because otherwise they have only a paper claim on the custodian, and that the market analysis provided by GATA and GATA Chairman Bill Murphy’s LeMetropoleCafe.com is far superior to the analysis provided by major investment banks.

Pretty interesting, eh?

Friday, I brought you the trading proof of price manipulation in the gold paper markets in this section. Today, it’s far better stuff. Bron Suchecki is the Research Director at the Perth Mint, and he writes about gold all the time. Well, on Friday, I received a note from the GATA folks, that came from Bron Suchecki, and while he’s happy that there’s yet another investigation into price manipulation in gold, he has some reservations about the questions the investigators are asking. So, he makes a suggestion.

Indeed, no investigation of the gold market means anything if it does not address these questions:

— Are central banks in the gold market surreptitiously or not?

— If central banks are in the gold market surreptitiously, is it just for fun — for example, to see which central bank’s trading desk can make the most money by cheating the most investors — or is it for policy purposes?

— If central banks are in the gold market for policy purposes, are these the traditional purposes of defeating a potentially competitive world reserve currency, or have these purposes expanded?

— If central banks, creators of infinite money, are surreptitiously trading a market, how can it be considered a market at all, and how can any country or the world ever enjoy a market economy again?

Chuck again. Well, don’t count your chickens before they are hatched, and don’t for one minute think that these questions will ever be asked in a price manipulation investigation. But it’s fun to think about how they would be answered if there were asked, eh?

That’s it for today. I hope you have a Marvelous Monday!


Chuck Butler
for The Daily Reckoning

P.S. Be sure to sign up for The Daily Reckoning — a free and entertaining look at the world of finance and politics. The articles you find here on our website are only a snippet of what you receive in The Daily Reckoning email edition. Click here now to sign up for FREE to see what you’re missing.

The Daily Reckoning