In This Issue   Currencies rally on weak labor

first_imgIn This Issue. *  Currencies rally on weak labor report. *  Gold also adds to value on weak data. *  Jobs data is confusing. *  Lacker admits to an asset price bubble! And, Now, Today’s Pfennig For Your Thoughts! Jobs Data Disappoints! Good Day!  And a Marvelous Monday to you! Well, this morning seems to be an extension of Friday’s activity once the Jobs Jamboree’s dust had settled. The dollar is softer than a sigh, and believe it or don’t, the 10-year Treasury is rallying alongside yen! Strange bedfellows I would say, but they go way back in the old “flight to safety” trading, although I always questioned why either one of these investments would be considered “safe”.  It’s another touch and go today for me, I almost dropped coming into work like a bad habit this morning, but. Here I am! Besides I just couldn’t do that to Mike. Especially since I’ll be gone the next two weeks after this Friday. There’s a trip to the Orlando Money Show thrown into that time away, so, not to worry, I’m not going away for good. not yet, any way! HA!  Charlie Daniels is playing the South’s Gonna Do It Again, on the IPod, and that got me moving a bit, so let’s get to the rest of the letter! Well. How about that Jobs Jamboree on Friday? In case you haven’t seen any of the numbers, payrolls rose only 74,000 in December.  And you know what was even more telling of the slowdown in the economy than that nascent rise in jobs created? The Avg. Workweek fell  by .2% to 34.4 hours worked each week by U.S. workers. I’m not sure I can color this any differently other than to say the economy optimism that the Fed Heads have is unwarranted at best! Now when I saw the Unemployment Rate drop on the screens, I stood up and said to everyone, “Just watch, the media is going to focus on the Unemployment Rate drop and not the small number of jobs added.”  And that’s just what they proceeded to do all day long.  Yes, all day long they talked about how the Unemployment Rate had dropped t o 6.7%…  Ahem.  This is going to continue to show a drop in the Unemployment Rate, folks, as it’s more of a reflection of those giving up looking for work.   Well, as I’ve explained to you for years now, once the unemployment benefits end, the person is dropped from the “unemployment calculations”.     So, the drop in the Unemployment Rate was more a reflection on the large numbers of unemployed dropping off the books.    Now, Rex Nutting at MarketWatch says people aren’t becoming discouraged about finding a job.  Well, that may be. I know years ago when I was unemployed, I wasn’t worried that I wouldn’t find a job. until months later and I had no job! And then there was this too about the Jobs Jamboree. The Labor Participation Rate fell to 62.8% from 63%… That brings it back to a 35-year low.  So, better put away all those banners and balloons, confetti and champagne, it appears that the economic boom for the U.S. is not ready for prime time. And talk about a damaging report to the dollar! YIKES! The dollar was put on the chopping block no sooner than the Jobs numbers appeared, and remained there all day, through the overnight sessions last night.  Here’s the skinny on why that happened. The markets saw in the jobs data, what I’ve been saying all along, that the economy isn’t strong enough to drop the stimulus, and so their (the markets) thoughts changed from tapering to holding bond buying steady. And that’s not good for the dollar, as we have all come to learn since the first announcement of debt monetization, aka Quantitative Easing, aka bond buying, aka crack cocaine for the economy, was made in March of 2009. That’s right, we’re heading toward the 5-year anniversary of Fed Meddling. It’s like the economy is married to Quantitative Easing, so we need to make sure we buy them some silverware, for that’s the traditional gift for 5 years of wedded bliss. Oh, and just to point something out to everyone that thinks there’s no inflation. 5 years ago, the price of gas was $1.75 a gallon.  Happy Anniversary baby, got you on my mind. Betcha you had lost track of how long the Fed has been monetizing the debt, eh?  So, anyway, that’s what has the dollar on the hot seat. The euro, A$, kiwi, and a host of other currencies all took liberties with the dollar, as well as Gold, which added $10 on the news that only 74,000 jobs were created. I have to wonder just what the heck is going on with these labor surveys, don’t you? I mean the ADP report just two days earlier said that the economy added 238,000 jobs, and they supposedly use the same methodology that the Bureau of Labor Statistics (BLS) use.  Now, one bad apple don’t spoil the whole bunch, girl. And one swallow doesn’t make a summer, so one bad employment report doesn’t mean we’ve slipped backwards. What it does point out is the economy is uneven in its recovery, which is the same thing as saying the Fed is overly optimistic about the economy. Treasuries rallied on the labor data, as the threat to continued tapering weakened. The 10-year lost 11 Basis points to 2.85%, That’s a HUGE rally folks! I can think back to the days when all the bond trading centered around the 30-year. You never saw days like that back then. But there it was right before us last Friday. the 10-year yield falling from 2.96% to 2.85%… And remember when the yield falls on a bond, the price of the bond goes up! And that’s a rally! I looked up to the Bloomberg this morning, as saw a headline to a story that read, “Euro Set To Decline as U.S. Economy Advances”.  You know, before people write stuff like this, they should do a little research. Just because the U.S. economy is doing better than the Eurozone economy is not a recipe for dollar strength VS euro. The best year the euro has had in the last 11 was 2003, and the Eurozone had a nascent recovery going on, while the U.S. economy was plugging along just fine.   The thing to think about here when stuff like that happens is that when the U.S. economy is doing well, personal consumption is going strong. Spending, spending, and more spending, running up the Trade Deficit, and the personal credit, which as we now know, is bad medicine. OK. The Aussie dollar (A$) is back to trading above 90-cents this morning. The had some second tier data last night from Home Loan and Job Ads, which were both bang on with forecast and recent prints. The Big Kahuna report for the A$ this week comes Thursday (Wed night for us) in their Employment Report and Leading Indicators. I think traders have pushed the currency appreciation envelope for the A$ ahead of its time. In other words, watch out for a sharp pull-back should the data this week disappoint. The Canadian dollar / loonie, got taken to the woodshed on Friday, even with most of the other currencies rallying VS the U.S. dollar. The problem for the loonie came in the form of a rotten jobs report. Canadian employment dropped 45,900 in December, after adding 21,600 in November. Their Unemployment Rate rose to 7.2% from 6.9%… This report was clearly disappointing, folks, as the recent monthly reports were pretty much in line with what was expected, but December’s report strayed from that trend. As I said the other day, it appears to me that the traders want to take the loonie to 1.10 or 91-cents in dollar terms. It’s .9155 this morning, so they’re almost there.. The New Zealand dollar / kiwi is ratcheting higher and higher in value, and soon it will be nearing the level where it has previously touched right before the Reserve Bank of New Zealand (RBNZ) Gov. Bollard goes bonkers on the currency and gets it jawboned back down in value. Now, we all know, that is unless you skipped this part the 100 times I’ve talked about it before, that the RBNZ will be hiking rates in 2014, maybe even as soon as this month, but most likely by March. Bollard can’t have kiwi soaring in value before he hikes rates, for that could send the currency to the moon, so I fully expect some jawboning coming from Bollard very soon. But that’s OK, you can use his attempt to weaken the currency ahead of the rate hike, as an opportunity to buy at a cheaper level! The Chinese renminbi was allowed to appreciate to a 20-year high VS the dollar overnight. Here’s a thought on why I think continued strength in the renminbi / yuan should be viewed. In the past, the Chinese have used a combination of buying dollars and Treasuries to keep a lid on the renminbi / yuan. But do you really think the Chinese are interested in buying Treasuries with the Fed backing of their bond buying?  I don’t think so. I see where Norway is going to enter into the bond issuance arena with $650 million or (4 Billion krone) of their 10-year Norwegian Gov’t Bond. The krone hasn’t really been a good performer the past year, and that will make selling the bonds a challenge, but one that should be easily overcome given the Fundamentals of Norway, their AAA rating, and the cheapest cost of credit derivatives on default, are two items that should easily outweigh the weaker krone. My colleague and friend, Jack Stapleton stopped by my office on Friday, and said, “WOW! That was a great story you had in the Pfennig this morning, about how the Norwegian public pension fund now has 1 million krone for each person, when are the markets going to wake up and smell the coffee that Norway’s fundamentals are the best?”  I said, welcome to my world, Jack! This is the stuff that makes people like me lose their hair, but one day, Alice. To the Moon! Before I head to the Big Finish today. I wanted to say a thing or two about Bitcoin. I know you all have been wanting me to come out with my thoughts on Bitcoin. All I’ll say right now, is that it appears that Bitcoin is now being used as it was intended to be, as a payment currency, and store of wealth, not as it was being used as a commodity that goes up and down in price.  The Big Boss, Frank Trotter, tells me the payment system is top notch, and that gives me optimism, but. there’s the regulation that could come that scares the bejeebers out of me, and now there are more of these digital currencies coming out. That’s going to become confusing folks. Be careful. For What It’s Worth. Remember when the “maestro” (Alan Greenspan) became known as “Bubbles Greenspan”? That was a huge letdown for the “maestro”.  And from that point on, the Fed Heads were determined to not mention the word “bubble” ever again.  Even new Fed Chair, Janet Yellen, said a month ago that she saw no asset / stock market bubble. And that really got the stock market participants all lathered up. For if she saw no bubble, that meant she wouldn’t be looking to pop it! Well, over at they had a story on Fed Head Lacker, who slipped up last week, and said that, “he was reluctant for the Fed to prick asset-price bubbles”  Well looky there! A Fed Head admitted that there was a stock market bubble. Here’s what they had to say about it over at, “Well there it is. There are asset bubbles? But Lacker – who has been anti-QE to some extent – knows that if the Fed moves to actually do anything about it (other than jawbone), it’s all over. Perhaps as more realize the transition from a Bernanke Put to a Yellen Collar has occurred, there will be no need to jawbone any longer. But jawbone on they will as open-mouth operations try to persuade investors that strong forward guidance is just as effective as printing 100s of billions of USDs.” Chuck again. I knew in my heart of hearts that the Fed Heads all knew what was going on in the stock market, and what was fueling it, they just couldn’t admit it because if they did, they would have to accept the blame. I still say that the “unwinding” of all the stimulus is going to be interesting folks.  and I don’t mean in a good way! To recap. The Jobs Jamboree was very disappointing last week, and confusing on top of that, as it was quite different than the ADP report that printed two days earlier. The Unemployment Rate is a joke, don’t pay attention to that data behind the curtain! The dollar got sold on the labor data, and is still getting sold this morning. Even yen is rallying alongside Treasuries!  Currencies today 1/13/14. American Style: A$ .9055, kiwi .8360, C$ .9155, euro 1.3670, sterling 1.6425, Swiss $1.1075, . European Style: rand 10.7145, krone 6.1165, SEK 6.4890, forint 218.60, zloty 3.0405, koruna 20.0205, RUB 33.12, yen 103.45, sing 1.2645, HKD 7.7545, INR 61.51, China 6.0950, pesos 13.01, BRL 2.3460, Dollar Index 80.60, Oil $92.07, 10-year 2.85%, Silver $20.09, Platinum $1,438.13, Palladium $739.63, and Gold. $1,247.32 That’s it for today. Well, yesterday was my oldest son, Andrew’s Birthday. 32 years ago, we had 9 inches of snow fall while he was being born, and I had to navigate my way home late that night.  Happy Birthday Andrew!  What a busy week sports-wise! The Blues played two games (won one, lost one) the basketball teams at Mizzou and St. Louis U both won, and then we had the 4 NFL playoff games. You can bet that I didn’t leave my recliner much! Went with a good friend to my old childhood neighborhood on Saturday morning for breakfast. It’s pretty strange going back to South St. Louis, it used to feel so friendly when I was a young man, and now it feels cold, aloof, and scary at times. I showed my friend the house I grew up in, it sure looked sad. Well, I made it through the morning so far. so I guess I’m good to go!  It should be a busy week, so finish your coffee and go have a Marvelous Monday! Chuck Butler President EverBank World Markets 1-800-926-4922 1-314-647-3837last_img