It’s A Jobs Jamboree Friday!
August 1, 2014 · by Chuck Butler
Good Day! … And a Happy Friday to one and all! WOW! Did you see all those trades that were made in Baseball yesterday? I find it to be amusing that these teams know for over a year when the trade deadline is, and they wait until the final hour to pull off trades… Sure, I know that many of them need to wait-n-see if their team is in the running for a playoff spot, but they all knew that two weeks ago! My Beloved Cardinals made another trade, for another pitcher… ??? We traded a guy that is an everyday player for a pitcher that will only play every 5th day… Hmmm… I remember my dad telling me that when the Cardinals made the historic trade for Lou Brock back in 1964, that they had taken advantage of the Cubs, trading a pitcher for an everyday player… Lou Brock went on to become a Hall of Famer, and my dad was proven to be correct! Oh well, you came to the letter today, to see what’s going on in currencies, economies and dolts, not about historic baseball trades, so let’s get going!
Well, the risk sentiment that had a bias to buy dollars that was firmly placed in the markets after the 2nd QTR GDP report on Wednesday morning, is still in place, but… Seems to be weakening… I see that in the euro this morning, as the single unit inches toward 1.34 again… Yes, the high yielders are still getting whacked by the dollar, on the rate hike assumptions in the U.S. but seriously, what they heck are these guys thinking? It’s all about the here and now, right? And here and now, the rate differentials are way in the favor of the high yielding currencies, like: Aussie, kiwi, reals, rubles, rands, and a couple others… As I called it earlier this week, it’s nothing more than counting your eggs before they’re hatched…
The British pound sterling (pound) is finally getting what I thought it would get a couple of months ago… And that is… drum roll please… treated like a currency that has too many skeletons in its closet… But those skeletons were pushed way to the back of the closet as the pound kept rising, which was all based on rate hike expectations… You know, counting their eggs before they’re hatched! I told you months ago that I couldn’t get my arms around the pound rally, for they still had debt up to their eyeballs, and a Bank of England (BOE) Gov. (Carney) that was not going to hike rates as the markets expected him to do… Well, this morning, the pound is getting whacked as their latest report on manufacturing printed at the slowest pace in a year in July… OUCH! June’s manufacturing index number was 57.2, and July’s number slipped to 55.4… The rate hike campers have all scattered and run to cover, for this report points to no chance of a rate hike now… I would like to say “see I told you so”, but I’m not that kind of guy! HA!
I do believe that we’ll be going through the same motions here in the U.S. soon enough… For the pattern has been what happens in the U.K. usually is seen here within 6 months… I tried yesterday to point out the problem with the GDP report and questioned the ability of today’s economists and traders to see the problem with a huge buildup of inventories… And eventually something will happen, a data print will go sour or something like that, and someone will say, “I wonder how that happened?” Dolts… all of them! Oh well, I had my good friend, Dennis Miller, send me a note from John Williams yesterday, where John Williams put the seal of approval of my pointing out the problem with the buildup of inventories, and saying that we’ll see downward revisions in the future… I think John Williams won’t be too mad if I steal a quote from him here, “Each of those areas likely will see revisions in the next two months that will move the headline second quarter 2014 GDP much closer to flat-to-minus activity, and eventually into a headline contraction.”
I sent a note to Dennis and said, “Isn’t it amazing how people like myself, and John Williams can see the blowup in inventories in the data, but no one else does? Actually, what is probably going on here is that these guys see the inventories accumulating but have no idea what that means! They probably didn’t learn that in their prestigious school! Or if they did, and didn’t retain the info, they weren’t marked down for their lack of retain-ability, for that would hurt their feelings!”
OK… Man, when I go off on a tangent on something, I can really go off on it! I have other things to talk about here, so I need to get off this discussion about GDP! Well, in China overnight, the Chinese Gov’t printed a stronger than expected PMI (manufacturing index) of 51.7, which is the highest level since April 2012! It beat the expectations of 51.4 and Junes’ PMI of 51… We previously saw the HSBC/ Markit PMI print stronger too, so, both of these confirm that China is coming out of their slowdown. (recall I told you some time ago that I thought China’s economy troughed in the 2nd QTR…) But the reaction in the Asian and Emerging Market currencies was muted, which surprised me, given that as China goes, so goes Asia and the Emerging Markets!
Speaking of the Emerging Markets… I was having a good discussion with a friend of mine last night, and he asked me about the BRICS Development Bank, and wanted to know if this was going to be a good thing… Boy, he wasn’t ready for the answer he got from me, for you know me, I was loaded for bear for that question! To make a long story short here, I told him that the BRICS Development Bank was HUGE, for not only the BRICS countries (Brazil, Russia, India, China and S. Africa) but also the Emerging Markets, for they will get to go to the new bank for loans and not subject themselves to the IMF’s rules, etc. So, yes, it’s a good thing…
The Eurozone PMI’s all printed overnight, and while some member countries like Italy and Spain saw a little slippage in their index numbers, as a whole the Eurozone remained basically stable on manufacturing in July… And that has given the euro a chance to book some small gains VS the dollar this morning. I was talking to the Big Boss, Frank Trotter, the other day about the dollar rally, and he said, “The euro is down, which for us is big, but in the overall scheme of things, it’s not really down by much.” I walked out of his office, and sat down, and thought long and hard about that, and then came to the agreement, that while we have seen the euro much stronger, we’ve also seen it much weaker… So, I lowered the white flag on my desk…
Canadian May GDP printed at expectations yesterday at .4% and annualized at 2.3%, so at first the Canadian dollar / loonie rallied a bit in the face of the U.S. dollar strength, but eventually it succumbed to the pressure from the green/peachback… I was expected some better things from the Canadian economy, but then May was 3 months ago, I guess I need to be patient and wait for the reports from June and July!
U.S. stocks got whacked yesterday… No I’m not going to turn into a stock commentator… Just pointing out that the rate hike talk as taken its toll on stocks too… And Treasury yields have risen too… I was talking to a trader friend of mine yesterday, and she told me that her research team said that if the 10-year held above 2.57% that it was a big deal… Well, the 10-year at that time of the discussion was 2.59%, and as I look at the screen this morning, it’s 2.57%, so it DID hold 2.57%… What’s next? A return to 3%? That would certainly take more of the stuffing out of the housing recovery…
So, I’ve gone this far this morning, and haven’t even mentioned that today is the Jobs Jamboree Day! That’s because I’ve grown tired of this babble about jobs, we dance now! Yes, that was my attempt at humor using Dieter’s line from Sprockets… HAHAHAHAHA! Now that’s funny! Do you remember that SNL skit with Mike Meyers? FUNNY! OK, stop having fun Chuck, it’s time to get back to talking about the Jobs Jamboree… Ahhh, yes, job creation in the U.S. the fine art of adding jobs that don’t really exist to the number to make them look better… Makes sense to me as to why we put so much emphasis on this report… NOT! But the markets do, so that means I have to do so also…
Right now, the experts are expecting 230,000 jobs to have been created in July… with the Unemployment Rate remaining at 6.1%… I won’t even venture a guess as to what I think the number will be… I would, IF, I knew what the BLS added number of jobs was going to be! HA! I’ve told you for years now that I really don’t get into the number of jobs, for that total doesn’t really tell you what kind of jobs were created… Could be minimum wage jobs, which is fine, but doesn’t really give you a warm and fuzzy about future disposable income does it? Instead, I’ve always focused on the Avg. Hourly Earnings and Avg. Weekly Work Hours, and the Work Force Participation Rate…
The U.S. Data Cupboard will also have two of my fave reports this morning, Personal Income and Spending, but this data will be for June, which basically makes it a non-market moving event…
The risk in the markets today is that the Jobs report doesn’t meet the expectations of 230,000 new jobs… But as I explained yesterday, it is an election year, do you really think that the Gov’t is going to show slow job growth? Not that they cook the books or anything like that, it’s just a way of saying that things seem to go that way in election years… I’m just saying…
OK, back to our regularly scheduled programming… The New Zealand dollar/kiwi is getting whacked again this morning… Makes no sense to me given the rate increase last week, and rate differential that kiwi now enjoys… But I did tell you earlier this week that there were rumors that the Reserve Bank of New Zealand (RBNZ), who never misses an opportunity to diss kiwi, was going to sell (intervene) kiwi to weaken it, as they were not happy with kiwi’s strength… So, maybe the RBNZ is “piling on” here…
I say, batten down the hatches, and if anything look to buy on dips! I also told my trader friend I was talking to yesterday, that I thought we were going to see dollar strength for a couple of months here, as we work through this rate hike talk… same thing I told you dear Pfennig readers earlier this week, but wanted to repeat if for those that missed class that day. When we see these periods of dollar strength, and Lord knows we’ve seen plenty of them the past 12 years, we need to batten down the hatches and look to buy on dips… For eventually the dollar will return to its underling weak trend…
Gold got whacked again yesterday, but is up a couple of bucks this morning… I will remind everyone that $1,285 is a far, far, far way from $750… And while the price of Oil has slipped below $100, $97 is still a far, far, far way from $40… I’m just saying…
For What It’s Worth… OK… I’ve got a treat for you today… Have you ever heard of Richard Timberlake? I have to say that I hadn’t, and I should have long ago! I don’t know how this gem of an economist slipped by me all these years! Mr. Timberlake is 91 years old and studied under the great economist: Milton Friedman. He’s written books on things like exploring the influences over key policymakers and lawmakers who have shaped U.S. Monetary Policy.
Yesterday, a long time dear reader, sent me the link to an interview with Mr. Timberlake that was done in February 2014 (just 6 months ago) and while the interview is quite long, it was very enlightening to me… I especially liked this quote from him… He’s talking about the Financial Crisis of 2007-08…
“The Fed was never a lender of last resort, and it wasn’t this time either. The Fed should never point its finger at a particular sector and construct a policy that might help that sector, such as agriculture or employment, and say, “We’re going to act until this particular problem is corrected.” That goes back to the fact that the Fed has no rights, responsibilities, or abilities to do anything at all about the real sector. It has to deal with the monetary sector alone and not try to extend itself into the real sector. But when it’s called upon to counteract “bubbles,” it is being given a role that it cannot fulfill. If it tries, it ruins any price level stabilization policies it might have. “ – Richard Timberlake
Chuck again… Basically, Mr. Timberlake contends that “the Fed was created solely to be a lender of last resort under the law of the gold standard. It was supposed to be similar to the Bank of England.” And he doesn’t feel like there is a need for the Fed to be a lender of last resort, preferring to allow “private institutions to furnish lender of last resort services if markets are free to operate and if there are no government policies in place that cause destabilization.” Great stuff, folks… especially for someone like me, that soaks up Fed history, and policy like I do…
To recap… The dollar bias has weakened by a small amount this morning, as the euro climbs back to 1.34. The high yielders like Brazil, Aussie, Kiwi, rubles, and rands are still getting whacked on the reduction of yield differential talk… It’s all counting eggs before they’re hatched, but that’s not stopping them now… China’s PMI prints at the strongest level since April 2012 in July, and the Eurozone’s PMI was basically the same as the previous month’s level. Chuck talks about the BRICS Development Bank and how it will help the Emerging Markets, and Gold gets whacked again yesterday… But so did stocks and Treasuries!
Currencies today 8/1/14… American Style: A$ .9280, kiwi .8475, C$ .9145, euro 1.3395, sterling 1.6835, Swiss $1.1015, … European Style: rand 10.7390, krone 6.2995, SEK 6.8760, forint 235.05, zloty 3.1275, koruna 20.6250, RUB 35.75, yen 102.95, sing 1.2485, HKD 7.7500, INR 61.10, China 6.1681, pesos 13.25, BRL 2.2625, Dollar Index 81.48, Oil $97.55, 10-year 2.57%, Silver $20.33, Platinum $1,457.50, Palladium $868.90, and Gold… $1,284.00 And since everyone is getting all lathered up about an economic recovery here in the U.S. I thought I would remind them of the debt that hangs over us like the Sword of Damocles, and you can see that debt by clicking here and looking at the Unfunded Liabilities number… http://www.usdebtclock.org/index.html
That’s it for today… It was a tough week for me, given I was returning from a shortened vacation, and a week in Vancouver… But all in all, I felt pretty decent most of the week… Tomorrow we will host a birthday party at our house for Delaney Grace, who turns 7 on Monday… WOW! My little granddaughter, is turning 7! Delaney was born right after my two major cancer surgeries in 2007, so every year she grows older, I get further away from that awful time in my life, that was only brightened by the birth of that little girl! Did you hear that they have uncovered 4 lost Dr. Seuss books? That’s great news! My beloved Cardinals finally remembered what those bats in their hands are used for yesterday, and now come home for 6 games… NFL training camps are going, and the sports pages here are full of stories about the Rams… That’s right, get the fans all fired up for another woeful year… I don’t want to sound like a negative Nellie here, but the Rams play in a division with the 49er’s and the Seahawks… I doubt they have much chance to win their division… But then, maybe I’ll be surprised! OK… time to go… Thank you for reading the Pfennig, and I hope you have a Fantastico Friday!
Chuck Butler
President
EverBank World Markets
Editor of A Pfennig For Your Thoughts
1-800-926-4922
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