Now that Everyone "Knows" We're in a Recession…
Also In Today’s Letter…
- The Yen Already Had Its Day in the Sun…
- My Favorite Exotic Is Quietly Making a Break Higher
- Why You Need an Exit Strategy Part I
It was a wonderful weekend here in St. Louis, with a taste of spring in the air.
Well…as I mentioned briefly in my last letter, this past Friday’s Job Jamboree was nothing short of miserable. The U.S. lost 651,000 jobs in February – the shortest month of the year. So hard to believe, but it actually could have been worse.
The unemployment rate rose to 8.1%, from 7.6% in January. The jobless rate is the highest since 1983. The economy has now shed 4.4 million jobs since the recession began in December 2007, with almost half of those losses occurring in the last three months alone.
Remember a year ago when I kept harping that we had already entered a recession?
At the time, the NBER hadn’t announced one yet. Nor were the un-dynamic duo of Paulson and Bernanke agreeing with me. In fact, they kept denying what was right in front of them. After all, if I could see that we had entered a recession, then why couldn’t these two?
Oh well, we now know that the recession began in December 2007. And now we know that 4.4 million jobs have been lost since that time.
Of course you should remember that the Bureau of Labor Statistics (BLS) has a habit of adding jobs to their official numbers that actually don’t exist. And it’s a good thing they do. Had they NOT added jobs throughout the year, the data would show that the economy was sinking even further. So I don’t know whether to thank the BLS or curse them.
Also, it’s definitely worth mentioning that the previous months’ totals of -577,000 and -598,000 were revised upward by large amounts to -681,000 and -655,000 respectively.
So, you’ve now got to ask yourself: Will that February figure of 651,000 be revised to 700,000 when they revise the numbers? Of course, it’s my opinion that the BLS would never dare print that figure when the numbers first come out. But they can easily sweep that kind of number under the rug in a revision.
Derivatives Predict a Recovery Down Under!
Recall last week, I was talking about how fundamentally speaking, Australia was looking healthier than other countries?
Well the very next day, Australia posted a contraction in their GDP. Some egg on my face there, but regardless, I still think they are poised to pull out of this global financial meltdown on the fast track.
Apparently, I’m not the only one that thinks so. Derivatives show that the worst is over for the Aussie dollar. And the Royal Bank of Canada (RBC) is telling their customers to buy the Aussie dollar vs. Canadian dollars / loonies. It was right there in on the trading screen, when I got in the office this morning.
The Yen Already Had Its Day in the Sun…
I mentioned to my colleague, Chris Gaffney last week, that I’ve seen more yen selling at the trading desk than I had seen in a long time. We’re seeing some major profit taking (particularly for those who have held the yen for some time). And why not? In this day an age with deflationary pricing pushing most assets downward, when you see a profit, you take it!
The guy known as “Mr. Yen,” Sakakibara, told the press last night that he believed the yen might rise to a record 70 vs. the dollar. Woah! He also said that it would range trade between 100 and 70.
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Meet Mr. Yen
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He believes that the yen will be afforded the same kind of love the dollar has received since the financial crisis began in the U.S. With Japan posting a large economic contraction last week, Mr. Yen, is of the opinion that it will help the currency gain to 70.
Hmmm… I just don’t know about all that. For one, I’m not convinced the flight to safety that has underpinned the dollar with buying Treasuries, will be duplicated in Japan.
Plus, the only thing that’s pushed the yen higher in 2008 was the carry trade unwinding. The unwind ended about a month ago. In short, I don’t like the yen’s chances to go to 70, but do agree that it could hold 100. It’s darn close to 99 as I write this.
Gold’s Tug-of-War With Global News
Okay, I told you on Friday morning about gold’s rebound to US$940, but gold didn’t climb any higher even after the horrific jobs data. I guess you would have to say that gold traders had “priced in the jobs data already,” eh?
Gold was off by about US$4 this morning, as it was pulled down by a report regarding global inflation. The Economic Cycle Research institute announced U.S. inflation pressures are at their lowest since 1958, and likely to decline further.
But for every report attempting to pull gold down, there’s one attempting to push gold higher. For instance, our friends (NOT!) at OPEC released their own report. According to the report, they are going to maintain their 13% cuts in production since September 2008. They may consider more cuts. Oil is trading higher this morning at almost US$47, and oil traders believe it will be back to US$50 within two months.
My Favorite Exotic Is Quietly Making a Break Higher
Meanwhile, the Brazilian real has been quietly making noise for the past three months. The real has gained 4% in the past three months, as investors around the world look for yield.
And Brazil’s interest rates have had a major allure lately. But, there’s word out of Brazil that the Central Bank will look to cut rates by 100 BPS / 1% when they meet, later this week.
That’s too bad, but Shoot Rudy, Brazil’s rates will still remain higher than you can get in most places these days.
Plus, Brazil’s GDP is still positive. And, if traders and investors reward the real for cutting rates aggressively like they did other currencies, then the real has nothing to worry about, eh?
Top Researcher Picks My Top Three Currencies
For the past month I’ve given you my ideas for the countries / currencies that could be on the fast track to recovery, given their ability to remain off the rosters of countries with failing banks.
Norway leads the pack, with Canada, and Australia close behind. I even told you about how Paul Volcker thought we should shift to the way Canadian Banks operate. Well, it’s always nice to see someone else follow up on my ideas, and BNP Paribas’ research team is. They just issued a report advising their clients to buy… You guessed it… Norway, Canada and Australia.
BNP said, “We remain friendly on commodity currencies like Norway, Canada, and Australia, and view today’s oil price rally as an indication for other commodities to follow. We are bullish on the Canadian dollar, Norwegian krone, and Australian dollar, but unlike last week we like trading these currencies long against the dollar.”
So, it’s not just me…
That’s it for today… Well, the Butler boys made it through the five days on our own… No problems yet. I head to Jacksonville on Wednesday, for a corporate event, then drive down to Jupiter on Friday. My family joins me in Jupiter Friday night. By Saturday, I’ll be in heaven…and by heaven, I mean Roger Dean Stadium, watching my beloved Cardinals! Sure hope the weather is warm, to get the “frost” out of my system! I will celebrate my birthday in Jupiter, like I have for the past seven years. After the events of almost two years ago, I do “celebrate” my birthday now more than ever…
Got to get this tied up and out of here, so I hope your Monday is Marvelous!
Chuck
More From The Author
- The Single Best Asset to Short in 2009 - August 5th, 2009
- The Death of a 27-Year-Old Bull Market - August 3rd, 2009
- The Return of Foreign Currencies - July 30th, 2009