May 6, 2019
* Jobs Jamboree sends dollar higher on Friday…
* Gold gains and bond boys aren’t buying the jobs report…
Good Day… And a Marvelous Monday to you! The rain finally stopped on Saturday afternoon, and on Sunday it was just beautiful outside… Good for me, because I need to be outside! Did you have a great Cinco de Mayo yesterday? I write about this every year, on this day, because it’s funny… Years ago, I was writing about how I had stopped to sing in a sidewalk setting while in Cancun, and a Pfennig reader sent me a note and called me a MAK… (you can figure it out) We laughed about that on the trade desk for years! My Cardinals ran into a buzz saw in Chicago this past weekend…. And the Blues… Well, they survived game 6 to play a Game 7, otherwise they would had to get the golf clubs out. So, Let’s Go Blues! The Outlaws greet me this morning with their 10 minute song, with tons of great guitar playing: Green Grass And High Tides…
Well… I’m going to start the day, talking about the Fed, because they’ve been on my mind since they left rates unchanged last Wednesday, and reversed their previous statement that the economy was weakening to “It’s solid”… Lots of people like me, were writing about this last week, and so I’ll give you my version of what I’m seeing from the Fed right now… They’ve backed themselves into a corner… Yes, there they are with the paint bucket, and paint brush all dripping with wet paint, and they’ve painted themselves into a corner… What to do? Oh my, the humanity! These bunch of knuckleheads have done this to themselves… They try and try to micro-manage the economy, and it never works!
They have no idea what’s going to happen, and so they stumble, fumble, rumble along with all their “talk”… In their March meeting they talked about how the economy was showing strains and that no further rate hikes would happen… Of course that came after stocks appeared to be ready to drive off a cliff, Thelma and Louise style. So, stocks rallied… But in the meantime, we’ve had two consecutive months of strong jobs gains (I guess I won’t argue with that any longer, right here for this discussion anyway, as it does me no good to get all lathered up over it) and now it appears the Fed is going to have to hike rates to calm any potential wage inflation from this strong jobs growth… And you can bet your bottom dollar that stocks won’t like that at all… Then what will the Fed do, or say?
They did this to themselves, folks… if they had just shut up, stayed in the Eccles Building and not tried to be the Knight in Shining Armor, and save the stock market, and just let the economy do what economies are supposed to do, we wouldn’t have all these gyrations going on back and forth, will they, or won’t they? Etc. etc.
OK, that felt good to get off my chest! Well, the currencies didn’t fare too well, with the Fed back on the rate hike path… But the slippage hasn’t been the all-out of the water kind of slippage, the euro is trading around 1.12, and pound sterling is near to 1.31… The Aussie dollar (A$) has really lost some ground, as just last month it was trading around 72-cents, and now it has fallen to a 69-cent handle… Global Growth, or lack of I should say, is the cause of the A$’s problems, as China is in some deep dookie…
Speaking of China, the Trade Talks have gone on and one, and while last week there was hope that they would end soon, (recall I said, they’ll have to show me?) they aren’t ending any time in the near future, and President Trump has called for additional tariffs on Chinese goods because his patience with the Talks has grown thin…
Tariffs are NOT what the Chinese need right now, and their retaliation will NOT be what the U.S. needs right now either… I totally dislike tariffs folks… And when all is said and done, everyone will come to totally dislike them for they will be the snowflake that caused the avalanche on the financial system… mark my words… I’m dead serious here…
Well, you knew I wouldn’t pass on the opportunity to throw some shade on the BLS and their Jobs number right? For all you not in touch with today’s lingo, throwing shade on someone is like criticizing them… OK… So, the BLS said 283,000 jobs were created in April, beating the estimate of 213,000 by a very wide margin… Guess what the BLS added to the Jobs total after they received the surveys… go ahead, make a guess… If you guessed 281,000 then you would be correct… Wait! What? 281,000 of the 284,000 were added by the BLS after the surveys? Yes, Virgina, there is a Santa Clause and he works at the BLS! The BLS were, so how about that for organizing a “manufactured report”? I have to hand it the BLS they don’t care what others think, they’re going to push that envelope of manufactured reports as far out there as they can before someone, other than me, calls them on the carpet and demands an explanation… And that my friends is NOT going to happen! So… we live with the BLS and just say to ourselves each month… It’s only a made up report, it’s only a made up report, it’s only a made up report…
Too bad the markets don’t think like me, eh? Because stocks were flying high on the report… along with the dollar… Gold was able to gain some ground because well, if the labor gains are what they are reported to be, then wage inflation won’t be far behind… But the bond guys didn’t care what the BLS had up their sleeve… The yield on the 10-year only moved 1 Basis Point on the day… And in the overnight markets the 10-year’s yield has dropped to 2.48%…
But just don’t take my word for this jobs report being a debacle that isn’t being reported as such… Famous economist, David Rosenberg, had this to say on his Twitter feed yesterday…. “The main feature of the payroll data was aggregate hours worked, which declined 0.1% in April. When you factor in the workweek falloff, it’s akin to a 110k employment slide!”
Chuck again… I love this guy! He points out things that everyone seems to pass up, but not David Rosenberg!
The U.S. Data Cupboard, last week, had some interesting data prints and on Thursday they printed 1st QTR Productivity… Now long time readers know I usually call this report stupid, because it measures how productive or how hard people work… But get this… 1st QTR Productivity was up 3.6%, which would be good, except…. Unit Labor Costs for the 1st QTR also printed and it was negative -0.9%… What that tells me folks, is that workers aren’t getting paid for their productivity gains… Work harder, make less… That’s not a good combination for the worker, but more importantly, it’s not good for the economy…
In addition, last week, March Factory Orders rebounded and rose 1.9%… Recall I had told you that given the other data prints from March, that I expected the Factory Orders to rise… And that’s just what they did… But the 2nd QTR has started out very differently than what apparently was going on in March, so let’s put a mark on this data and make sure we check the April number when it prints…
Well, rising debt is everywhere folks… Gov’t’s, States, Corporations, and individuals… I read a piece of information this past weekend that made me stop and say, Whoa, there partner! Let me spell it out for you and see if you have the same reaction… Apparently 73% of Americans die with debt of more than $60,000… Let me repeat that… 73% of American die with debt of more than $60,000… See? crazy, eh? Debt is everywhere…
To recap… The Jobs Jamboree was a trumped up report of 283,000 new jobs in April… (281,000 were added after the surveys were received) and the dollar got renewed strength VS the currencies, but it’s not an all-out of the water kind of strength VS the currencies… And Gold gained $8.50 because IF jobs are that strong, wage inflation not far behind… The Bond guys aren’t buying any of this, and the 10-year’s yield fell to 2.48% (from 2.52% last week) And Chuck has a lot to get off his chest today regarding the Fed, so don’t miss any of today’s Pfennig!
For What It’s Worth… Well, since I went off on the Fed this morning, I thought that this piece on zerohedge.com played nicely in the sandbox with my thoughts, and it can be found here: https://www.zerohedge.com/news/2019-05-03/fed-has-lost-control-rates-technical-tweak-fails
Or, here’s your snippet: “
While the rest of the world is distracted by the plummeting unemployment rates and trade deal hype, a funny (well not so funny) thing happened in the short-term funding markets in the world’s reserve currency.
As we noted previously, something unexpected has been going on in overnight funding markets: ever since March 20, the Effective Fed Funds rate has been trading above the IOER. This is not supposed to happen.
This week, The Fed tried to do something about it by cutting the IOER. It has failed!
In other words, as one veteran funding market trader exclaimed, “it’s getting worse!”
Simply put, this is front and center a dollar liquidity shortage signal that The Fed is unable to solve… for now.
As Barclays’ Joseph Abate recently ominously concluded:
The large move also suggests that the banking sector is “nearing the steeply sloping part of the reserve demand curve” which means that “bank reserves are now significantly closer to what individual banks consider their ‘least comfortable level of reserves’ and thus banks are more willing to pay higher rates to retain these balances.”
In other words, some $1.5 trillion in excess liquidity created by the Fed is no longer enough for banks which are starting to scramble to obtain additional liquidity, which needless to say, is very troubling for a banking system which is supposedly “fortress” and “much more stable” than it was before the financial crisis. If anything, this means that even a modest liquidity draining crisis at any point in the future could have vastly more dire consequences than even the pessimists.”
Chuck again… Well, this is not good folks… and the only way out of this is to cut rates aggressively, or have a coordinated effort to weaken the dollar… I’m just saying…
Currencies today 5/6/19 American Style: A$.6989, kiwi .6613, C$ .7423, euro 1.1200, sterling 1.3097, Swiss $.9818, European Style: rand 14.5095, krone 8.7448, SEK 9.5804, forint 288.73, zloty 3.8240, koruna 22.9595, RUB 65.05, yen 110.83, sing 1.3631, HKD 7.8461, INR 69.42, China 6.7336, peso 19.06, BRL 3.9375, Dollar Index 97.53, Oil $61.94, 10-year 2.48%, Silver $14.92, Platinum $870.00, Palladium $1,353.00 and Gold… $1,281.30
That’s it for today… Well, that was something at the Kentucky Derby on Saturday… I put my money on the winning horse, but then he was disqualified in a historic decision… UGH! I said then to anyone that would listen to me at the Watch Party I attended, that this is a bad precedence for horse racing because now every race is going to have a challenge… Why not? who knows what these knuckleheads will do, and a 65-1 odds horse may win? OK… Cubs sweep the Cardinals, which is bad… Our Blues come home for Game 7, and will play it on home ice, which has not been kind to them this year in the playoffs, they’ve been a better road team… Let’s hope the hockey gods are kind to them this time! Let’s Go Blues! I get my scans results today, so fingers crossed… other than that I’m out of things to say! HA! The Moody Blues take us to the finish line today with their song from the Seventh Sojourn album (one of my top 10 fave albums): When You’re A Free Man… I hope you have a Marvelous Monday, and will be Good To Yourself!
Chuck Butler