A Jobs Jamboree Friday!

November 6, 2015 by

* Awaiting the Jobs Jamboree.
* The markets believe this report holds the key.
* Has the Fed lowered the bar to a rate hike?.
* BOE leaves rates unchanged/ Carney talks dovish dribble

And now. Today’s A Pfennig For Your Thoughts.

Good day. And a Happy Friday to one and all! Well, that certainly wasn’t a grand showing on national TV for my beloved Missouri Tigers last night. UGH! I guess even the good teams have down years, but do that have to be this “down”? Pink Floyd greets me this morning with their song: Time. That’s the song that has all the different alarms from different clocks going off at the same time to start the song. I used to have an alarm clock that played a radio station when it went off, and one morning, the timing of the alarm setting and the start of that song couldn’t have been better, and I awoke to 100’s of alarms going off. Yes, it startled me!

So, it’s here. The U.S. Jobs Jamboree. Many years ago, I’m talking early 80’s, the markets used to come to a standstill before the jobs numbers were printed, much like they will be doing today. On the bond trading desk at Mark Twain Bank, we would all make a shiny quarter wager on where we thought the number of jobs would print. There was so much emphasis put on the number with bond guys, because well, fundamentals ruled back “in the day”. I know, like I always say to audiences, You’re scratching your head right now, thinking, “but Chuck doesn’t look that old”! HAHAHAHAHA! Well, I am, and in fact, I was in the business then about 10 years, so now you know, I’m not just some quant right out of college, talking like I know the history of markets.

So, getting back to the Jobs Jamboree. I told you yesterday that the forecasts were for 182,000 jobs created in Rocktober and a drop in the Unemployment Rate to 5% from 5.1%… But, in one day, the forecast for the number of jobs created has increased to 192,000.. I think those surveyed were being swayed by the rhetoric from the Fed members this week. The Services Sector PMI had a strong employment component, but that has overstated jobs for the past few months, so I doubt this swayed the forecasters. I’ve even seen some forecasts for a number greater than 200,000, as they point to the “holiday hiring” ramping up. Already? Oh well, the number will be what it is, but you and I know it really doesn’t represent a hill of beans, for it’s nothing but surveys with hedonic adjustments.

But. The markets believe this jobs report holds the key for a rate hike in December. Alright, they might be right on that, but what if. What if, this month is a strong report, but next month isn’t? Wouldn’t it be prudent to be cautious until you have all the reports in front of you? Of course it would, but that’s not the markets these days. Everybody wants to be the “first to the finish line” so they can put it on the resume’ and their introduction when speaking or writing.

So. After all that talking about the Jobs Jamboree this morning, I can tell you that the currencies are all trading in tight ranges ahead of the Jobs report, which will print at 7:30 am CT this morning. Everybody is so upbeat about this report, that I just have to take the other side of that position.. But that won’t help the currencies if “everybody is right” and the Jobs report is stronger than the average bear. Hey BooBoo, how about a nice picnic basket? Mr. Ranger man won’t know! Sorry, but that saying about an average bear, reminded me of Yogi Bear. A cartoon I watched as a kid.

I sure spent a lot of time yesterday, talking about the Yellen, Fisher, Brainard, and in general the talk of a rate hike that the markets think is carved in stone for December.. I don’t mean to sound like a broken record, scratched CD, or corrupted MP3, but I always do like to hear what other people think about this subject. And then yesterday, my friends over the Five Minute Forecast (The 5) were kind enough to quote me. I love it when my name is up in the marquee lights!.. And I thank The 5 for thinking what I said in the Pfennig worked well with their letter. To that end, The 5 also had a quote from James Rickards on the carved in stone December rate hike. let’s listen in.

“More to the point, even a stronger-than-expected employment report won’t signal a rate increase by the Federal Reserve… The reason is that employment is only one of three triggers that Janet Yellen laid out in her May 22, 2015, speech in Providence, Rhode Island. (That’s the speech where she revealed her playbook on when a rate hike is coming.) The other two triggers are inflation of 2% and growth of 2.5%. On those two criteria, the news is bad and getting worse for the Fed hawks.”

I will say that James Rickards has it tabbed exactly as I have it tabbed and have laid out for you dear readers in the past. The only thing that hangs out there and bothers me somewhat is that I believe the Fed has lowered their bar for a rate hike.. Which means all the target numbers that just a couple of months ago, seemed to be lines in the sand, are now seeing those lines in the sand being blurred. I think the Fed is hell bent and determined to show the markets that they can be trusted and believed again. So the question becomes, Just how hell bent and determined are they?

Alrighty then, that’s enough! I have this feeling that from now to the Fed meeting in December, the currencies and metals are going to make wild swings on every piece of “worthy” data here in the U.S. So, that ties a bow around all that talk, and sends it along on its way.

In the U.K. yesterday, the Bank of England (BOE) met, and left everything unchanged, that is except the Monetary Policy Statement, from BOE Gov. Carney. Just 6 months ago, Carney was the BMOC among Central Bankers for he was talking about rate hikes. And now? Well his rate hike talk has been reduced to dovish dribble, so as to not remind people just how hawkish he was a few months ago. And how he thought the U.K. economy was ready to take off! I said at that time that he would find that the economy can’t get going because of all the debt that the U.K. has accumulated. And now, Carney knows that too!

The problem here is that the markets believed Carney, and bought pound sterling by the basketful now only to have to unwind those positions. At least they get to book profits for their efforts. The pound got whacked on the Carney comments, and will continue to be hung out on a line.

The euro is flat this morning. The Eurozone saw Industrial production unexpectedly back off in September, but the move was small, and since the Jobs Jamboree holds the hammer this morning, the euro sits flat, but that will change once the Jobs number prints. if the jobs number is stronger than expected, the dollar will push the euro down, and vice versa. For you must remember at all times that the euro is the offset currency to the dollar, and if the dollar is strong, the euro is weak, and vice versa.

I saw a report last night that Brazil’s inflation was stronger than expected last month, so that will keep the pressure on the Brazilian Central Bank (BCB) to keep rates at elevated levels. A large rate differential and the process of impeachment for Rousseff proceeding, has the real firmly on the rally tracks again. But this currency can get derailed very easily, so the rally will really only help longtime holders who are looking for an exit.

One of the Big Bank Currency Research papers that I receive, was talking about the real and the Russian ruble, and they said that they pretty much preferred rubles to real.. I sat there thinking, isn’t that like choosing between taking out the trash or the recycling? HA! But I will remind you that you should always take what these Big Bank/ Brokerage houses say about buying stuff with a grain of salt, because they could, and most likely are, talking their book.

The U.S. Data Cupboard is all about the Jobs Jamboree today. We will see Consumer Credit for September, but I seem to be the only person that thinks this is an important piece of data. Here are the categories for the Jobs Jamboree today. Change in Nonfarm Payrolls, Two-month Payroll net Revision, Change in Private Payrolls, Change in Manufacturing Payrolls, Unemployment Rate, Avg. Hourly Earnings MOM and YOY, Avg. Weekly Hours, Underemployment Rate, Change in Household Employment, and Labor Force Participation. Of all that stuff, I consider Avg Hourly Earnings, Avg Weekly Hours, and the Labor Force Participation as important. the rest is subjected to hedonic adjustments and I just don’t care for that!

Gold is up $5 this morning. Did you see our Sunday Pfennig last week, where the Big Boss, Frank Trotter interviewed investment guru, Steve Sjuggerud? Well, you can still go back there and view it here: www.dailypfennig.com and go back to last Sunday. In it Steve points out that historically, and contra to conventional thinking, Gold performs well during a rising rate environment. of course our own metals guru, Tim Smith, said that too in his Sunday Pfennig a few weeks ago.

Longtime readers know how I love to throw rocks at the paper trades that drive the price of Gold, Silver and other stuff down. I’ve told you before that there are short Gold paper trades that represent more ounces of Gold than what is above ground. Well, a dear reader, sent me a link to a story on Yahoo Finance and in it, they cover the numbers, are you ready for this? The Gold coverage ratio, which measures the amount of paper claims for every ounce of physical Gold, hit a new all-time high yesterday of 293 ounces of paper per ounce of registered physical Gold. So, now you can see how these paper trades can cause a whacking of Gold on any given day, at any given time of the day. it just makes my stomach ill. Seriously!

And Before I head to the Big Finish today, I have a personal story that relates to these short paper trades.

I’m going to tell you a story from my past dealing with short contracts in commodities, if you don’t want to hear about it, just skip ahead. Alright, for the rest of you two that want to hear this, Many years ago, I was the assistant cashier at a brokerage firm in Des Moines, Iowa. There was a broker that had been at the firm for many years, and the company’s management gave him more rope than other brokers. So, remember the Bally’s Casino fiasco in Atlantic City in the late 70’s? Well, this broker had on his books, short contracts for nearly all of his customers, that amounted to a very large amount. I as the head of the margin area as a part of my duties, I recognized this, and brought it management’s attention. And then I had to send out margin calls when things started going the wrong way for the customers. Then one Monday morning, the short contracts all had to be called away, and when I went downstairs to inform the broker that he had to call his customers and have them deposit large sums of cash, I found out that he had admitted himself to a hospital over the weekend. So, guess who had to call the customers and inform them that their entire positions were wiped out, and that they had to deposit more money? Yes, the management thought, that since I had been on top of this, that I should do it. And what did I get for my troubles? Being treated like I was hiding something during an SEC deposition. Good thing for me I had documented everything from the beginning. But the important thing here is and this is just an a small sample size, but it’s what can happen when too many shorts flood a market. A short squeeze will put hair on the chests of young traders, in a hear beat.

To recap. It’s all about the Jobs Jamboree today folks. yes, I know I told you months ago, that I wasn’t going to make a big deal out this hedonically adjusted survey by the BLS any longer, and I’m not! But the markets are! The markets have tied this report to a key that would unlock the door that a rate hike sits behind. Chuck thinks this is all wasted time, because there’s still another month of data to look at before the Fed meets. But he also feels like the Fed has lowered their bar for a rate hike, and that’s scary to him. The currencies are all flat this morning ahead of the Jobs Jamboree. The BOE left rates unchanged, and BOE Gov. Carney had to dish out dovish dribble. Gold is up $5 this morning, strange given the jobs report due later this morning.

Currencies today 11/6/15.American Style: A$.7150, kiwi .6615, C$ .7575, euro 1.0880, sterling 1.5125, Swiss $1.0045, . European Style: rand 13.9675, krone 8.5300, SEK 8.6375, forint 288.80, zloty 3.9110, koruna 24.8470, RUB 63.75, yen 121.90, sing 1.4100, HKD 7.7510, INR 65.76, China 6.3459, pesos 16.65, BRL 3.7815, Dollar Index 98.11, Oil $45.49, 10-year 2.22%, Silver $15.05, Platinum $953.85, Palladium $611.50, and Gold. $1,109.30

That’s it for today. Trying to get this to you before the Jobs Jamboree begins, it always seems I’m running up against time, which brings us full circle to the song that greeted me this morning! Another game with offensive frustration for my beloved Mizzou Tigers last night. This is not the offenses of: Brad Smith, Chase Daniel, Blaine Gabbert, and even James Franklin, the past quarterbacks that ran exciting, and high scoring offenses! We have an 18-year old freshman playing quarterback, so it’s not all on him, but. Oh, Hey, we finally scored an offensive touchdown last night! Thank the Good Lord for small favors, eh? Tomorrow has two BIG College Games, LSU VS Alabama, and Clemson VS Florida St. My good friend, Rick B. went to Clemson for his graduate degree, and bleeds orange and blue for his Clemson Tigers. He must be really keyed up for this game tomorrow. I’ll end this today with a cute story. There’s a note hung on the writing desk back wall from Delaney Grace that she wrote a couple of years ago to her uncle Andrew and Alex, who were her swim coaches. “You are the best swim couchs and uncles EVER! Yes, she spelled coaches wrong, and that’s one of the things that makes you smile when we read it! And with that, I’ll get off this bus today, and send you on your way to having a Fantastico Friday!

Chuck Butler
Managing Director
EverBank Global Markets
Editor of A Pfennig For Your Thoughts
1-800-926-4922
https://www.everbank.com