Another Trumped Up Report…

* Calling the PPT, Calling the PPT.
* Euro gives back a large chunk of its gains.
* Greece decides to bundle their loan payments!
* But no one tells Christine Lagarde! .

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

Good day. And a Marvelous Monday to you! The sky is lighting up again this morning as storms move through the area, but at least the rain held off for the weekend for once! And yesterday, was the first time it actually felt like June! Well. I made it! Contrary to what the women on the trade desk believe. I was able to “get along” just fine while Kathy was gone, and she’ll return home tonight to a somewhat clean house (except for Alex’s messes) and I’m still here, and kicking! Of course I’m not saying that I would prefer it to be this way all the time, but for short periods of time, I’m good! The band Heartsfield greets me this morning with their song: Racin’ The Sun. And now it’s time for us to head to the currency/ metals/ economies and dolts news.

Well, that was quite a showing by the BLS last Friday, eh? According to the BLS 280,000 jobs were created in May. Ahem, excuse me while I clear my throat, because I’m going to speak now regarding this, and I don’t want any of my words to be misunderstood.

Do you recall playing the game “hot and cold” where someone would be “it” and they would try to find something and they would be told if they got closer to the item, they were getting hotter, and when they got really close they would be burning hot, etc. and vice versa if they wandered away from the item, they would be told they were getting cold, colder, freezing, etc. ? Well, the BLS wants you to believe that the jobs market is getting close to pushing the Fed to hike rates, that it’s getting hotter, and hotter.

Last Friday, the BLS decided to blazingly report that 280,000 jobs were created in May. The expect us to swallow that news hook, line and sinker, and then not flip and flop when we’re taken out of the water. But then there’s me. the non-believer, the anti-BLS jobs report person. For the second consecutive month, the BLS added 213,000 jobs to their surveys. And I’ll point out again, that the BLS has no basis for this addition of jobs, as it’s supposed to be an estimate of the net of small business closings and openings that won’t get reported for a few months. And, that the latest reports I’ve read reveal that there have been more business “deaths” in the last year than “births”. So, go ahead, say I don’t know what I’m talking about, but if you do nicely, I won’t get upset. Because if you don’t want to listen to me now, you might want to listen to John Williams of later.

John Williams still believes that without seasonal adjustments, and other hedonic adjustments total Unemployment is 23.1%… He believes that the 10% Unemployment Rate in 2009 compared to the 5.5% reported today, has seen the drop attributed largely to Unemployed giving up looking for work, being redefined out of the headline reporting and the labor force as discouraged workers, and that the drop in the headline number is not a reflection of a healthy economy, but more of an economy that has a large number of people unemployed and unable to find gainful employment.

So. On Friday morning, last week, I told you to expect the BLS to open up the spigots on the hedonic adjustments and when they did, the dollar would rally on the trumped up number of jobs created, according to the BLS. And that’s exactly what happened. I guess this is where I tell you that even a blind squirrel can find an acorn every now and then. But, that leads us to the currencies this morning. Friday saw a huge rally for the dollar, and overnight we saw a lot of that reversed, only to then turn around again. The dollar was getting sold like tickets to a Cardinals playoff game in St. Louis overnight, but then in the morning session of Europe, the dollar rallied back. Hmmm.

I think the initial dollar selloff overnight came as a result of a comment from the G-7 meeting that took place this last weekend. A French official at the meeting told reporters that the U.S. President had referred to the dollar as “a problem”. Of course the White House immediately responded saying that the POTUS did NOT state that the strong dollar was a problem, and then things settled down. But I have to believe that the POTUS did say something like that, because this “stronger dollar” not “strong dollar”, is causing all kinds of problems, as most investment models had the dollar rally ending by now. And therefore, the markets are having a difficult time dealing with it. Oh, and I say “stronger dollar” rather than “strong dollar” , as there is definitely a difference, now it might be a subtle difference, but it makes all the difference in the world to me.

You see, I consider the dollar to be stronger than it was a year ago, but still not “strong”, for when the dollar was strong in 2001 when the Dollar Index was 121, and today it’s 96 and change. So, when it gets back to 121, then I’ll say it’s the King Dollar once again, otherwise, I’m going to stick to the idea that just like in 2005, 2008, and 2011, when the dollar rallied, and then fizzled out to return to the underlying weak dollar trend, that this end up the same way.

So, the rate hike campers were dancing in the streets again on Friday, and I was asked by a reporter, who apparently got to me by mistake, if the jobs report was an indication that the Fed will hike rates at the June meeting?

What will the Fed do next? Ahhh, the $64 dollar question. Well, I’ve always believed that you can sit on the fence so long without falling off, so I prefer to be on one side of the fence or the other, and always the decision is based on what I see. And what I see is an economy so weak, and inflation not on the rise, and therefore I don’t believe the Fed will or can raise rates like everyone believes they will in June. And to me this could be the point where the dollar jumps the shark tank, and its rally is stopped. Because let’s face it, the dollar is stronger, because of a couple of things, but most of all, because the world thinks the Fed is going to go on a rate hike cycle. And that all begins, in their minds, at the June meeting, but if they get disappointed, are the markets going to be just a little ticked off? You bet they will be. For there will be no hell a flurry like markets scorned.

Speaking of the chances of a rate hike. The Bloomberg had a great article on their site this morning titled: “Bond-Market Game of Chicken with Fed is Riskier Than Ever” and it goes on to talk about how the bond market’s best and brightest (funny that’s what we used to call the propeller heads that were brought in to rule the world at Mark Twain Bank) , have actually taken down their year-end estimates for Treasuries. And how it amounts to a dangerous game of Chicken, in which many analysts and investors are betting the Fed won’t rates too fast because of the damage it may inflict on the economy. So. I guess while I’m not a bond trader any longer, nor do I own any bonds, I am a participant here, because I do believe I was the first to say that the Fed would not hike rates in June.

When will the rates be increased? I’ve long thought that in 5 years here in the U.S. all the damage from 5 years of QE, zero interest rates, and what seemed like for a while endless stimulus, would be coming back to haunt us, and that interest rates would be rising faster than a speeding bullet, but so far, we’ve seen none of that. Does it mean we won’t see those Fed Tricks come back to haunt us? Well, no. It just means we haven’t seen them yet. So, as far as when rates will be increased? Probably later this year, just so the Fed can save some face with the markets, but that doesn’t mean the Fed will be aggressive about it. And if you want the alternative view on this, the one I would probably put more stock in than the first option of hiking later this year, it would be that the weakness in the economy begins to really weigh on the stock market, and the Fed sees their 5 years of hard work all going down the drain, and they panic, and come back to the QE table later this year. And that would smash the rate hike hopes like the bug that hit your windshield last night.

Whew! That was long-winded, eh? Well, you never know what you’re going to get from me. Apparently, I feel the wind at my back this morning! HA! So, this morning, we’re looking at a handful of currencies still holding on to the gains they booked overnight, but at reduced margins.. Gold is up $3 but that, as we all know all too well, can be wiped out in a NY Minute, so there!

The Canadian dollar / loonie is one of the better performers this morning, as Canada also printed a very strong Jobs Report on Friday. Of course theirs doesn’t have hedonic adjustments, and all that jazz. For those of you keeping score at home, Canada added 58,900 jobs in May VS just 10,000 expected. For the year, Canada has printed some very good labor gains, except in April, when a rogue print of -19,700 somehow filtered through, but the good news is that the May number more than made up for that rogue April print, and the loonie is basking in the sun this morning.

With the G-7 meeting going on this past weekend, one would have thought that there would be an even stronger push for Greece to accept creditors demands and be done with it all, than there was. But at least there was some comment about this from G-7. Usually, these G-7 meetings are nothing but a big boondoggle for the leaders of the G-7 countries. So, to get anything is a plus, I guess!

The Eurozone and IMF have agreed to set an informal deadline for Greece to next Sunday. I’m not seen a response from Greece yet on this informal deadline to compromise on an agreement. So, this whole mess will continue to weigh heavily on the euro going forward folks, so be careful here.

The New Zealand dollar / kiwi is up a tiny bit this morning ahead of the Reserve Bank of New Zealand (RBNZ) meeting on Wednesday. The “experts” at calling rate moves, are at about 70% in thinking that the RBNZ will cut 25 Basis Points off their internal rate this week. I’d like to think that the RBNZ is smarter than that, as they just got back to reversing the emergency rate cuts they made a couple of years ago when the earthquakes hit New Zealand. I’d like to think the RBNZ would follow the Reserve Bank of Australia’s (RBA) lead and leave rates unchanged, but Unfortunately, the RBNZ will succumb to the pressure the markets are putting on them to cut rates, and join the ranks of Central Banks around the world cutting rates. UGH!

Well, the U.S. Data Cupboard is pretty barren today, but that will begin to pick up on Wednesday, when May Retail Sales will print, which I will remind you in April Retail Sales were flat. The BHI (Butler Household Index) indicates that Retail Sales will pick up, but still be disappointing overall. I have been buying quite a few books though, so maybe it’ll be better than I’m thinking right now.

And Gold. I talked about the shiny metal a bit above so I won’t go into it again. other than to say that Bloomberg Intelligence suggest that Gold backed renminbi / yuan could see Gold at $64,000 per ounce. So, if China were to partially back its currency with Gold, it would require a Gold price of $64,000 per ounce, 50 times Gold Bullion’s price today, according to a recent article in Bloomberg Intelligence.

Now just how likely is that going to be? Well, when you ask someone like me that believes that this is one of the goals of the Chinese Gold accumulation, I even cringe to think about that happening, for it does sound quite outlandish, does it not? But. maybe it’s not that implausible. maybe. because you never know.

To recap. the Jobs Jamboree brought us more questionable data from the BLS last Friday, as the BLS reported 280,000 jobs created in May, but 213,000 of those 280,000 were added by the BLS after the surveys. Chuck continues to shake his head in disgust at this brazen printing of these numbers by the BLS. So, with the strong BLS trumped up jobs report, the dollar rallied, as I told you it would on Friday morning IF things turned out like I thought they would. Canada also printed a strong jobs report, helping the loonie to a good performance overnight. At the G-7 meeting, the POTUS was quoted as saying the strong dollar is a problem, but then the White House denied he said that. What do you think? Gold is up $3, but looks shaky. And the RBNZ meets on Wednesday, and the experts think the RBNZ will cut rates.

For What It’s Worth. Well. Leave it to the media to once again misrepresent something regarding Gold. Last Friday, I mentioned that there were reports out that Russia was saying that they would increase their Gold accumulation to $500 Billion worth of Gold, from their current $360 Billion of Gold. Sounded pretty aggressive to me, but the Russian news media firm Sputnik was reporting the Head of the Central Bank of Russia (CBR) as saying this, so I went with it.

Then my fave Gold researcher, Koos Jansen, decided that there was something fishy about these numbers, and he decided to do the math. Let’s go to the tape.

Let’s do some math:
Sputnik International states Russia currently owns 360 billion US dollars in gold. At a gold price of 1,200 USD an ounce this equals to
360,000,000,000/1,200 = 300,000,000 ounces
300,000,000/32151 = 9,331 metric tonnes

However, Russia currently does not own 9,331 tonnes in official gold reserves. Instead, it currently holds 1,247 tonnes – a difference of 8,084 tonnes – according to the website of the CBR and the IMF.

According to Sputnik the CBR will raise its official gold holdings from 360 billion USD to 500 billion USD. Or, converted to weight, from 9,331 tonnes to 12,960 tonnes. Suggesting the CBR is about to buy 3,629 tonnes in the coming years.

The misunderstanding can be easily cleared. Sputnik, for whatever reason, used Russia’s total International Reserves, which are currently 360 billion USD.”

Chuck again. Thanks Koos Jansen for setting us all straight! And for those still confused about Sputnik reporting that the Head of the CBR said these things, here is what she actually said. “Reserves should reach a “comfortable” level of about $500 billion within the next few years from about $357 billion now.” So, notice she said “reserves” not just Gold reserves. Therein lies a big difference folks. But none of this clarification means that Russia isn’t being aggressive with their Gold Accumulation, for that’s very far from the actual truth! Russia remains steadfast in their aggressive accumulation of physical Gold, along with most Central Banks in Asia and the Middle East, and most recently, the European Central Banks are making noise here.

Currencies today 6/8/15. American Style: A$ .7635, kiwi .7075, C$ .8040, euro 1.1160, sterling 1.5250, Swiss $1.0660, … European Style: rand 12.5750, krone 7.9105, SEK 8.3925, forint 281.25, zloty 3.7225, koruna 24.5740, RUB 55.81, yen 125.30, sing 1.3585, HKD 7.7525, INR 64.08, China 6.1205, pesos 15.68, BRL 3.1385, Dollar Index 96.06, Oil $58.81, 10-year 2.38%, Silver $16.07, Platinum $1,099.45, Palladium $747.97, and Gold. $1,174.05

That’s it for today. Cardinals take 3 of 4 from the Dodgers in L.A.! WOW! They were losing 2-1 when I went to bed last night, but they scored 3 in the 8th and won 4-2.. The Dodgers have to be thinking that the Cardinals are their kryptonite. And we FINALLY have a Triple Crown Winner in Horse Racing! I was very happy that it finally happened, for it had been way too long since we saw this! For my old colleague, here at EverBank, Ann Hopkins, I wanted her to know that I made the Bacon Explosion this weekend. No worries, I didn’t have any of it, at my age, that’s probably not a good idea! HAHAHAHAHA! And Happy Birthday to Barbara Bush, who turns 90 today. 90 years old! WOW! And Good luck to Ed Steer. Ed announced this past weekend that, well, here’s the link, I’ll let you read his announcement:

Ed is a good man, and a very good source of information for me, so I wish him well! Well, like I said at the top, Kathy returns home tonight. this Friday will be our 39th anniversary. Can you believe that? More on that on Friday, and for now, I thank you for reading the Pfennig and I hope you have a Marvelous Monday!

Chuck Butler
Managing Director
EverBank Global Markets
Editor of A Pfennig For Your Thoughts