Increase In Wages Puts Dollar Back On Top!

* Dollar recovers on Friday..
* BLS takes away jobs?
* PM May sinks the pound.
* Gold gives back ½ of Thursday’s gains!

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

Good Day. And a Marvelous Monday to you! How was your weekend? Mine was pretty laid back, lots of reading, especially yesterday, when the screaming wind outside knocked out our cable for a while, and I hunkered down with a ton of reading. When I was a young man, I really didn’t like to read books, now I read so many books, research papers, newsletters, that I think about when I was young, and wonder why I didn’t like to read books. Probably just that I thought I had better things to do, like play my guitar, or baseball, or football, or basketball, or soccer, or volleyball, yes, I played them all! The Beatles greet me today with their song: Let It Be.. Something I wish I could do better..

Well, the Jobs Jamboree last Friday was somewhat disappointing in one way, and beating expectations in another way. Here’s the skinny.. The BLS said that 156,000 jobs were created in December, which was nearly bang on with the ADP report the previous day, and well below the forecast of 183,000. And get this. The BLS actually did the right thing for once in a Blue moon and took away 28,000 jobs! WOW! You don’t see that every month! But, that wasn’t what got the dollar turned around on Friday. it was the report that wages had grown on an annualized basis 2.9%… That got the traders thinking that inflation is on its way, and that means higher interest rates, and turned the corner for the dollar, which had seen two days of beatings from the currencies.

So, wages bumped higher, eh? That’s a good thing for the economy, as long as those wages are used to put back into the economy, but if those wages are used to pay down debt, which I would think would be the first order of business, then the economy, short-term, isn’t helped.. Long term, yes, less debt will eventually lead to more spending, when there is discretionary funds to spend. But the traders and investors didn’t care about thinking through the wages increase, and the dollar stopped the bleeding, and went on the attack. All those lofty currency values on Friday are no longer viewable.. For general purpose, and a quick look, the Dollar Index on Friday was 101.56, and this morning it is 102.42.

Gold lost $8 on Friday, after its $17.10 gain the previous day.. The shiny metal is up $3 in the early morning trading. Last week, I told you about my good friends, Mary Anne and Pamela Aden, who have been analyzing the markets and writing a newsletter for many a year, but have taken on the Dow Theory Letters from the late, great Richard Russell.. And about once a week, they reprint Richard’s thoughts.. I always loved reading Richard Russell’s thoughts on Gold. And that’s theme of Richard’s Thoughts that printed in the Dow Theory letters last Friday. Hey! did you get an opportunity to read the latest Review and Focus (R&F)? I sure went to bat with the purpose of hitting it out of the park with the R&F this month, I sure hope you get an opportunity to click here and read it:

Speaking of the wages increase. I was reading my latest letter from my new fave economist, Danielle DiMartino Booth, this past weekend, and she was discussing things that point out that an economic cycle is coming to an end, and one of those things was that households overreach their paychecks, and that’s exactly what we are seeing. “When adjusted for inflation, credit card borrowing is up 4.5% over last year, a full two percentage points above wage income, which is up 2.5% over the same period. And at 2.9%, inflation spending is also running ahead of wage income.”

Chuck again.. First, her report was written before the Jobs Jamboree on Friday, so that’s why there’s a difference in her wages figure and the one that printed Friday. And second. To me I don’t see that households are overspent yet, restaurants are full, airplanes are full, and Amazon is killing brick and mortar retails sales stores. And with the new President-Elect optimism this could go on for a while, but you know and I know that this can’t go on forever.. I would think that it would run its course soon enough.

In other reading I was doing over the weekend, Agora’s 5 Minute Forecast, which is put together by Dave Gonigam, told me that “the Credit-reporting firm Experian says nearly 23% of all U.S. auto debt is Subprime, and another 22% in “nonprime, taken out by customers with less than pristine credit.” www.agorafinancial.com

Chuck again. That’s more than half of the auto debt that’s out there to people that wouldn’t have ever gotten a car loan, unless the interest rate was 10% over normal rates, in days past. I can’t help but think that this is going to end up with tears. Not a financial crisis, like the housing meltdown, but tears for not only the credit companies that gave the loans, but also the automakers, etc.

See what happens when it’s raining outside, and I’m hunkered down inside and reading? HA! Well, this morning, the currencies aren’t really moving in one direction or the other, after Friday’s selling. Except, however, the British pound sterling / pound. Prime Minister, May, was interviewed this past weekend and said that she: “Wasn’t interested in keeping bits of EU Membership.” This comment was widely viewed as an indication that the U.K. will leave the single market when it leave the European Union (EU), and the pound got sold like funnel cakes at a State Fair.. Friday morning the pound was 1.2382, and today it is 1.2140.. I’d say that traders didn’t like the sound of the U.K. leaving the single market, eh?

The euro is getting some love this morning from a strong Industrial Production (IP) report from Germany, the Eurozone’s largest economy. German November IP rose 0.4% from an upwardly revised Rocktober print. Now, longtime readers know me, and know that I like to focus on real economic data, of which IP qualifies as real economic data. So, take the IP print and sprinkle in the latest Eurozone PMI’s printing at a strong 55.6, and the think tank ZEW’s latest current account indicator increasing 4.7 points, I would that to think that when all the dust settles on 2016, and the all the beans are counted, that we’ll see GDP just below 2%… And that’s a good sign for euro.

Speaking of the euro.. my friend, Jeff Opdyke, who writes for the Sovereign Society ((thanks to me, but that’s a long story, no need to drag it out now), wrote this past weekend about how he’s worried about the elections this year in France, Spain, Netherlands, and Germany, and of course eventually in Italy. I had written about these elections a couple of weeks ago, and said that I was amazed that the euro was holding up in the face of all this stuff.. I think that once just needs to slow down, and think about how the Eurozone has done the rope-a-dope several times through its existence, so I wouldn’t just write if off so easily.

Another currency that is quite a bit weaker from its Friday morning price, is the Chinese renminbi. Last week it was the measures that the Chinese gov’t was taking to stem the outflow of funds from China that had the renminbi on the rally tracks.. But then, the bloom was knocked off the rose, and the renminbi was pushed downward. Dave Gonigam over at the 5 Minute Forecast, had wondered if the rise in the renminbi was curb appeal for the President-Elect so that he wouldn’t name China a “currency manipulator” Hmmm.

Speaking of China. I told you a month or so ago about how China’s FX reserves were dropping, as China sells a lot of dollars in its reserves, to defend the renminbi. There are tons of reports out there from writers, analysts, economists that believe that if China’s reserves fall below $3 Trillion that it would be a critical threshold breached.. I’m not buying that! Besides, I would think that the measures the Gov’t put in place to stem the outflow of funds would remove the need to sell reserves to defend the currency. $3 Trillion in reserves is still HUGE folks..

Jeff Opdyke also wrote about how he believes that the President-Elect, Trump, will drop the sanctions against Russia, and when the U.S. does that, then Europe would follow quickly, and by nature of these economic sanctions being removed, he believes Russia’s economy will soar.. OK, calm down Jeff. I’m in agreement that removing the sanctions would be HUGE for the Russian economy, But I’m not so sure that soar would be the description I would use.. Besides, Russia still needs the price of Oil to rise to really get going economically and right now the price of Oil seems to be stuck in the mud at $53..

The U.S. Data Cupboard on Friday, had the aforementioned Jobs numbers, and. November Factory Orders. I told you on Friday morning, before the print, that I believed that the data would print negative once again, and negative it did print! In fact Factory Orders plunged the most in month since August 2014! And this with a spike in Defense spending! Factory Orders have printed negative 23 of the last 25 months. There was a 103% increase in defense aircraft orders, so without a war going on, Factory Orders would have collapsed!

In addition, the Trade Balance for November printed on Friday.. Let me give you hint as to what it looked like. the dollar was strong throughout the month of November.. And if you said, “well if the dollar was strong, then exports suffered, and therefore the Trade Deficit probably widened” You would be the winner, winner, chicken dinner! The Trade Deficit widened from $42.4 Billion In Rocktober to $45.9 Billion in November! This just keeps going the wrong way folks.

To recap. The Jobs Jamboree didn’t meet the expectations for jobs created in December, but wages showed an annualized increase of 2.9%, and that got the markets thinking that inflation is on the rise, and therefore, interest rates will rise, and the dollar would benefit.. Chuck shares his thoughts on the wages increase. PM May said she wasn’t interested in “bits of the Eurozone”. These words put the pound sterling on the selling blocks early and It’s still there this morning. And the Chinese renminbi reversed last weeks’ gains in one fell swoop overnight. Other than that the currencies lost ground on the Jobs Jamboree wages on Friday, but overnight and this morning seem to be range trading..

For What it’s Worth. Well, longtime readers know I’ve never been a fan of Lawrence Summers. he’s been so wrong about most things for so long now. But could he be right about this? I’m talking about an article that was printed by Trump’s advisors regarding Trade.. Bill Bonner sure had some things to say about this article in his Friday note, that can be found at https://bonnerandpartners.com/bill-bonners-diary-home/

Or here’s your snippet: “Summers is referring to the paper written by two members of Trump’s trade team: his pick for secretary of commerce, billionaire investor Wilbur Ross, and the director of Trump’s new National Trade Council, Ph.D. economist Peter Navarro. It calls for a turn away from free trade and toward managed trade – or what is vaguely described as “fair” trade.

If the new Trump administration follows the advice laid out in the Ross-Navarro plan, it will almost certainly lead to disaster.

Of course, there will probably be a disaster anyway. But as it is, you can’t fault the hotel mogul, reality TV star, and president-elect. He didn’t build this railroad; it won’t be his doing when it goes off the rails.

But Ross and Navarro are bad engineers. They’re twisting the tracks!

Specifically, they’re advising the new administration to abandon free trade in favor of crony trade – deals designed to reward or punish certain industries or countries depending on which direction the political winds and lobbyists’ money are blowing.”

Chuck again. I think I’ve talked about the beginnings of the Great Depression in the Pfennig before.. Smoot-Hawley ring a bell? Well, those two introduced measures to place tariffs on trade and it created a disaster. I sure hope the President-Elect isn’t going to go down this road again. Remember when President Bush placed tariffs on Japanese Steel in 2001? It tipped the scales on the strong dollar trend at the time, and soon we were looking at a weak dollar trend.

Currencies today 1/9/17. American Style: A$ .7320, kiwi .6966, C$ .7541, euro 1.0517, sterling 1.2140, Swiss $.9810, . European Style: rand 13.7773, krone 8.5675, SEK 9.0989, forint 292.73, zloty 4.1624, koruna 25.6856, RUB 59.56, yen 117, sing 1.4411, HKD 7.7556, INR 68.18, China 6.9171, peso 21.33, BRL 3.3358, Dollar Index 102.42, Oil $53.42, 10-year 2.40%, Silver $16.52, Platinum $976.65, Palladium $767.35, Gold $1,175.55, and SGE Gold $1,187.22

That’s it for today. Well, “my two teams” won yesterday, and move on in the NFL Playoffs. You may recall me saying on Friday that I saw the Patriots and Cowboys in the Super Bowl, but wished for a Steelers/ Packers matchup.. Steelers and Packers won yesterday and move on to the next round. I was over to the stadium, Roger Dean, on Friday after seeing my winter oncologist, and no one was around, but I still feel at home when I’m there.. Well, I’m on these darn steroids for two more weeks to see if there’s any healing of my colon. So far, there hasn’t been any. UGH! I heard / saw it was 5 degrees yesterday morning in St. Louis. YIKES, good thing I’m here, otherwise I would be whining about that! HA! Our Blues won Saturday night. Win one, lose one, is no way to go about a season. I’m still waiting for a winning streak… Kanas takes us to the finish line today with their 9 minute “Song For America” And with that it’s time go. I hope you have a Marvelous Monday, and Be Good To Yourself!

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