The World’s Economies are Spooling Up for a Strong Rebound

By Jan 11, 2010, 12:09 PM Author's Blog  

The non-dollar currencies and commodities are flying high this morning, hammering the dollar. The Aussie (AUD) and Canadian (CAD) dollars are heading to parity once again, the euro (EUR) is back over the 1.45 handle, and gold is up $20! It’s “all good” for non-dollar investors this morning… I don’t want to sound like a cheerleader – of which I have in the past – but, this is a currency/economy letter, and it’s geared to non-dollar currency investors… So, take that as it may come.

So… What’s got the non-dollar currencies and commodities all lathered up, this morning? Well, there was a report from China yesterday showing that China’s December trade data posted the first positive surprise in the New Year. Export growth jumped to 17.7% in December from -1.2% in November. Imports registered a stunning 55.9% growth in December, reflecting the strength in domestic demand.

A friend of mine who had a business in China for years, told me to believe half of what China says in their data reports… So, if that’s the case, their exports grew more than 8% in December, and that’s still a HUGE jump! And when applied to their imports, it reduces the gain to 27%, and that’s still a HUGE jump!

Of the two, I find that the imports number is the best of all worlds for commodity countries, and thus, the rise in the Aussie dollar and Canadian dollar/loonie this morning!

The selling of the dollar began on Friday, when, as you’ve probably heard by now, job losses came in at 85,000, not the 0 (zero) the “experts” were forecasting… And… If we add in the 59,000 jobs the Bureau of Labor Statistics created out of thin air, the job losses would have been 144,000. The unemployment rate remained at 10%, and the air was completely let out of the sails of the “the recession is over, and the Fed will be raising interest rates soon” campers…

And that’s the big picture this morning, folks… Here in the US our job losses continue to drag down the economy, but in China, imports show domestic demand, and exports are soaring once again. In Australia, we’ve seen three rate hikes, and in Norway we’ve seen two rate hikes… The worlds’ economies are spooling up for a strong rebound, and here in the US we’re still licking our wounds… Now… Don’t get me wrong, here… I don’t enjoy telling you this… But it has to be said, so that the major media outlets, which are spoon-fed from Washington, can’t spin this as a positive… Because it’s not! It’s that simple!

The other thing that came out of Friday’s reaction to the job losses was the fact that the dollar got sold on the bad data… Yet, another sign that we are returning to fundamentals. Now, if only those responsible for this return to fundamentals would take another look at what’s under the table here in the US… Like a national debt of $12.3 trillion… Unfunded obligations of $106.9 trillion… And no ability to shake our government out of their deficit spending mind frame…

OK, enough of that… Like that’s not depressing enough!

Let’s do a country run-down…

In the Eurozone, European Central Bank (ECB) President, Trichet is expected to speak today, a day after Moody’s said that Portugal was in danger of having their credit rating cut. I hope Trichet speaks from the heart and really tells it like it is… For if Trichet were to speak from the heart, the euro would be trading 1.50 by the end of the week! But his hands are tied here, folks…

In Australia, a job ads report showed a huge increase – in fact the highest since May of 2007 – which could mean good things from the jobs report/employment data due this Thursday. If we see an upside spike in jobs created this Thursday in Australia, it could very well be the springboard to Aussie dollar parity to the US dollar… Yes, I’m well aware of the fact that the Aussie dollar is still 6.5-cents away from parity… That’s why I said it “could” be the springboard…

In Canada, there’s a ton of data to print this week, and as long as none of it shows Canada slipping down the slippery slope, we could see some additional gains to this morning’s move to 97.5 cents as the week goes along.

All this talk of the Aussie and Canadian dollars reaching parity is fine… But the first currency to get there just might be the Swiss franc (CHF), which we’ve seen at parity on more than one occasion in the past. As the franc edges closer to parity, the more the new Swiss National Bank (SNB) Governor Hildebrand gets his feet wet in the verbal intervention game, by reminding the markets that the central bank will continue to combat excessive appreciation. Those are just words, folks… And they won’t mean a thing until Mr. Hildebrand shows us the swing… Real, physical intervention…

And… Talk about some wild swings! That Brazilian real (BRL)… You’ve got to have an iron stomach, or just not watch these wild daily swings in this currency! On Friday morning, I bought some reals at 1.74… This morning, the real is 1.7190! And that’s a tame swing for this currency! But… As last year showed us, if you don’t get caught up in the daily noise and these wild swings, you could be rewarded with a 33% return versus the dollar…

The thing to think about here is that these HUGE moves were done overnight in Asia and Europe… We’ll have to wait-n-see if the US traders go along with the dollar selling, or if they think this has gone too far, too fast, and decide to pull back on the reins…

Well… It’s another “Treasury issuance week”… This week’s issuance brings us $84 billion of new issues to auction off… $40 billion 3-year, $21 billion 10-year, $13 billion 30-year, and $10 billion 10-year TIPS…

There’s a number of Fed Heads on the speaking docket this week, and they are all what I would consider to be hawks… So, there’s always a chance that they slip in a reference to higher rates in the US, which after last week’s jobs losses, would be a far reach, and hopefully the markets see any such mention of higher rates for what they are…

And what might that be, I hear you asking? Ahhh, grasshopper… We’ve played this game for so long now, but I do realize there are new players all the time, so for them… Basically, it’s like this… The US needs a weaker dollar… But they can’t be seen to “want a weaker dollar” for that would scare the bejeebers out of the foreigners, on whom the US government depends to buy our debt. So they play this game of give and take… A game they play to keep foreigners from thinking the government wants a weaker dollar… When in reality, it’s the only way they have a chance to pay the interest on the debt they’ve issued… (Notice I didn’t say “pay back the principal”, for we can’t even think of doing that!)

Then there was this… Get ready for it! The HUGE jobs gains this year! These are guaranteed to be created! Yes, step right up, and don’t be shy, cause you won’t believe your eyes! 1.2 million jobs will be created this year… OK… Let’s calm down… The 1.2 million jobs will be created by the government for the Census… Not really a long time job commitments, eh? But… These 1.2 workers will be spending the money they make during this time… So… Look for the major media knuckleheads to get all lathered up about the jobs increases in the coming months… Not having a clue that they are government-hired census workers.

To recap… The Jobs Jamboree on Friday surprised the markets with a “real” -144,000 job losses, and the dollar got sold… Overnight, though, the big move in the non-dollar currencies and commodities have come via the Chinese report on December exports and imports, with both showing HUGE gains, thus turning on the green light to currency appreciation for the commodity currencies… And gold is up $20 this morning!

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France4428.96  chart-128.40  chart -2.82%
Germany10038.97  chart-282.18  chart -2.73%

EUR / USD1.1447  chart+0.0000  chart +0.00%
GBP / USD1.4610  chart+0.0000  chart +0.00%
CAD / USD0.7967  chart+0.0000  chart +0.00%
AUD / USD0.7607  chart+0.0000  chart +0.00%

Gold Fut1102.80  chart-5.30  chart -0.48%
Oil Fut48.23  chart-0.23  chart -0.47%