A Non-Dollar Currency Rally Wrapped Around G20’s Silence and IMF Comments

I checked the currencies last night, as is my tradition of taking a peek at the Japanese open… And the dollar was getting sold. I thought to myself… “I bet G-20 got things going here!” And then this morning, when I turned on the currency screens, I saw that the dollar really got sold overnight, and in the morning session of Europe. The Big Dog, euro (EUR) is flirting with 1.50 again, the Aussie dollar (AUD) is flirting with 93-cents, and the Swiss franc (CHF) is not only flirting, but holding hands with parity against the dollar!

So, what’s behind this big move in the currencies versus the dollar? Well… The move has been fueled by G-20… And it’s not anything that the G-20 members said… In fact, G-20 said nothing about the currencies… Traders are taking this to mean that the G-20 member nations don’t have a problem with the weak dollar, and that’s akin to giving them the green light to sell the dollar further… Proving once again that silence is golden… (At least to non-dollar currency and precious metals holders!)

Since G-20 was given the reins of the currencies, they haven’t said a word… I find this to be very significant, folks… You know, it’s not like if G-20 said the dollar’s fall was too deep, they could do anything significant about it… But the fear of something would be enough to wrap a tourniquet around the dollar’s bleeding. But… They didn’t! And so we go on with the dollar selling, which in reality is what the US government really wants anyway! A general slow depreciation of the dollar is the way the government would like to see the trading go…

So… There we have it! A non-dollar currency rally that’s wrapped around G-20’s silence on the weakness of the dollar.

Friday we saw the Jobs Jamboree really surprise on the “good side” of the job losses which according to the BLS (Bureau of Labor Statistics) was “only” 190,000 for October… Now, that’s quite the fall from the +500K job loss months we saw six months ago. The unemployment rate, however, spiked to 10.2% in October… The first time the unemployment rate has been above 10% since the recession of the early ’80s.

And then there was this, regarding job losses… Chris Manning of the BLS stated last month that payrolls were overestimated in the twelve months ending March by 824,000. The source of this error was the birth/death model. BLS used “plug” numbers for the number of births and deaths. These “plug” numbers were wrong. They led to estimated positive contributions to employment that were too high. Most of the error (675,000 out of a total 824,000 jobs) occurred in the first quarter of this year. The birth/death model was adding significantly to payrolls when all other payrolls were falling. In reality, the contribution from net births and deaths was negative.

I’ve ripped this birth/death model for years now… And here you go! Even a BLS employee says they were wrong to add these jobs!

So… The question is when do these job losses get posted? Well… I don’t think you’ll see that, folks. It’s just the way the government does things… Hides them, cheats you, and then says, “We made a mistake” and goes on about their business of hiding and cheating you!

Oh… And one more thing here regarding the Jobs Jamboree… According to the BLS, payrolls fell at a 188,000 per month rate over the last three months. But their own household survey says employment fell at a 589,000 per month rate.

I shake my head in disgust… But we all know how “the game is played”, so we just adjust our numbers and go on.

So… I guess you heard that the House passed the Health-Care Overhaul Bill this past weekend… I’m not going to go into this because it’s a “hot button” for a lot of people… I just want to know what this is going to cost… And don’t believe anyone in the Washington DC that tells you that it won’t cost anything! Their track record on that stuff is horrendous! Which also means that if they tell you it’s going to cost $1 trillion, it’s going “really cost” double or triple that!

So, we just keep adding on to our deficit, folks… The people in DC are so worried that they need to spend more, instead of reducing spending… I really think that anyone who voted for this new spending program, needs to get “fired” the next time their term is up…

OK… Enough of that! The data cupboard is empty today, and doesn’t really get re-stocked with “tier 1” data until Thursday… So… The data isn’t going to help the dollar out the front-end of this week.

The IMF issued a report this past weekend that isn’t helping the dollar… The IMF said that there are “indications that the US dollar is now serving as the funding currency for carry trades”; and that that was one of the things that hurt the dollar… The other thing was that the IMF felt that the dollar was still “overvalued”… Which in anybody’s book means it can fall further!

The IMF also said that the euro had “experienced the most appreciation among major advance economy currencies and that it remains on the strong side of its equilibrium.”

Hmmm… So… First it was the silence by G-20, and then the slap in the face by the IMF that has the dollar on the run this morning… I wonder what direction this will go once the New York traders arrive at their desks, and see what the overnight markets have done to the dollar. My guess is they will first take some profits, and then add on to the dollar’s woes… But that’s just a guess; who knows what those “fickle” traders will do!

So, like I said above, the euro, Aussie dollar, and Swiss franc are all moving higher versus the dollar… But the “winner” for best performing currency overnight is the New Zealand dollar/kiwi (NZD)! At one point overnight, kiwi traded at 74-cents… It has since given back some ground, but the move overnight was impressive! Kiwi got a nice bump when dairy giant Fonterra raised their forecast dairy payout… With farmers’ incomes representing 0.7% of the GDP, this was good news for the economy, and thus the thoughts begin to switch to a rate hike by the Reserve Bank of New Zealand (RBNZ), which just last week was downplaying any such rate hike… This might change their mind…

And… Chris Gaffney left me this note from Friday…

“The government extended the first time homebuyers $8,000 tax credit on Thursday. While this tax credit was intended to help alleviate the glut of housing left by the credit crunch and resulting downturn, housing analysts have found that the tax credit did little for home sales. Between 80 and 90% of the people who have bought homes using the credit would have purchased those homes without it. Sounds a lot like the cash for clunkers program: taxpayer money wasted in order to try and make the data look good in the short term.

“But not only did they extend the first time homebuyer’s credit, they also approved what I think is a really stupid addition. The expanded program introduces a $6,500 tax credit for people who already own homes but want to buy new ones. Unlike the cash for clunkers program, the old homes which these buyers now occupy will not be destroyed; they will be placed onto the market. So what does congress think this $6,500 credit is going to accomplish?? It isn’t going to decrease the number of homes on the market. It will help the banks, title companies, and mortgage lenders, who make money on the transaction. But it won’t help the homeowners who are facing foreclosure, or the taxpayers who don’t take advantage of it.”

Yes, Chris… That’s what’s going on here… And again, people are still wondering why China has such a problem with the direction of the US and our deficit?

And gold… The shiny metal reached $1,100 on Friday… And with the dollar weakness overnight, gold has moved even higher… I know it sure seems that gold has moved really quickly through the $1,000 level – and it has! I’m still waiting for the “correction” to buy some more… But, right now, it looks like that correction might not every materialize!

Speaking of this… I’m also still waiting for a decoupling of the risk assets… Getting back to the fundamentals… It could be happening right now, folks… We can only hope!

And then there was this… I received an email the other day from a reader who said he thought I enjoyed seeing these things happen in the US… WHAT? I do not revel in these things I talk about… I merely point out what I think will happen given a tax cut, or more deficit spending, or protectionism, etc. It doesn’t take a rocket scientist to figure these things out! And… Besides… I live here, my kids live here, my granddaughter lives here… I think in some way that as long as I point these things out, and ways for people to profit from them, that I’ll make things better for them.

OK… That was good to get out of the way this morning… Let’s go to the recap and then the Big Finish, eh?

To recap… G-20 was silent about the currencies and weak dollar, which has given traders the green light to sell the dollar further. The IMF didn’t help the dollar either, saying that the dollar was still “overvalued”. The BLS admitted the birth/deal model had made HUGE errors in the past years, and gold hit $1,100 and keeps moving up.

By Chuck Butler

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