|Dow||-77.94 to 17,698.18|
|S&P 500||-8.20 to 2,059.69|
|Nasdaq||-21.20 to 4,879.68|
|10-YR Yield||-.066 to 1.868%|
|Gold||+$21.10 to $1,204.30|
|Crude Oil||+$1.98 to $49.58|
The verdict is in from ADP Research: The U.S. economy created only 189,000 jobs last month. That was much lower than the expected 225,000, with noted weakness in manufacturing and large-company hiring.
Meanwhile, the European unemployment rate just sank to 11.3 percent from 11.4 percent. Europe’s jobless rolls have now shrunk by 329,000 over the past three months — the best such performance in eight years. German unemployment is running at its lowest level since East Germany and West Germany united almost a quarter century ago.
|The U.S. missed the mark on job creation last month.|
As for prices, U.S. inflation has been easing recently — with import prices alone just plunging at their fastest rate since September 2009. But in Europe, deflation eased again in the most recent month. Germany actually swung back into positive territory, a significant event considering it’s the largest economy on the Continent.
Why should you care? It goes back to a point I have been hammering home repeatedly since the start of the year: Currency markets are driving a huge amount of the activity I see on my screens!
Indeed, the dollar’s rally of late is the biggest story in any capital market. It has been heavily influencing bonds, stocks, commodities, emerging markets, real estate, and global economic growth. And as I noted yesterday, it is extremely significant from a historical perspective:
“My research shows this is the single-biggest, fastest, most radical move higher in the dollar since 1984-85. That rally prompted so much pushback from U.S. monetary and fiscal authorities that it led to the Plaza Accord of September 1985. That multinational accord to weaken the dollar led to a whopping 48 percent depreciation over the next couple of years!”
|“There have never been so many speculators crowding to one side of the boat as there are now.”|
Bottom line: This is a Global Currency War, or Global Money War. So every piece of data needs to be scrutinized with an eye toward that war, and what its next phase might be in the currency markets.
Right now, the relative balance of power — when it comes to inflation and growth — is tilting toward Europe and away from the U.S. That doesn’t mean we’re sinking into recession. It doesn’t mean the Federal Reserve shouldn’t still raise rates. But it does mean that things are getting “less bad” over there, and “less good” over here.
That’s the kind of fundamental catalyst that I’ve been watching closely for. If we get a weaker “official” jobs report on Friday morning, to go along with the weaker “unofficial” one (and other recent spongy data), it could be just the thing to reverse the dollar’s strength.
Not only that, but it would come at a time when fast-money speculators are the most long they have ever been in the dollar index. Take a look at this chart. It shows how “non-commercial” investors (as opposed to, say, a bank that needs to use futures to hedge currency exposure) are positioned in the Dollar Index, per the Commodity Futures Trading Commission (CFTC).
You can see that there have never been so many speculators crowding to one side of the boat as there are now. Considering I have 20 years of data, that’s saying something.
Bottom line: The Big Reversal scenario is still definitely in play, so be ready to make some big portfolio shifts if these kinds of relative growth/inflation shifts gain steam!
What would you buy more of if my thesis plays out? What would you sell? Are you taking any steps yet, like buying bargain-basement energy stocks or emerging market ETFs? Or do you want to see more data? And what about Europe — is it really starting to get its act together? Or is this just more smoke and mirrors? Let me and your fellow investors know over at the Money and Markets website.
|Our Readers Speak|
Where will oil and the U.S. dollar go next? What about the global economy? And while we’re at it, should we get more involved in the Middle East? Those were some of the many topics you weighed in on in the last 24 hours.
Reader Gordon R. is downright gloomy, saying: “There will be a global deflationary recession if we are lucky and a depression if we are not lucky. With few exceptions, most countries will be in a mess by the middle of 2016. After a few months of correction, the dollar will soar to new highs. If you don’t believe it, just be very careful with your investments.”
Reader Roger is also in the deflationary camp, saying: “I am pretty sure the lows are not in. If interest rates go up, what happens to the dollar? Does it not get stronger? Oil storage is running out. Very productive oil wells will still pump. And in earnings season, think of all the write downs in oil … Oil will head to 30.”
On the other hand, Reader Howard said the U.S.’s fiscal profligacy and other global developments will hurt the dollar over time. His view:
“Our lack of fiscal discipline in creating unbacked debt at a time when we should have let market forces have their way is going to haunt us. The Asian Infrastructure Investment Bank (AIIB) is going to see the U.S.$ slide in importance, relevance, and value. What we are lacking at the moment is genuine leadership, both in foreign policy and as a reliable financial presence in the world.”
Finally, with regards to Iran, Saudi Arabia and our other potential allies and enemies in that part of the world, Reader Jim said: “Youth and skill are no match for old age and treachery. The ancient vendettas of the Middle Eastern tribes have been going on for 5,000 years. They are none of our business and we would be well advised to avoid participating in them.
“Any time we take sides we gain new enemies that would do us great harm. Truman started the meddling. We should elect someone in 2016 who will stop it.”
Thanks for your insights. We will have to see about where oil and the dollar go, of course. But I think I’ve made my view pretty clear. It’s worth pointing out that data from the futures regulatory agency shows the largest short position in the euro currency ever among faster-money speculators. Dollar long positions are also the highest ever.
With everyone in the entire world basically long the dollar here, even a very minor catalyst could lead to one heck of a painful lesson for dollar longs. So keep that in mind if you’re playing in currencies! And as always, please do add your two cents to the debate at the Money and Markets website.
|Other Developments of the Day|
The Iraqis could use a victory, and now they’re claiming to have one in Tikrit. The government said army forces and Shiite militias succeeded in kicking ISIS out of the city, helped along by Iraqi and U.S.-led airstrikes. The real goal is to assault ISIS’ main center of power in Mosul, but that will be a much tougher fight.
The public and corporate battle against “religious freedom” bills spread from Indiana to Arkansas. Wal-Mart Stores (WMT, Weiss Ratings: B) and Acxiom Corp. (ACXM, Weiss Ratings: C-) objected to that state’s HB 1228 bill, which is similar to the Indiana measure that led to serious blowback against Governor Mike Pence.
Internet domain and business services firm GoDaddy is growing up! The firm originally known for risqué Super Bowl ads is trying to attract more customers and improve reliability by taking a more corporate approach to marketing and sales.
As part of that process, the company just sold 23 million shares at a price of $20 in an Initial Public Offering. The shares traded more than 30 percent higher when they debuted under the ticker symbol “GDDY.”
Brazil’s economy is a mess. Weak economic growth, the sinking real currency, and a bribery and kickback scandal at the state-backed energy giant Petrobras (PBR, Weiss Ratings: C) is scaring the heck out of foreign investors.
But are its markets so cheap and compelling now, that you simply can’t afford to avoid them? That’s a question I’ve been wrestling with. Check out this comprehensive Bloomberg story on President Dilma Rousseff’s efforts to right the ship for some more perspective.
Thoughts on any of these stories? Or others I may have missed? Fire ’em off at the website!
Until next time,