The Number One Hedge Against Uncertainty - Listen Now!

By Chuck Butler A grand weekend for yours truly with time spent resting, watching football, Alex playing basketball, dinner with friends, and finally a wonderful dinner with my kids as we celebrated my oldest son, Andrew’s, birthday.

Whew! I’m at work about an hour earlier than usual this morning, as I couldn’t sleep, and just decided to get up and come in…

On Friday, I gave you my knee-jerk reactions to the pathetic Jobs Jamboree, that was billed as “not as bad as some forecast.” Well, over the weekend, the media blamed the dollar rally on the “not as bad” job numbers.

But they missed a couple things. First of all, November’s awful print of 533,000 was revised downward to 584,000 (recall, I questioned a month ago if it would reach -600,000 on the revision).

And here’s the really scary number: 67,000 retail jobs were cut in December. That’s right, December - the month when retailers are supposed to be on fire!

For those of you keeping score at home, the Bureau of Labor Statistics (BLS) decided that they would ADD 72,000 jobs in their Birth / Death Model. Makes sense, right? Not!

So, if they hadn’t put their hands in the cookie jar, the total job losses in December would have been within spittin’ distance of 600,000!

Anyway, the unemployment rate rose to 7.2% from 6.7%. That’s quite a hefty rise in one month, and is very reminiscent of moves made in previous recessions…

But the dollar rallied, so I’ll leave all that Jobs Jamboree stuff, and move on!

Watch for the ECB to Slash Rates on Thursday

The euro is starting the workweek much weaker than it was just last Monday. Aside from the mental giants who marked up dollars after last week’s jobs report, the euro is also feeling pressure from its own central bank.

Recently, European Central Bank (ECB) President, Trichet made some comments that pushed the euro’s value down. Yes, it sounded as though Trichet had turned dovish. After the fact, there were a few denials in the press that he really said anything. But it was too late - the cow was already out of the barn!

The ECB DOES meet this week on Thursday. I originally thought that the ECB would skip cutting rates at this meeting.

But now, with the Trichet comments, even if he didn’t technically say them (you know me, where’s the smoke, there’s fire!), believe me, the ECB will cut rates this Thursday. That is also weighing on the euro.

As you and I both know all too well, the euro is the big dog on the foreign currency porch. It’s the offset currency to the dollar, which is quite impressive given the fact that it has only been around for 10 years. In other words, when the euro rises, the dollar falls and vice versa.

Anyway, back at the ranch, dollar strength shows up here with the euro first and foremost. But guess what will happen when everyone finally begins to focus on fundamentals again? The dollar will come under pressure again, and the euro weakness will be a thing of the past.

So, after the dollar performance on the bad news of the Jobs Jamboree, I started thinking about the strong dollar Trading Theme once again. Traders were ready to put it in a closet after the dollar sunk in December, but here it is again - all dusted off and looking like it’s here to stay.

For those of you who need of a refresher course, the trading theme involves the deeper, darker, more dangerous things for the U.S. rewarding the dollar.

As global stock markets suffer, investors are repatriating their dollars and pushing up the dollar’s value. Also, industry heavyweights are unwinding their carry trades that use the dollar as a funding currency. That’s also helping prop up the buck.

I’ve seen this before in Japan in the late 90’s. When the Japanese economy was circling the bowl, Japanese investors repatriated their yen. In doing so, they pushed the yen up to the 88 handle!

Carry trades also use Japanese yen as the funding currency. And that explains why the Japanese yen is suddenly so strong once again.

This is all bad news for the high-yielders, which had really stretched their legs last week! Traders are selling the usual high-yielding suspects once again including the Aussie, kiwi, Brazilian real, and South African rand, now that this trading theme is in play once again, and risk takers are running from the markets.

By Late Spring, Everyone Will Notice the Government Is Mortgaging Our Future

This is as good of a time as any to repeat my thoughts for 2009…

First of all I believe we’ll get an Obama bounce that will push stocks back up in quarter one. Everyone will feel a false sense of euphoria. By late spring, this euphoria should fade, as investors realize that we’re just mortgaging the future with stimulus package after stimulus package.

Investors will finally start spending all their hoarded up cash. Then we’ll have a problem because corporations that slowed production during the recession won’t be able to produce enough to meet demand. Then we’ll see inflation begin to soar!

So in short, I see the dollar basking in the sun during the first part of the Obama bounce.
But, when the bloom is off the rose, we should see a return to the fundamentals. Watch for it to happen…

That’s it for today! I hope your Monday is Marvelous!
Chuck

P.S. When we do see a return to the fundamentals, foreign currencies will have a field day. Now is the best time to take long-term positions - while these foreign currencies are still selling for such extreme bargains. Click here and I’ll show you how.