Saturday, April 7, 2007

Perspective Is Everything

Indeed, perspective is everything. That is why it is so important to have the right perspective. Once you have an accurate perspective on the economy, you can more confidently withstand the noise that is constantly created in the market. -- Emanuel Balarie

Bad news is good news. Good news is bad news.

Tuesday, April 4:

US Factory orders way below expectations. ISM Purchasing Managers Index below expectations. Market consensus: Slowing economy (bad news) = Fed rate cut (good news).

Friday, April 6:

Nonfarm Payrolls rise by 180k, beats market expectation of 135k. Unemployment drops from 4.6% to 4.4%. Market consensus: Growing economy (good news) = Fed rate increase (bad news).

People, WAKE UP! The toast is burning and the coffee is cold. Quit speculating as to what the Fed is gonna do with interest rates and FOCUS on the fact that the global investment industry has a growing distrust of the US Dollar. As 2007 unfolds, and we move ever closer to the darkening economic horizon on the road to nowhere, investors are increasingly questioning the value of money. The basis-point profits the global investment community can siphon selling Yen to buy US Dollars, or make selling US Dollars to buy stocks only makes sense when you trust the money it pays.

I fail to see how 180k McJobs are going to stave off the sub-prime mortgage meltdown. The meltdown there has only just begun. The bottom in the housing market is far off in the distance. The true scope and effect this sub-prime debacle is going to have on the economy won't be felt or witnessed for months... But there are fools that would have you believe otherwise: "The report is a nail in the coffin of doomsayers who predicted the economy was going down for the count. It knocks out analysts who were predicting recession," said Stuart Hoffman, chief economist for PNC Financial Services in Pittsburgh.

Recessions don't happen overnight, they develop over time. The fuse has been lit. I hope you don't have any of your assets invested with Mr. Hoffman. Are 180k "new" jobs "created" in March, along with 4.4% unemployment, going to slow or reverse the effects rising energy prices, food prices, and government debt are having and going to have on the economy? Are they going to improve The Big Picture in any way, shape or form? Not in the least. The monthly Nonfarm Payrolls numbers are inaccurate at best, misleading at worst, and despite the attention they are given every month, the nonfarm payroll numbers are essentially irrelevant.

Builders added 56,000 jobs after shedding 61,000 the prior month. The snap back is probably due to the return of more seasonable temperatures after cold weather played a role in the February drop, the Labor Department said. No matter how you spin it, that equals a net loss of 5,000 construction jobs. And since no "real" construction jobs were "created" workers going from "unemployed" to "employed" is hardly "job creation"... one could surmise that there were only 124k "new" jobs created in March (180k - 56k = 124k). And that would mean that March Nonfarm Payrolls actually came in 11k short of the 135k expected.

Nevertheless, Friday's Nonfarm Payrolls number will be hailed Monday as economic salvation by the talking heads on CNBC and in countless "headlines". The payrolls number will be positive for the dollar, negative for Precious Metals, and just plain bad for stocks. All based from the "perspective" that this ridiculous single number ensures a growing economy and an imminent Fed rate increase. And with little economic data to begin the week, the jobs data will most likely give the dollar "happy feet" through the better part of the week. That little party should come to a crashing halt at around 8:30AM EST Friday, April 13. Friday The 13th. March PPI and US Trade Balance numbers will be released at that time. I suspect those party hats being worn by those at the US Dollar end of the Forex Pits will be quickly changed to black hoods and calls to 911. Friday The 13th may well be remembered in history as "The Day The US Dollar Died".

Bottom line: As we have pointed out before, the Fed cannot afford to raise OR lower interest rates. And with that continuing to be the case, the Fed will probably, for the balance of 2007, do absolutely nothing to interest rates. And even if the were to change rates, it's win-win for Gold Bugs. Raise rates to fight inflation...economy tanks and gold goes up. Lower rates to save the economy...inflation takes off and gold goes up. From my "perspective", gold is going up despite any efforts to prevent it. The past six years should prove that. The more the PPT fights rising gold prices, the higher they are going to go.
Please click on the chart to enlarge. Intermediate Head and Shoulders Top for the US Dollar. The picture speaks for itself. Gold and Silver analysis to follow.

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