Another Eurozone "Meeting of the Minds".
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In This Issue.

* Euro reverses slide in short squeeze.

* Merkel & Sarkozy meet again.

* 200,000 jobs created in December

* Chinese renminbi slides.

And, Now, Today's Pfennig For Your Thoughts!

Another Eurozone "Meeting of the Minds".

Good day. And a Marvelous Monday to you! The first weekend of the NFL playoffs was interesting, with a couple of teams winning that weren't expected to do so. I think, because I did play football as a youngster, that the league has gone too far the opposite direction, and defensive players no longer know what's a legal hit and what isn't, which allows more offense in the game, which casual football fans love. but that's just me. being me.

OK. The Jobs Jamboree on Friday proved to be a real boost for the economy and the dollar, which rallied on a "strong jobs number" for the first time in a month of Sundays. I highlight "strong jobs number" because, this is what this has come to. 200,000 jobs were created, so says the Bureau of Labor Statistics (BLS), in December, which is the strongest number of jobs created in another month of Sundays. The jobs reports have been so weak for so long now, that the media, and markets are all lathered up and calling this a "strong jobs number". It's stronger than previous ones, yes.

The Unemployment rate dropped to 8.5%, the lowest it has been since February 2009, and marks 6 consecutive months of at least 100,000 jobs the first time that has happened since April 2006!

OK. is it just me, being me that I smell a rat? Here we are in an election year, and suddenly the BLS says jobs are being created, when the weekly job cuts remain near 400,000 each and every week. 1.6 million jobs were created last year (per the BLS), so at least we're heading in the right direction, eh? Whether the jobs are there are not. Whether they are full-time, or not. Whether they are min. wage or not. All these things don't matter right now. the BLS has created a perception that the jobs market is rebounding. and, you are what you are perceived to be, right?

Well. like I said the dollar responded favorably to the jobs report, which could be an indication that maybe, just maybe, cause we never know, fundamentals are returning to the markets. Because the dollar should rally when the jobs report is stronger than previous reports.

The euro, being the offset to the dollar, was therefore weaker. The single unit is attempting to mount a rally this morning, as German Chancellor Angela Merkel, and French President, Sarkozy, are meeting, as I write, to discuss measures to rescue the euro over the next three months. Hmmm. They might want to get European Central Bank President, (ECB) Draghi, in a room, under a bright light, and attempt to get him to say "uncle" with regards to rate cuts! Because, he has cut rates at his first two meetings, and looks dead set on cutting them more!

I wrote about this last week, that given rates in the Eurozone are going lower. I say that, because of Draghi. He's no Trichet, or Duisenberg. He's more of a Bernanke & Greenspan. So, you can expect to see Eurozone rate dropping below 1% for the first time this year. It's sad, I know. But I can tell you that Draghi and his fellow-Euroheads, don't care about the ECB's credibility. And they don't believe it will be damaged, as the markets will see the rate cuts as needed to help the Eurozone economy that appears to be heading to recession.

Now. When I was a foreign bond trader, I would have looked at this and thought to myself. "this looks like a great time to be long bonds in a country that was getting ready to cut rates by at least 50 Basis Points (1/2%)". But back then we would be talking about rates dropping from 5% to 4.5%... With rates starting from such a low point, I'm not sure there's much to get excited about.

Speaking of the ECB. the will meet this Thursday, but after all my talking about Draghi cutting rates, I don't think he'll cut rates at this meeting, after having cut rates at his first two meetings.

To be fair and equal to different ideas. Last week I told you about 3 different analysts that called for the price of Gold to be much stronger in 2012 and beyond. So, to give you the "two-way market", my friend, and write extraordinaire, Bill Bonner, is calling for the price of Gold to be flat in 2012. Let me explain Bill's thoughts. He believes that the markets are going to be circling the bowl again in 2012. Bill said, "what we learned in 2011 was that when a Great Correction pinches, the dollar is the salve of choice - not Gold. When investors fear losses they turn to the dollar for protection. They will continue to do so a while longer. We'll probably see a further correction in the Gold price. perhaps down to $1,200. Or perhaps it will stop at $1,400."

OK. so, now you have two sides to the story, and you can make your decision, balancing the two thoughts on Gold. Me? I'm not selling. And I'll be happy to buy Gold at cheaper prices!

I've been pretty tough on the Indian Gov't and Central Bank, the Reserve Bank of India (RBI), and their inability to recognize inflation and act accordingly. This resulted in economic stagnation, and with high inflation, it appeared the economy would take a deep dive into recession. This is the reason the Indian rupee has been one of the worst performing currencies around in the past year. But. I read a good story in the Economist that talks about how the Indian economic miracle is not over. Well, I was all eye and ears for this, since I had written India off.

Indian economic growth is thought to grow at 7% this year, and will pick up from there. The savings rate continues to rise, which allows more investment, and that should be enough to keep the capital expenditure above 30% of GDP, which is quite good.

Does this mean the rupee will rebound? I think there are a lot of variables here. The Eurozone. The U.S. and China. If all's well in those three corners of the world, the rupee should be able to mount a rally.

Speaking of China. The Chinese renminbi has been sliding weaker in the past week, which is something we don't see a lot of, but it is happening, right here, right now. I think the Chinese Gov't is very fearful of a slowdown from the Eurozone, and a no-pick up of demand from the U.S. which would be a shot to both sides of the Chinese bow. So, the Chinese Gov't is lowing interest rates, increasing money supply, and allowing the renminbi to get weaker, in hopes of all these things helping to offset the problems in the Eurozone and U.S.

How much weaker will they allow it get? Good question, Chuck, man you do come up with some good questions, every now and then, how do you do it? Well. I get lucky! HA! Seriously though. that is a good question, and one to not take so lightly, Chuck! Well, I can't put a number or percentage on it, but it could be significant, and then. it might just be a tempest in a teacup. I'm thinking, that it might be the latter of the two.

OK. back to the euro for a minute. the single unit fell to 1.2666 overnight, but it is being reported that the market got too short the euro, and a "short squeeze" was on, thus allowing the euro to rebound to 1.2750, which is where it is right now.

Elsewhere. Australian Retail Sales for November were flat, which was a disappointing result, and pushed the Aussie dollar (A$) weaker this morning.

Canadian Consumer Confidence rose in the 4th QTR (the index rose to 107.4 from 105.1 the previous quarter) I keep reporting strong data from Canada, and the Bank of Canada (BOC) continues to sit on its hands. Maybe the stronger than expected U.S. jobs report will give the BOC reason to get off their hands. But probably not.

Then there was this. Well, the BLS doesn't give us a breakdown of the jobs created, so there are private companies that do that. And reported one such company. ITG Investment Research . their chief economist, Steve Blitz, said, "The good news is that employment is up. The bad news is that the higher paying jobs have yet to return." Blitz pointed out that the average hourly earnings were unchanged, and that 20% of the increase in private payrolls was for messengers and couriers. Net hires at restaurants and retailers (Christmas ) and the aforementioned messengers made up 44% of the jobs added in December.

Chuck again. Yes, this is exactly what I thought would be the case. As I've always told you, and long time readers will have grown tired hearing this. The Jobs Jamboree is just a number. to get the real story. look to the Average hourly earnings and the Average Work week hours. I thought on Friday that something didn't look right, and there it was right there. 200,000 jobs created, according to the BLS, and no change in the average hourly earnings? Tells you a lot!

To recap. sorry, forgot the recap on Friday. The recap today, is that the Jobs Jamboree printed stronger than expected at 200,000, jobs created in December, and the dollar rallied on the data! This was the first time the dollar had rallied on a stronger jobs report in some time, and could indicate that we are returning to assets trading on fundamentals! The Chinese renminbi has taken a ride on the slippery slope of weakness this past week. One has to wonder if the Chinese are willing to absorb the critics of a weaker renminbi. The ECB meets this week, and while rates are going to go lower in the Eurozone in 2012, they won't at this meeting, or so Chuck thinks.

Currencies today 1/9/12. American Style A$ $1.0230, kiwi .7860, C$ .9725, euro 1.2770, sterling 1.5450, Swiss $1.0510, . European Style: rand 8.1415, krone 6.00, SEK 6.9215, forint 245.55, zloty 3.5105, koruna 20.2350, RUB 31.89, yen 76.75, sing 1.2950, HKD 7.7650, INR 52.51, China 6.3144, pesos 13.71, BRL 1.85, Dollar Index 81.09, Oil $101.21, 10-year 1.97%, Silver $28.95, and Gold. $1,620.65.

That's it for today. It will be a short week for yours truly, as I head out of town on Thursday, and return next week. I'll miss my oldest son, Andrew's birthday on Thursday, so Happy Birthday, son. Andrew's lovely bride, Rachel had a surprise birthday party for Andrew Saturday night. I can't believe he's 30! Where did the years go? It seems like a year or two ago, that I dropped him off at the University of Missouri! Youngest son, Alex, went 2 & 2 in his wrestling tournament this past weekend. I just saw a story title go across the screen that said, "Sales of Super Yachts Increase". Hmmm. yes my order for one hasn't come in yet! HA! I hope you have a Marvelous Monday and a Wonderful Week.

Chuck Butler


EverBank World Markets



Posted 01-09-2012 10:34 AM by Chuck Butler