Jared Cummans: As Sandy began to hammer the east coast late last night, the U.S. Department of Labor has yet to make a decision when to release October’s jobs data. This report will be a key factor in the upcoming election, as the undecideds will look to the jobs report Read more…

Either way this election turns out, American jobs are going to continue to get slaughtered by the millions.  During this campaign, Mitt Romney and Barack Obama have both attempted to portray Read more…

If you are unemployed for an extended period of time, people are going to look at you differently.  Unfortunately, this is especially true if you are a man.  In our society, men are primarily defined by “what they do”.  If you have been unemployed for a long period of time, Read more…

The middle class in America is being systematically destroyed.  Once upon a time the United States had the largest and most vibrant middle class in the history of the world.  The rest of the globe looked at us in envy and wondered what we were doing right.  But now everything Read more…

If a major economic crisis hit us right now, the vast majority of Americans would be extremely vulnerable.  According to a recent CareerBuilder survey, 40 percent of all Americans live paycheck to paycheck all of the time, and 77 percent of all Americans Read more…

Michael Snyder: Did you know that median household income in the United States is lower today than it was when the last recession supposedly ended?  Read more…

Michael Snyder: Did you know that a smaller percentage of Americans are working today than when the last recession supposedly ended?  But you won’t hear about this Read more…

Michael Snyder: It is absolutely amazing what some people will do to make a living in this economy.  Desperate times call for desperate measures, and we have not seen this kind of desperation for jobs in America since the Great Depression of the 1930s.  What some people Read more…

For 6 weeks, the Dow has been going down. It should be ready to bounce.

But stock market investors didn’t get a bounce yesterday. They didn’t take a loss either. It was a draw. The Dow closed 1 point higher than on Friday.

As for oil, it was down to $97. And gold lost $13.

Business profits have been near record highs. This is not a good reason to buy stocks. Profits are famously “mean reverting.” That is, they go back to normal pretty fast. Which should mean lower profits in the future.

When profits are high it is usually because labor costs are relatively low. That is the case now. But that’s not good news. In the US, labor’s share of national income is the lowest it has been for almost 100 years. People who own and run corporations enjoy higher earnings. The rich get richer.

But the working stiff doesn’t share the joy. He feels he has been cheated. He just doesn’t know who cheated him. With 25 million people looking for decent jobs, he has no pricing power. He can’t threaten to walk off the job. There are too many people ready to take his place.

So what happens to him? Does he take his losses philosophically? Does he cut back his standard of living…spending less time driving his big SUV and more time reading the classics?

Or does he become bitter…and feel like he has a score to settle?

We have an uncomfortable feeling this morning. It comes from reading before we go to bed. Next to our bed is The Forgotten Soldier, a personal history of war on the Eastern Front in WWII. The author – a private soldier in the Grossdeutschland division – knew nothing of the strategies, logistics, or politics involved. He merely tells us what he saw…what he did…and what he lived through.

What disturbs us more than the events – which were unbelievably shocking and brutal – is the caste of characters. They sound like normal people. But what sensible man would invade Russia – without winter clothing – and let himself get bogged down in a four-year war of hellish slaughter in nightmarish weather? And yet, millions of apparently sensible people did.

The author of The Forgotten Soldier, Guy Sajer, seems like a decent sort. He joined the Wehrmacht willingly, happily and proudly. And he wasn’t even German. He was French. He barely spoke German.

Which just proves our point. People are neither good nor bad, but subject to influence.

In England, CEOs got huge pay increases last year. Their compensation rose 32%, thanks largely to such high profit margins.

We haven’t seen comparable figures for US CEOs but they are probably not too different. Bankers, for example, are partying again, just like it was 2005.

In Britain, as in America, the middle and lower classes got no raises last year. Or the year before. Or the year before. In fact, their real incomes are going down as the cost of living goes up and their wages stagnate.

Who will they blame for that? Will they carefully analyze the situation…and see how their central bankers and politicians misled and betrayed them? Or will they point their fingers at softer, easier targets.

People are always the authors of their own success. Their failures are always written by someone else.

What kind of influences will be felt by the American people…when they realize that they are no longer on top of the world…when they have lost their houses…and their jobs? And the Chinese try to force an austerity program on them!

Yes, dear reader, borrowers may want to spend, but creditors demand austerity. In Europe, the Germans are trying to force the Greeks to cut expenses. And now, America’s major creditor – China – is demanding that the US put its finances in order too.

There are bound to be some feelings of resentment.

Bill Bonner
for The Daily Reckoning

The Dividing Influence in the US Job Market originally appeared in the Daily Reckoning. The Daily Reckoning provides over half a million subscribers with literary economic perspective, global market analysis, and contrarian investment ideas.

Read more here:
The Dividing Influence in the US Job Market

The Daily Reckoning is a contrarian e-letter, brought to you by New York Times best-selling authors Bill Bonner and Addison Wiggin since 1999. The DR looks at the economic world-at-large and offers its major players – investors, politicians, economists and the average consumer – some much-needed constructive criticism.

Market participants can’t say the “worse than expected” Non-Farm Payrolls (Jobs) Report was a complete surprise, given that the tide of economic news recently turned sharply negative (or at least has been hitting consistently under expectations).

With Friday’s “Jobs Report” also worse than expected, let’s take a quick pre-market look at the current intraday intermarket structure to see what to watch as the session progresses.

(Click for larger size image)

The biggest fact most traders will be watching is how the S&P 500 holds the absolutely critical Bull/Bear Battle Zone at 1,300 (see “May 31 Stock Market Check” for additional levels beyond the S&P 500).

There are likely to be a cluster of stop-loss orders (from the buyers/bulls) that trigger under the 1,300 level – it will be up to buyers to defend this level and overcome the “spooked selling” that is likely to come should 1,300 break.

Oil is following stocks, as it broke its trendline from the last two sessions (the ‘rally bounce’ after June 1st’s plunge).  Oil turns bearish under $100 – namely under $99 which is where it is also opening.

Gold appears to be benefiting from the “panic” or down-turn in the US Economic Situation, as it rallied while stocks and oil ‘collapsed’ on June 1st, only to shake violently to the downside yesterday.  At the moment, gold has turned very bullish just ahead of the open – breaking the declining trendline with a price surge.

And finally, the US Dollar Index is threatening another intraday reversal to the upside, after breaking the dominant short-term trendline June 1st and then now it is gently breaking the two-day trendline on the Jobs Report news.

Keep these intraday structures in mind, as well as the key higher timeframe levels in each of these markets as you trade this interesting Friday session.

Corey Rosenbloom, CMT
Afraid to Trade.com

Follow Corey on Twitter:  http://twitter.com/afraidtotrade

Corey’s new book The Complete Trading Course (Wiley Finance) is now available!

Read more here:
A Quick Check on Intraday Intermarket Structure after the Friday Jobs Report

In 2010, China had been overtaking the US as the number one biggest manufacturer in the world. However, a recent study from the Boston Consulting Group entitled, The Return of US Manufacturing, suggests that a “manufacturing renaissance” may be afoot in the US.

It’s a trend still very much in its earliest stages, but there are a couple reasons for manufacturing’s slow rebalancing back toward the US. Wage rates are increasing in China at the same time as they are decreasing in US. This is the case while productivity levels also remain higher in the US and the yuan continues to appreciate, making Chinese goods relatively more expensive. Together, these factors contribute to a potentially continued increase in the relative attractiveness of returning manufacturing work to the US.

According to The Fiscal Times:

“China’s wages are rising by 15 to 20 percent a year, while its productivity will improve at half that rate. The yuan is gaining in value, too, and Chinese-made products are destined to become more expensive. There is a shortage of skilled workers even in major manufacturing centers such as Shanghai and Tianjin.

“In the U.S., wage increases have been minimal for years and will remain at 3 percent or so annually. U.S. productivity will remain higher than China’s by a wide margin, and government incentives are also a factor in attracting U.S. manufacturers back home. ‘Reinvesting in the U.S. will accelerate,’ the study says, ‘as it becomes one of the cheapest locations for manufacturing in the developed world.’

“The math that went into this study is impressive, and it works like this: Right now, labor costs in China are slightly less than half those of the U.S. when the difference in productivity is factored in. In five years’ time, labor costs on the mainland will be 70 percent of the U.S. figure. Counting costs such as inventory and shipping, the study says, the Chinese cost advantage will drop to single digits or disappear entirely.

“It’s a convergence theory of a kind, and one forecasted result is that outsourcing jobs to China will turn out to have a beginning, middle, and end. ‘China will no longer be the default low-cost location for supplying the U.S. market,” the BCG study asserts. ‘The economics are becoming marginal for many products.’”

A few examples of the US companies repatriating manufacturing include Caterpillar tripling its excavating equipment production capacity, NCR bringing home automated teller machine production, and toy maker Wham-o returning 50 percent of its Hula Hoop and Frisbee production from China and Mexico. A couple data points offer some support for the concept, yet are by no means a guarantee of an ongoing trend in the making.

The study also points out that although the US has added 250,000 jobs in manufacturing since early 2010, it has a long way to go to recover the roughly 6 million jobs it has given up over the past ten years. Further, production growth to date has been concentrated in oil and computers, while most other sectors have continued to decline. You can read more details in The Fiscal Times coverage of how manufacturing jobs are returning home to the US.

Best,

Rocky Vega,
The Daily Reckoning

How Manufacturing Jobs Could be Returning Home to the US originally appeared in the Daily Reckoning. The Daily Reckoning provides over half a million subscribers with literary economic perspective, global market analysis, and contrarian investment ideas.

Read more here:
How Manufacturing Jobs Could be Returning Home to the US

The Daily Reckoning is a contrarian e-letter, brought to you by New York Times best-selling authors Bill Bonner and Addison Wiggin since 1999. The DR looks at the economic world-at-large and offers its major players – investors, politicians, economists and the average consumer – some much-needed constructive criticism.

Friday's employment report has created an even hazier backdrop for stocks. Recent economic data showed an economy starting to cool, but with 244,000 jobs created in April — the best showing in 11 months — this expansion still may have legs after all. The key distinction: the economy's areas of support are not what you would have expected a few months ago.

In recent weeks and months, investors have been trying to assess stocks in the context of a sharp spike in commodities — from oil to silver to wheat. Only recently, we've seen how the massive flooding in the Midwest is leading to forecasts of sharply falling farm output and eventually, higher food prices. Consumers didn't need to hear that while gasoline prices were eating a hole in their pocketbooks.

Despite that, stocks were able to rally through much of April, thanks to a declining dollar that was boosting prospects for U.S. blue chips. In effect, the domestic economic picture looked troubling, while the rest of the world promised to provide at least a decent tailwind.

That scenario now looks backward, as former global growth pillars are starting to wobble. Efforts to slow the Chinese economy may be taking effect, as a range of data points in that all-important economy imply that growth in 2011 may move down to the mid single-digits from a seemingly never-ending run of nearly double-digit GDP growth. Brazil is trying to curb inflation, efforts of which have not always yielded soft landings. And in just a few trading sessions, high-flying commodities such as silver and oil have sharply pulled back while the dollar has begun to rebound. Many are suddenly shifting their sights back to the United States as an engine of growth. Friday's jobs report simply underscores that notion.

GM's (NYSE: GM) first-quarter results help tell the story. The automaker earned $908 million from its foreign operations a year ago. That figure dropped to $480 million in the recent first quarter. The company's chief financial officer, Daniel Ammann, told investors that GM's growth rate in China “is at 10% to 15%, down from the 40% to 50% we've been seeing.” Profits also fell sharply in South America from a year ago and Europe remains unprofitable. Here in the United States, GM is doing quite well: Earnings (before interest and taxes) at the North American division were about $1.3 billion, $100 million higher than a year ago. Merrill Lynch thinks North American earnings before interest and taxes will average around $2 billion for each of the next three quarters.

What it means
For investors, the question is whether today's jobs report (and the subsequent rally after four straight down sessions) means it's time to keep fully-exposed to the market. The answer is a qualified yes (I never like to be fully exposed, as it's nice to have cash set aside for major pullbacks that create value). Yet even as it pays to stay invested, the investing themes are now changing.

These changes include the following:

1. Airline stocks could really move into favor if oil keeps pulling back and U.S. job creation remains respectable. Oil has quickly moved from $114 last week to just under $100 late this week. It's no coincidence that the Amex Airline Index (AMEX: XAL) has surged 10% since April 19. [My colleague Ryan Fuhrmann profiled airlines a month ago.]

Two weeks ago, I wrote about two consecutive days of currency rallies “for the ages”… Well, yesterday we had currency and metals sell-offs “for the ages”… It was a real bloodletting, and after all my talk about “tub thumping” yesterday morning, the only things to get “thumped” were the risk assets… Stocks, currencies, commodities and metals (I know they’re a commodity, but I like to separate them)… The commodity and metals sell-off was nasty, as was the sell-off in the euro (EUR)…

It was the perfect storm for the euro… We had European Central Bank President, Trichet, talk a bit softer than he has recently, but still the outlook for rate hikes remains on the table. We had stocks selling off, and we had the selling of gold and silver…

Personally, I believe that the sell-offs were overdone… Very overdone… Very, very, very overdone! Hopefully you know where I stand on this now!

Yes, Trichet was a bit softer with his words… But, I’ll betcha a dollar to a Krispy Kreme that he did that on purpose… Yes, Mr. Conspiracy (that’s me!) believes that this was all a coordinated effort to weaken the euro, and prop up the dollar which just a few days ago, looked as if it was about to fall off the cliff… I’ll also make you a bet that the ECB hikes rates in July… Trichet just threw the markets off the scent of rate hikes yesterday, and did his manufacturers of the Eurozone a big favor by leading the markets to a euro sell-off…

The BIG move yesterday was in gold and silver, with silver taking the brunt of the selling… Yesterday, I told you about the after-hours selling that had been going on in silver… And a long-time friend and former colleague of mine, sent me a note that said, “I bet you wouldn’t be bitching and moaning if silver was going UP in the after-hours trading”… I replied… But silver never goes UP in the after-hours trading! You see…

The after-hours trading is a time when the “manipulators” are able to enter their HUGE trades to move prices… Take that, and add in the fact that the margin requirements on silver were raised five times in the past week… And all the cards were stacked against silver. Now… Did silver become too frothy, and need a correction… Probably… But not like this!

When I came in this morning, silver was trading higher, but has now turned negative… So, it looks like the tourniquet needs additional wrapping… I have a friend, Dr. Dave Janda, who has done a great job at his “second job” doing a radio show on WAAM in Ann Arbor… I’ve been on the radio program a couple of times, and will be a guest once again later this month. Dr. Janda has brought many guests on his radio show that talk about everything that could improve one’s mind, health, and wealth…

One of his guests was Bart Chilton, of the CFTC… Dr. Janda continues to push Bart Chilton to investigate further the HUGE short positions in silver, and the after hours trading… His note to Bart Chilton yesterday pulled no punches, and called out the perpetrators of this mess by name… It’s now up to you Bart Chilton… What say you?

OK… The Aussie dollar (AUD), which had fallen from $1.0975 earlier this week, to a $1.05 handle, is back on the rally tracks this morning, moving up one full cent to $1.0675… Again, did the Aussie dollar need a correction to knock the froth off of it? Probably… But not like the one we saw! I have to tell you that the bloodletting of the currencies is way overdone… And leads me to believe that there were “other forces” involved… You don’t see moves like we saw yesterday without a government or two helping the selling along… So, once again, I’m going to throw this out there… That I believe it was a coordinated effort to stop the bleeding in the dollar, and save it from going off the cliff.

Oh… And here’s one more piece of the puzzle… Today is a Jobs Jamboree Friday! And I think you’ll see what I’m talking about, once the report prints at 7:30 CT this morning… The consensus calls for a gain in payrolls of 185,000… But, I’ve got to tell you that I think that number is optimistic… The recent employment sector of the ISM (manufacturing index) was quite weak… The ADP employment change report this week was weaker… The weekly initial jobless claims have been rising again, last week’s was 474,000, which was up from a revised number of 431,000 the week before… So… In the end, I think the US knew the jobs report was going to stink this week, and “made the call” to intervene…

Keep in mind, though, that McDonald’s hired 60,000 people from 1 million applicants last month… But I don’t think that will be enough to offset the automaker plant shutdowns that resulted from the Japanese Tsunami… (Remember I told you that US automakers needed Japanese parts, and couldn’t get them.)

I know, I know… There are some of you out there who will send me notes saying, “Chuck, stick to the facts, and leave your conspiracy theories out of the Pfennig”… And I’ll say right now, don’t bother sending them. I’ll tell you this… People want to know “how something like this could happen”… And this is my explanation… Is it a fact? NO… But, I think eventually, we’ll find that it is!

We had some visitors from Jacksonville (the home office) yesterday, and they had asked me about gold and silver… I told them the silver stuff, and then said that gold was holding steady at $1,500, which was true at the time… It was not long after that conversation that gold joined silver on the slippery slope down… Gold has gained back $11 this morning, but remains below $1,500… Remember when gold climbed to $1,000 and bounced back and forth for weeks, and I kept saying, buy on the dips below $1,000… And then we moved to $1,100, and $1,200, and each time I would say to buy on the dips below each figure… So, will $1,500 be just like $1,000, $1,100, and so on?

Not if the “manipulators” have their way… But the markets have been able to push the envelope with the price of gold, and I suspect that once the stale longs have been scared away, gold will form a new base from which to build on once again. So… Do you wait for that to happen? Well, I guess if you are good at picking bottoms… I personally have never met anyone good at picking bottoms consistently… So, pick a level that looks good to you, that feels right, and nail it!

I see where the Japanese yen (JPY), has backed off from its lofty level of 79 and change yesterday… I got to thinking about this, and just began chuckling… For didn’t the G-7 members all come to the aid of Japan a couple of months ago, with coordinated intervention to weaken the currency? Yes, they did! That’s a fact! In fact, they spent billions trying to weaken the yen… And now? They might have well thrown the money down the toilet, for yen is within spittin’ distance of the level it traded when G-7 began their coordinated intervention… Dolts… All of them!

Well… US Treasuries have seen a revival with all this going on with the risk assets… I saw that the 3-month T-Bill rate was at an all-time low of 0.10%, folks… After your broker takes his pound of flesh for doing the trade, you are in the negative! One thing all this has done – and again, I come back to the conspiracy thoughts – is it has brought the 10-year yield back down, which will play well with keeping mortgage rates low… See the connection?

And all this stuff – Bin Laden, the risk sell-off, and everything else – has taken our eye off the ball, folks… Our eye that was affixed to the deficit problem in the US. The budget deficit that adds to our national debt year-in and year-out… Even the media, which was fixated on the deficit a week ago, has moved on… And this can’t happen! We’ve got to stick to harping about the deficit, and how the National Debt can be reduced! For our kids and grandkids’ sake!

So… Just to redirect some of this misdirected focus, click here.

Then there was this… Next week, I’ll be giving a presentation on The Coming Regime Change in Currencies… I’ll be talking about the dollar losing its title of Reserve Currency, and how I believe the Chinese are preparing the renminbi (CNY) to be the next reserve currency. Well… A lot of people believe that can’t happen because the renminbi is “non-deliverable” with no exchange or transfer of the currency… Hmmm, well, the Chinese have thought of that too, and are now issuing a deliverable currency: the “CNH” in Hong Kong… The CNH trades similar to the CNY, but is more market driven, and speculators can’t push the envelope of the forward value of the currency… I can’t see why China would do this if they didn’t have plans to switch to the deliverable currency at some point in the future… So… Just another step toward the reserve currency of the world…

To recap… Oh my! The risk assets were cut off at the knees yesterday, with silver taking the brunt of the selling once again. Euros were also on the chopping block after ECB President Trichet, sounded less hawkish. I still believe that the ECB will hike rates in July though. Today is a Jobs Jamboree, which always adds excitement to the morning! And Chuck goes way out on a limb to talk about conspiracy thoughts…

Chuck Butler
for The Daily Reckoning

More Buying Opportunities From the Silver Selloff originally appeared in the Daily Reckoning. The Daily Reckoning provides over half a million subscribers with literary economic perspective, global market analysis, and contrarian investment ideas. Bill Bonner, the founder of the the Daily Reckoning released his latest book Dice Have No Memory: Big Bets & Bad Economics From Paris to the Pampas in April 2011.

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More Buying Opportunities From the Silver Selloff

The Daily Reckoning is a contrarian e-letter, brought to you by New York Times best-selling authors Bill Bonner and Addison Wiggin since 1999. The DR looks at the economic world-at-large and offers its major players – investors, politicians, economists and the average consumer – some much-needed constructive criticism.

This week shaped up to be one of the busiest on record for all of us here that I can remember as the market volatility and plethora of data provided us with endless excitement. As we close the books on April, the dollar saw increased selling pressures with several currencies setting new records, gold and silver trading at or through all time highs, and the euro (EUR) knocking at the door of 1.50. We’ll see if this carries over into May or if there’s some type of circuit breaker, such as Europe’s debt problems, that re-surface in order to keep the dollar from hitting the floor.

As I mentioned yesterday, it was a data rich day, so let’s look at the tape and see what happened. But first, let’s see what Chuck had to say…

Well… Now you all can’t say that I didn’t tell you this was going to happen… First-quarter US economic growth slowed to 1.8%!!! Didn’t I tell you that 2010 was going to be the high for economic growth? Didn’t I tell you that without government stimulus, either through cash for clunkers, or whatever cockamamie scheme they were coming up with, the economy didn’t have legs?

And the Fed is going to pull the stimulus/financial cocaine away from the economy at the end of June? I would laugh out loud… But that would be insensitive! One of my fave lawmakers, and one of the few lawmakers that “has a clue”, Ron Paul, had this to say about Big Ben’s talk yesterday…

“It was more justification for a policy that doesn’t work. There was no explanation on how he’s going to get out of this. He did recognize, though, that price increases are significant and could be a problem in the future. It could be a significant problem for unemployment. He said it softly, but there were some words in there that convinced me that he knows that when inflation is admitted – I think it’s already here – but when he really admits it’s here, he’s really in a box. Because what he’ll have to do is raise interest rates, cut back on all the monetization of all this debt, buying all these securities, and then, in a weak economy, he’s in a mess.”

Yes, he’s in a mess, Bernanke that is… But… Remember what I told you about the end of QE2… It will fill the spirits of the dollar bugs for a couple of months, and then WHACK!

As Chuck just mentioned, the big news (and it wasn’t the royal wedding) was the initial showing of first quarter GDP here in the US. I guess the Fed’s downward revision of growth for this year on Wednesday afternoon was a foreshadow to the disappointment we saw yesterday. Most economists were looking for it to come in at 2%, but instead, fell to the slowest pace since the second quarter of last year and dropped quite a bit from last quarter’s 3.1% figure.

Dipping a little deeper into the figure, inventories rose at a $43.8 billion pace, compared with $16.2 billion in the fourth quarter. If we take inventories out of the picture, the economy would have only risen 0.8%. The housing/residential construction industry and the trade deficit both assumed their usual roles as they subtracted from GDP but manufacturing and durable goods spending more than provided the offset.

I found a comment from Bernanke’s press conference where he said that much of the slowdown in the first quarter is viewed by most on the committee as transitory. There he goes with that word again, transitory. As Chuck said, does he really believe the economy can stand up on its own without stimulus and shake the temporary slowdown that underperformed with the stimulus in place? Again, government spending has played a large role in our economic growth over the past couple of years and has displayed very little in terms of self-sustainability.

Moving on to the jobless claims, new applications for unemployment rose last week by 25K to 429K, which was the highest level in close to three months. While the four-week moving average on initial claims rose as well, we did see a drop in continuing claims by 68K to 3.64 million. Those collecting extended benefits also showed improvement by falling to 4.165 million, but there is still a lot of progress needed in this area to support a so-called moderate recovery.

We also had personal consumption for the first quarter rise more than expected by 2.7% but fell way short of the last figure of 4%. The Fed’s preferred gauge of inflation, core PCE, showed a higher-than-expected increase by rising 1.5%. Pending home sales showed mixed results as the monthly number rose by 5.1% but fell 11.5% year over year. Today will bring us personal income and spending along with some March inflation numbers.

If we sprinkle in some other secondary reports, such as the Chicago purchasing manager index, that gives us our day in data. Looking ahead to next week, we get our first look at the April jobs numbers with the ADP employment report, so that, coupled with factory orders, will be the focus leading us into the jobs jamboree on Friday. Other than that, there really isn’t too much on the data ticket here in the US as we kick off the first week of May.

Looking at the currency market, we had yet another day of retreat in the dollar as it declined for an eighth straight day. While returns were fairly tame for most currencies, we did see New Zealand (NZD) and Brazil (BRL) lose over 0.50% on the day as each had some type of less-than-ideal data that triggered a modest sell-off. The Brazilian real, which was the worst performer, saw a double whammy from slower credit growth and inflation.

Any inkling whatsoever that the pace of interest rate hikes may slow will send the real downward as this currency is a big destination for hot money, which are generally short term investors who are only looking for yield. Since this is still considered an emerging market, the rate differential is often used as a risk premium in that many investors would look past the currency if it weren’t for the interest rate.

Compare that logic to say, the Norwegian krone (NOK) or Swiss franc (CHF), where interest rates remain very low but are fundamentally sound. Total outstanding growth in Brazil only rose 1% in March and suggests higher interest rates are starting to filter through to the economy. Their broadest measure of inflation also rose less than expected by increasing 0.45%, which was the slowest monthly gain since last July. While the annual figure still increased by over 10.5%, it was still lower than the estimate of nearly 11%.

Inflation still remains well above their target so additional steps will definitely be needed to keep it under control, but the government likes to jawbone here and there in an attempt to convey that additional rate hikes really aren’t necessary and that they’ve already taken steps to address the issue. Moving on to a currency where inflation is not a problem, the New Zealand dollar came in second to last place.

The New Zealand central bank met yesterday and decided to keep rates on hold at the record low of 2.5% and looks to remain that way for the better part of this year. The central bank’s comments after the meeting are what stirred the pot. It’s not that he said anything earth shattering, but I guess he came off more dovish than what investors had hoped for.

Governor Bollard not only called the kiwi’s rise unwelcome, but also expressed that the outlook remains uncertain and given relatively low core inflation with continued economic disruption from the earthquakes, interest rates look to remain appropriate for some time. Again, the rise of the currency wasn’t necessarily due to strong fundamentals, but instead, it has been the carry trade and the fact that it’s getting grouped together with the Australian dollar.

As I came in this morning, the dollar index is flirting with its lowest level since July 2008. In fact, April will mark the fifth straight month of decline as interest rate expectations have risen in most countries except for the US. If we also take into account that risk seeking has steadily risen, the dollar didn’t have much of a chance, and that’s not even taking the underlying economic fundamentals into consideration.

To recap…The initial print of first quarter GDP came in lower than expected and doesn’t exactly lay the framework for the moderate recovery expected this year. First time jobless claims increased well above that hard-to-shake 400K mark while continuing claims fell. The dollar was lower for yet another day, but so were the New Zealand dollar and Brazilian real as recent data didn’t push the envelope for an immediate increase. Looking ahead to next week, we’ll see both factory orders and the results of April’s jobs numbers.

Mike Meyer
for The Daily Reckoning

First Quarter GDP Comes In Lower Than Expected originally appeared in the Daily Reckoning. The Daily Reckoning recently featured articles on stagflation, best libertarian books, and QE2

.

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First Quarter GDP Comes In Lower Than Expected

The Daily Reckoning is a contrarian e-letter, brought to you by New York Times best-selling authors Bill Bonner and Addison Wiggin since 1999. The DR looks at the economic world-at-large and offers its major players – investors, politicians, economists and the average consumer – some much-needed constructive criticism.