News That Moves: Clarity on the Jobs Report, Integrity of the US$ In Question, Rule of Law vs “Shared Sacrifice”

RCM Comment: A little clarity on the Friday Jobs report…

Fleckenstein Capital:

Unfortunately for the economy, the headline job-loss number is somewhat bogus. It was helped by a birth/death model that assumed 220,000 jobs had been created last month. Even more suspect is the fact that this 220,000 plug factor was boosted 27% year-over-year. The BLS assumed new jobs were being created in financial services and construction, even as it reported actual job losses for those two sectors combined of 89,000 last month — which makes no sense whatsoever.

RCM Comment: This story continues to gain momentum. US$ dominance on the world stage is coming under heavy fire. This trend is having – and will continue to have – serious influence over the equity, bond and commodity markets.

MOSCOW(Reuters) – Russia and China should consider switching to domestic currencies in bilateral trade without going to the dollar, Russia’s president Dmitry Medvedev said in an interview with Kommersant daily published on Friday.”

Japan’s shadow finance minister wants single Asian currency

Nakagawa said people must “take into account the possibility that the dollar might not function as the key currency any more in the medium and long term” as the world seeks a new order in the post-Cold War era.Until an Asian common currency emerges, he said, “the Japanese government should make efforts to have the “Asia zone” use the yen, not the dollar, for trade settlements. It’s time for Japan to launch this plan.”Japan’s government could extend lending to the International Monetary Fund on condition that it is in yen while guaranteeing bonds by Asian countries if they are denominated in the Japanese currency, he said.


RCM Comment: Add the above stories to the following breakdown of the TIC report and you begin to see the enormity of the problem weighing on the integrity of the US$.

The Astounding Reversal Continues: Bernanke’s Nightmare April 16, 2009
Yesterday, the U.S. Treasury released the Treasury International Capital (TIC) report for February 2009. It shows another outflow of capital. “Monthly net TIC flows were negative $97.0 billion. Of this, net foreign private flows were negative $106.3 billion, and net foreign official flows were positive $9.3 billion.”

The figure for January was updated to minus $147b from the previously reported minus $149b.

This is a huge reversal. That is almost a quarter of a trillion dollars in just two months. Foreigners are not bailing out the Treasury any longer. They are pulling out. They are net sellers.This means that domestic buyers must be found — not just for the gigantic wave of debt already on the books but also for the foreigners who are saying sayonara.The FED has not budgeted for this. It has pretended that the much-heralded glut of international savings would continue. It’s over. It’s not just over; it’s imploding. We are now seeing a glut of selling. This will create havoc for the government. The bailouts from outside the country have gone into reverse.

RCM Comment: To those of you who voted for Obama based on the belief he would bring change to the political system and expunge the influence of special interests as he repeatedly promised on the campaign trail, I have one question. Are you prepared to admit the naivete of that decision? If not, please read the following story and focus on the red highlight. I would welcome any comment that would explain to me how this government manipulation of the bankruptcy process is anything other than a giant pandering to the special interest of the UAW. What a brilliant way to increase your approval rating and gather future votes: Stick it to the bondholders (the small group without whom you wouldn’t have a company) and gift it to the bigger group whose behavior is arguably one of the major causes of the bankruptcy.


June 3 (Bloomberg) — Bondholders have a new risk to contend with — the Obama administration’s policy of “shared sacrifice.”…The big threat is that this policy will extend to all bonds, including Treasury and municipal debt, not just corporate obligations….The president, Einhorn said, had introduced a “quixotic idea” into credit markets: “that creditor recoveries in troubled situations can be determined by an arbitrary sense of shared sacrifice rather than legal agreements and long- established prior practice.”…“When teachers and firefighters are losing jobs and benefits, will municipal bondholders be asked to share in the collective sacrifice?” he asked. “Might the shared-sacrifice theory eventually extend into the U.S. Treasury market during a crisis?”…“The UAW gets a recovery of five times the bondholders’ under reasonably upbeat scenarios,” CreditSights Inc. analyst Glenn Reynolds wrote in a research note. “This is just the fact.”

About Bret Rosenthal

Interpreting the news that moves markets. Principal of RCM, LLC, and founding partner of the Fortune's Favor Family of Funds
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