Muscles On Its Muscles

The dollar is driving the world – and possibly driving a few countries like Russia and Venezuela crazy. The dollar is now at its highest since 2009, up almost half of a percentage point on the euro today. Is this a bet by some investors that the Fed is about to raise rates? We think rather it is an indication of just how powerful the U.S. economy has become relative to the rest of the world.

This is yet another, if usually unspoken, factor the Fed must take into account when it thinks about raising rates. With many countries or regions near or at zero percent, because of export cost considerations, the U.S. central bank has to think three times before raising rates.

In regular trading, gold would have been up today. Because of continued dollar strength it is down, though not by much – off $2.40 at 4PM in New York. Oil did not join its sister commodity in declining today, which is not so much an indication of general conditions in supply and demand but a sign that traders are nervous under the $55 per barrel (for WTI crude) mark. Keeping a continued hawk-eye on crude is imperative.

The equities markets slowed on their way up today; but given this is the last Friday before the holiday whirlwind begins in the western world, even a small rise has to be considered important.

New unemployment data said yesterday that claims dropped yet again. This is seasonally adjusted and takes into account holiday hiring. As a footnote to hiring, the San Francisco Bay area saw a jump of 23,000 new hires last month and Pennsylvania’s statewide rate placed it on the verge of going below 5%. Both areas have mixed sector economies, an indication that the future belongs to the diversified. The unemployment rate for white adults over age 30 in the New York City metro area hovers just above 1%. That tells us the future belongs to the highly educated. Black teenage unemployment is at 22%.

These indicators demonstrate that for the well educated or deeply trained, jobs are no longer a problem. Indeed, the Labor Department is reporting that job openings are at an all-time high in the United States but that the world’s largest economy lacks properly honed workers to fill them.

One of the reasons unemployment will not go under, say, 4%, anytime soon is that the under educated are going to be less in demand and the jobs they are qualified for will remain scarce. We can also surmise that because all those openings for advanced workers are going unfilled there will be wage inflation among the already employed. However, regular inflation will be muffled because new workers who would be well paid are not entering the stream.

All this fundamental news adds up to trouble for gold. A growing, nearly booming economy does not demand safe-haven assets. And, with wage stagnation – or rather lack of new high-wage earners – inflation will remain subdued.

The Fed has some fancy footwork ahead of itself.  Wishing you as always, good trading,