Trade Deficit Debacle…
"DEFICITS DO MATTER! And one day…obviously not now…but one day, all these geniuses that don't believe that will wake up and smell the coffee!"
by Chuck Butler In This Issue… - Spinning The Deficit!
- Europe to turn around…
- Huge Data Week…
- Nothing from G-7…
--- Advertisement --- Need more World Market deposit slips? Simply give us a call at 800.926.4922, or, you can send an e-mail to worldmarkets@everbank.com. We'll be happy to send you more Bank-By-Mail envelopes by return mail. --------------------- And now…today's Pfennig! Trade Deficit Debacle… Good day. Well, you wouldn't have known it from the reaction of the currency markets on Friday, but the Trade Balance recorded the second largest monthly deficit on record of $57 Billion. It was clearly amazing to hear the spin doctors go to work on the Trade Deficit debacle… The first news story came out that the deficit narrowed compared to what was expected. Hey! That's not a narrowing of the deficit! The Deficit actually widened from the previous month's showing of $53 Billion. I even saw this quote: "The trade deficit report was surprising good." Good for whom? The Chinese? Yes, it's just peachy! I also read a report saying that currency traders that have been proponents of a weak dollar, have used the Trade Deficit as a security blanket. So, much for that security blanket, eh? I'll say this one more time… (Oh, you know me, I'll say it one hundred more times, but I love the drama) DEFICITS DO MATTER! And one day…obviously not now…but one day, all these geniuses that don't believe that will wake up and smell the coffee! This morning, the euro got socked in the eye by it's own chief economist! Yes, the ECB's Chief Economist, Otmar Issing, decided that there hadn't been enough said about an ECB rate cut lately, and took it upon himself to remind everyone that the ECB may reduce interest rates this year. Not like it's new news…but the negativity surrounding the euro right now is the most I've seen since the weak dollar trend began in 2002. But, need I remind everyone that the dollar has danced this dance in 2002, 2003, 2004, and now in 2005. This dance has been longer, but it still doesn't remove the fact that the trend remains in place, and the global imbalances remain in place, along with the Current Account that most intelligent people still call unsustainable. However, if you don't believe that the euro is going to recover, we offer a product called the Dollar Bull that allows you to take the other side of that trade. My favorite economist, Morgan Stanley's Stephen Roach, just finished a trip through Europe and had this to report in his Friday column, "Germany, once the engine of Europe and still, by far, the largest economy in the region, may well hold the key to what lies ahead. If that's the case, there is good reason for optimism. Corporate restructuring is taking off in Germany right now. M&A activity is surging and our bankers tell me the pipeline looks stronger than ever. Private equity investors are swarming over Germany right now - encouraged by visible signs of turnaround in investments they have made in the past several years. German labor markets are far from flexible but they are changing before our very eyes." Mr. Roach went on to say, "But there is something big happening in Europe right now that cannot be ignored. Now that the political decks have been cleared of the ponderous constitutional debate, Europe can finally get on with its long overdue restructuring." These are things that can turn the negativity around…and I'll continue to look for this to happen. Recall, a week ago I said that I would take the high road on this constitution thing. Well, it looks like Stephen Roach is too! And trust me on this, he's never been a huge fan of the "one size fits all" European Union! This is a big data week, with PPI, Retail Sales, CPI, Industrial Production and Capacity Utilization. But the one piece of data most will focusing on will be the Net Security Purchases on Wednesday, which you may recall fell to only $45.7 billion last month, not even close to financing the Current Account Deficit! Right now, the experts are forecasting $71.5 Billion. I doubt seriously, that will happen, without a huge amount of buying by the Caribbean. Which still intrigues me, as to just who these Caribbean Bankers are… Tomorrow, we'll see Retail Sales for May…and checking the BHI (the Butler Household Index), I would think it to be disappointing, even with Mother's Day in May… All the people that keep writing about Australia and New Zealand, and saying that the economy is weaker than the Central Bankers are telling us, had to put their tails between their legs and whimper off after recent upbeat economic reports. And, last night was just another example of economic strength in New Zealand, after Retail Sales printed stronger than expected for April… I just don't see how these people can say things like the New Zealand economy is weak, when report after report says differently, and unemployment remains very low at 3.9%… Unfortunately for the kiwi, and Aussie dollar, they seem to be caught in the middle of euro weakness and dollar strength right now. But that doesn't scare me away, as I still see Aussie returning to 80-cents plus…and kiwi to 75-cents plus… G-7, schmee-7…nothing from these guys except the same rhetoric about "flexible currencies." Yes, everyone needs flexible currencies, but they are not going to get there by just talking about it! Currencies today: A$ .7615, kiwi .7050, C$ .7965, euro 1.2060, sterling 1.8050, Swiss .7840, rand 6.8740, krone 6.50, forint 207, zloty 3.344, koruna 24.89, yen 109.25, baht 40.91, sing 1.6790, pesos 10.8760, and gold… $427.13 That's it for today. Big data week ahead, hope I don't get dizzy going through it all! Great week for my Cardinals vs. the Red Sox and Yankees, now they just need to keep it going! Thanks to all who sent along a note of congratulations. And EverBank has just been named Forbes Best of the Web for the fifth consecutive year! WOW! I must really be running late today…I don't have this out the door, and there are people coming in! Have a great Monday and week! |
