China's Trade Surplus Triples
"This morning, the news is centered on China. You see, China's trade surplus tripled to a record $102 billion in 2005. What do you think Senators Schumer and Graham are going to do when they hear this news?"
In this issue… - How about that trade Surplus?
- More from Martin Feldstein!
- Good to have the heads up regarding Australia!
- Congratulations Bruce Sutter!
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And the best thing about a slow drip is that it allows people who just heard that they could buy foreign currency and put it on deposit in an FDIC insured bank, the opportunity to buy at decent levels and not chase a screaming market. That's my story and I'm sticking to it! This morning, the news is centered on China. You see, China's trade surplus tripled to a record $102 billion in 2005. What do you think Senators Schumer and Graham are going to do when they hear this news? I think they will get out their number-two pencils, legal pads, and calculators. They will start jotting down notes, and the more they think about this, the more steam will comes out of their ears, and they will no doubt be talking to the media, telling them that China's currency policy is unfair, and that tariffs and trade protectionism measures are the only thing the Chinese will listen to! Me? I think it simply illustrates the global imbalances that I've been harping on for sometime now. And one has to ask the question: Can these imbalances continue forever? Well, I don't think they can. And I'm joined in that thought by some of the most prominent economists and market observers. Now, we just have to get the world's investors to line up behind us, and we'll see some change! OK. Enough of that! Well, I finally got to read the entire article by Martin Feldstein that I talked about yesterday. Recall, the Financial Times printed an article by this well-respected economist regarding the risk that central banks are taking with dollar-asset purchases. Here's a snippet from the article: "The current small interest rate differences in favor of U.S. bonds are not nearly enough to compensate investors for the fall in the dollar that is likely over the next few years." He went onto say, "Experts estimate that the real trade-weighted value of the dollar must fall by at least 30% just to shrink the trade deficit to a more sustainable level of 3% of GDP." Well, the Australian trade deficit that I talked about yesterday as something not to get all lathered up about, due to a computer glitch in October, did come in wider than forecasted at $2.54 billion for the fourth quarter. The currency did suffer a bit after the report was printed, but has held steadfast above the 75-cent level, and if it can ride this wave all the way in, Australian dollars should be ready to move higher again. I think the goverment did a great job of pointing out the problem with the number. If they hadn't, I would be here today taking Aussie dollars to the woodshed. But I'm not, and that all comes back to the fact that we all knew what the problem was before it was a reality. Good show! Yesterday, there was a report going around the circuit in Canada that lit a fire under the loonie. The report states that the Bank of Canada will raise interest rates four times in 2006. Of course, it wasn't the Bank of Canada issuing the report, so this must be taken with a grain of salt. But hey! Anything to get the loonie going in the right direction again is fine with me, eh? Lately, the data coming from the Asian region has been very encouraging. It's nice to see all of these economies doing well at the same time. It adds strength to the region. I don't know if you've noticed or not, but as the Chinese renminbi has been gaining in value versus the dollar, so too has Japanese yen, Thai baht, and Singapore dollars. There are other minor Asian currencies doing well, too! I'm still betting that free undercoat that the renminbi will be around 7.50 to the dollar by the end of the year. OK, for those of you not in St. Louis, we have a car dealer that used to say, "I'll bet you a free undercoat that I'll beat any other deal!" Do they even "undercoat" cars any more? Last week, I told you about a report that claimed China was about to demand higher returns from their reserves, which indicated they would not be investing in dollar assets. Well, now there is a report going around the European Union that China will diversify their dollar holdings. But wait! To offset that report, Chinese researchers say that's hogwash, and that China's plans to diversity their reserves does not include selling any of its dollar holdings. Remember this: Nobody wants to be the last one to hold dollar assets. So, even if China is thinking about selling some dollar assets, or even stopping the purchases of dollar assets, they do not want the rest of the region to get in line before them! If all these Asian central banks head to the exit door at the same time, it will get really ugly! I'm becoming very uneasy with all the rhetoric regarding Iran. Currencies today: A$ .7530, kiwi .6955, C$ .8595, euro 1.21, sterling 1.76, Swiss .7825, ISK 61.05, rand 6.111, krone 6.64, forint 206.72, zloty 3.112, koruna 23.77, yen 114.10, baht 39.78, sing 1.63, China 8.0682, pesos 10.60, dollar index 89.34, and gold $544.10 That's it for today. Great news! Bruce Sutter was named to the Baseball Hall of Fame! Talk about a closer! If you look up the word 'closer' in a baseball dictionary, you'll see a picture of Bruce Sutter! It's "Wired Wednesday" and I'm already pumped on this news! So, I've got that going for me, eh? Have a great Wednesday! |
