Deficits Do Matter!

by Chuck Butler

Deficits Do Matter!

Good day… Bad start to the day for me today… Geez Louise, I woke up and rejoiced in the idea that it was Friday, only to pick up the paper on my way out the door and realize that it’s not! UGH!

OK, restart, get my bearings, and get ready to write! The Monthly Budget Statement yesterday was a real eye-opener… It jettisoned to $69.2 Billion in July, up from June’s awful number of -$54.2 Billion! I have to get on my soapbox here, because I keep reading stories about how deficits don’t matter… Right, and God didn’t make the little green apples, and it don’t rain in Indianapolis in the summer time! (just an old song, not talking religion) Deficits do matter, because it generates two problems… One… Who is going to lend you the money to finance the deficit, and two… How are you going to pay it back? Or maybe you’re not planning on paying it back and leaving the country, assuming a new name and selling bait on the beach of some lost island… No wait! That’s what I intend to do when I retire!

Anyway… You get the point… You can’t run and hide from deficits, and in our case, the dollar won’t be able to keep its Teflon coating nor hide from the deficits much longer…

The dollar lost some of its shine yesterday after the Budget report was printed, but has lost even more in Europe’s overnight session as Germany and France both reported that growth expanded for a 4th consecutive quarter… OK, I’ve seen a lot of talk about a report by an economist/ analyst that dissed the Eurozone economy… Well, as I’ve stated to some people that brought it to my attention… Hear me now and believe me later… The Eurozone recovery hasn’t had the stimulus that the U.S. and Japan have had, and therefore when the legs of the Eurozone recovery are firmly underneath it will not have to take the trash out that stinks from economic stimulus! As I said before I left on vacation… This Eurozone / U.S. economic story reminds me of the old fable… The Eurozone being the tortoise, and the U.S. being the hare… Read on!

More good news from the underside of the pillow… New Zealand Retail Sales jumped in the second quarter, no wait, they hit a moon shot dadgummit! Retail sales surged by 4 times what the “expert economists” forecast, and has put yet another rate hike back on the Reserve Bank’s burner! This news has given kiwi a nice boost and now looks as though it is ready to go past the 66-cent handle…

Well, the IMF has spoken on Japan… Let’s hope they haven’t given Japan a black cat! In other words… Bad luck! The IMF reported that Japan’s decade long problems have eased… Thanks IMF… I’ve been telling people that for almost a year now! We’ll get yet another piece of confirmation tonight when 2nd QTR GDP is printed… It is expected to back off of the +6.1% rise in the 1st QTR… But remain firmly above +4%… So, yen should get some buying…

I see where China’s inflation has pushed higher to 5.3%… The Chinese Central Bank needs to raise interest rates to combat this inflation… However, I think they would get more bang for their inflation fighting buck by revaluating the renminbi, which would go a long way toward helping the U.S. with its Trade Deficit!

Speaking of the Trade Deficit, it’s on the docket for tomorrow, and is expected to inch higher to $47 Billion for June. But first we have to get through today’s Retail Sales and Weekly Initial Jobless Claims data…

Oh, and one more thing, yesterday the U.K. claimant count fell by another 13.7k, marking the 14th consecutive month of jobs gains. Notice how they call it a “claimant count” and we call it Jobless Claims? Theirs sounds more classy, eh? Anyway, the U.K. domestic economy continue to scorch and will keep the Bank of England’s Monetary Policy Committee close to the rate hike table…

Currencies today: A$ .7165, kiwi .6590, C$ .7555, euro 1.2275, sterling 1.8325, Swiss .7975, rand 6.20, krone 6.778, forint 201.88, zloty 3.60, koruna 25.684, yen 110.75, baht 41.55, pesos 11.42, and gold… $397

That’s it for today… So, it’s Thursday, UGH! I sound like someone that needs a vacation instead of someone that just got back from one! Data today could be market moving so keep an eye on it, and have a great THURSDAY!

Chuck Butleris President of Everbank World Markets and the author of the popular “Daily Pfennig” newsletter.  With a career in investment services and currencies extending over 30 years Mr. Butler oversees all aspects of customer service and the trading desk for Everbank World Markets.

Mr. Butler is also a respected and frequently quoted analyst of the currency market; his name has appeared in the Wall Street Journal, US News and World Report, Time Magazine, CBS MarketWatch, USA Today, CNNfn, the Chicago Tribune and many other publications.

“A Pfennig for Your Thoughts” is delivered via email to tens of thousands of market watchers globally to help traders stay on top of the economic, currency, and market happenings.  The “Daily Pfennig” (as it is more commonly called today) has become a popular resource for currency investors and traders alike over the past 11 years. (sign up here )

Mr. Butler was previously the Chief International Bond Trader and Director of Risk Management for Mark Twain Bank, and has held significant positions in the investment industry since 1973.

All comments and opinions are solely those of the writer and are not in any way comments or opinions of Everbank, or any affiliates of either entity. Additional information is available upon request. Information in this publication has been obtained from sources believed by the writer to be reliable, but the accuracy, completeness and interpretation are not guaranteed and have not been independently verified. Opinions expressed are subject to change without notice and, due to the rapidly changing nature of currency markets, may quickly become outdated. The opinions and information presented do not constitute a solicitation for the purchase or sale of any security.