U.S. Trade Deficit Soars!

Good day… Well… Tuesday was another of those days that you think the markets will react one way, and instead, they go down a different road… Of course, you know me, I think they are heading down the road to disaster… But my long time friend, and former boss, Ed Bonawitz, told me long ago that the “markets aren’t wrong” or… In other words, you’ll be wrong if you fight the markets!

Here’s what I’m talking about… Yesterday, the U.S. July Trade Deficit printed at a new record of $68 Billion!!!!! That beats the old record monthly Trade Deficit, which printed at $66.5 Billion almost a year ago. OK… More on the breakdown in just a minute… But a Trade Deficit like that should have been so negative for the dollar that the greenback couldn’t see straight! But Noooooo! Instead, the dollar rallied… That’s right, I said rallied… What would make a foreigner want to buy an inflation riddled dollar with a soaring deficit, and all the other fundamental problems it carries around?

Anyway, I’ve long given up trying to make heads or tails of the markets and their demented reactions to data… The Trade Deficit broke down like this: exports fell by 1.1% after rising 2.3% in June, while imports rose 1.0% after rising 1.1% in June. The U.S. petroleum deficit hit its second highest level on record as oil prices rose in the month. Imports from China rose by 2.4%.

The important thing to keep in mind here is that last sentence… Imports from China rose by 2.4%… Just a reminder… We don’t import oil from China!

Oh… And of course we had the Spin Doctors out there telling us “not to worry, this move in the Trade Deficit was merely a temporary pop”… OK… Maybe it was… But even it had come in as forecast at $65.5 Billion, it would have left us on a pace to have an even larger annual deficit than last year’s record of $716.7 Billion! And… Even if it was a temporary “pop”… It still will reduce 3rd QTR GDP… Of course we still have August and September’s Deficits to print… But right now it looks as though at least .5% will be subtracted from 3rd QTR GDP!

OK… The only currency to move higher VS the dollar yesterday was the British pound sterling… Recall, yesterday, I told you about the higher inflation # in the U.K. and traders got the hint and bought pound sterling.

Alrighty then, it sure looks like a good old fashion barn burner is in store for us! Recall, on Monday, I talked about Gold falling below $600, and said, “I just can’t come to the conclusion that the commodity bull market has come to an end… Jim Rogers tells us that over history commodity bull markets average 17-22 years… This commodity bull market has put in only 6 years… So… Take that for what you will… Me? It’s my story and I’m sticking to it!” and… Besides, haven’t we seen the Chicken Littles come out crying about the sky falling on Commodities in the spring of 2004, and 2005? Hmmmm….

Well… One of my fave economists, Stephen Roach of Morgan Stanley has called the Commodity Bull Market over… Here’s his take… “The mega-run for commodities has run its course. The price of gold has fallen 20% from its highs – so it’s officially a bear market in gold. And commodity prices in general are now down over 10% from their highs (as measured by the CRB Index), so commodities are officially in a correction.”

So… I’m going to say right here that I’m in disagreement this time with one of my faves… Of course, I’ve been in disagreement with him before, the last time regarding China’s economic growth…

Another of my faves… Dr. Steve Sjuggerud, says to “take what Mr. Roach says (about commodities) with a grain of salt.” In the good Dr’s newsletter yesterday (DailyWealth) that: “We believe that – even though commodity prices have risen significantly – Mom and Pop America still have not invested in commodities. And big investors (like pension funds) are just getting around to allocating money to commodities. This thing won’t be over until everyone is on board.”

So… There’s a line drawn in the sand on this one, and you’ll have to pick a side to be on…

You know… I’m sitting here typing away, and thinking about Commodities and these two sides, and thought… “This is what the EverBank MarketSafe Commodity / Resource CD is made for! An investor can participate in the commodity market with no principal risk!” Holy 100% Principal Protection, Batman! Where can I get more information on this CD Batman? Well, Robin… Simply go to www.everbank.com or call 1-800-926-4922!

OK… Back to currencies… There’s a G7/IMF/World Bank summit in Singapore this weekend… I wonder if currency traders are waiting around to see if something comes from this boondoggle. Of course, in my personal opinion, In today’s world… The IMF serves no purpose, but to be a “talking head”. They should close up shop, and send any “bright people” they may have over to the World Bank!

And while I’m dissolving the IMF, I might as well take a shot at G-7, who to me is as useless as a broken crutch… With Globalization, don’t you think that G-7 club should become larger? I do! G-7, Schmee Seven, as far as I’m concerned!

With the metals taking it on the chin in recent times, the Commodity Currencies have really found a tough row to hoe… So… What side of that Commodity line are you on? That’s how you’ll want to view the Commodity Currencies, of Aussie, Canada, New Zealand, and South Africa….

The Japanese yen, hit 118 again yesterday afternoon, but has rallied overnight after the Bank of Japan’s Mizuno (bank board member) said that the Bank of Japan would continue to make “fine adjustments” to interest rates… That’s Central Bank Parlance for “interest rates are going higher”…

The statement was also good for the rest of the Asian currencies, which have been stuck in the mud for the last week….

Just the Monthly Budget Statement for August to look at today, and since the markets don’t seem to want to focus on that kind of stuff… I WON’T EITHER!

Currencies today: A$ .7525, kiwi .6455, C$ .8945, euro 1.2690, sterling 1.8755, Swiss .7990, ISK 70.71, rand 7.3450, krone 6.5925, SEK 7.2825, forint 215.75, zloty 3.12, koruna 22.49, yen 117.55, baht 37.36, sing 1.5760, INR 46.18, China 7.9490, dollar index 85.88, Silver $11.07, and Gold… $585.40

That’s it for today… I bet the Houston Astros fans have got to think that Albert Pujols is out to get them! Speaking of baseball… Day game today, Cardinals & Astros at Busch… Guess who will be there? Day games… The way baseball should be played all the time! It’s “Wired Wednesday” for us on the desk… Can’t wait! Have a great Wednesday!

Chuck Butler
September 13, 2006