Current Account Deficit Still Too Large!

Good day. I trust everyone’s Father’s Day weekend was grand. Mine was! This will be short-n-sweet this morning, as there just doesn’t seem to be a whole lot to talk about. I’ve scoured the new wires, looked over the paper, and still nothing jumps out to say, “write about me!” So, as I always say when I’m talking about short-n-sweet Pfennigs, it will be about as long as “the book on what men know about women!”

My neighbor and Pfennig reader, Webs, tells me that whenever I say the Pfennig will be short-n-sweet, it doesn’t come out that way! So, this is going to work!

The currencies have seen some dollar strength overnight, especially versus the Japanese yen, which filters over to the euro, on the crosses. I’ve explained all that before, so I won’t bore you to tears with another explanation of the crosses. The dollar is back in the interest-rate-differential driver’s seat versus the yen. Until the Bank of Japan does something about the ZIRP (zero interest rate policy), and I mean more than telling us ZIRP is over, we’ll continue to see these periods where yen gets taken to the woodshed by the dollar.

But the way I look at it is that these trips to the woodshed only give us cheaper levels to buy!

On Friday, the first quarter’s current account deficit printed and then it narrowed! The first quarter current account deficit came in at $202 billion, instead of the forecast $222 billion. Well, unless something happened in the second quarter that I don’t know about, the current account deficit is still going to top $800 billion for the year, which puts it about 6.4% of GDP. That’s a big nut to crack, folks.

The Economist wrote about the “narrowing” of the current account deficit on Friday, and the writer sounds like a Pfennig reader! The economist said, “that is still far too large.” The article went on with this Pfennig-sound-a-like note, “It is also generally agreed that the most natural way for the deficit to correct itself is with a sizeable drop in the value of the dollar.”

You know me! That’s music to my ears! This deficit thing is really beginning to cause a rash!

I’m starting to see signs that the run on emerging markets is nearing an end. More calm has to come before it is really over, but right now, the signs lead me to believe the end could be near. You can see it in some of the emerging markets’ stock performance. I sure hope it’s about over!

The data cupboard, here in the United States is empty for this week. So, we’re stuck with jawboning from Fed Heads!

On Friday, the Eurozone got some bad news, reminding them that the economic recovery is still just that…a recovery. April’s industrial production fell 0.6%, which has caused the euro some pain. This doesn’t change my view on the euro though. I’m still calling for that free undercoat – no wait, I mean I’m still calling for the euro to get back to its previous highs. And on that note, I’ll head to the big finish. See, I can do it!

Currencies today: A$ .7385, kiwi .6168, C$ .89, euro 1.2590, sterling 1.8455, Swiss .8085, ISK 75, rand 6.92, krone 6.2350, forint 217.45, zloty 3.22, koruna 22.64, yen 115.50, baht 38.45, sing 1.5990, INR 45.91, China 8.006, pesos 11.44, dollar index 86.30, silver $9.94, and gold $566.70

That’s it for today. A great day yesterday! A bit of rain, but not enough to ruin the day! The U.S. soccer team still has a chance to move to the next round, but they need a lot of help! Scoring a goal or two of their own would certainly help! Other than that, have a great Monday and week!

Chuck Butler
June 19, 2006

The Daily Reckoning