Trade Deficit Plunges

Good day… And a Happy Friday to one and all! A Fantastico Good Friday I might add! I’m writing from home today, as I decided that discretion was the better part of valor, and that rest is what I needed… Sure hope I recover by tomorrow, as I have a ticket to see my beloved Cardinals play the Astros!

The dollar went on a rampage yesterday after the trade deficit for February plunged to $26 billion versus the previous $36 billion! WOW! Imports dropped 5.1%, which is a pretty hefty drop… Exports, which did rise a bit during the month, have seen a drop of 16.9% in the past year. (Read stronger dollar!) This report is tremendous news for the twin deficits.

Unfortunately, in my opinion, the drop in the trade deficit does NOT even out the increase in the budget deficit! Not even close! Here with the trade deficit we’re talking about a $10 billion drop… Over on the budget deficit side, we’re talking about trillions!

The one piece of data we’ll see today is the treasury budget. The U.S. treasury budget is expected to show that five months into the government’s fiscal year, the deficit has swollen to $764.5 billion – about three times higher than Feb 2008! As I said yesterday, about Australia and their brick in the wall… This is just another brick in the deficit wall for the United States!

So… As I said, the dollar took the trade deficit news and ran with it… This is where the dollar either gets hit head-on by a lean, mean, fighting machine linebacker, or it sprints to the end zone… I think that sooner or later, this linebacker will fill the hole, leaving the dollar in a crumpled mess on the ground… Because just like in football, fundamentals will dictate if the linebacker gets there to fill the hole, and fundamentals in currencies will dictate the eventual direction of the dollar…

The dolts buying dollars on the trade deficit news believe that this is a sign that the U.S. economy is improving… Wells Fargo announced their earnings yesterday and surprised the forecasters with a strong report. Now, suddenly, the pundits believe that ALL banks are going to announce strong earnings for the first quarter… Well… Why wouldn’t they? They took in billions of TARP money, they didn’t book any loans, the lowered interest rates to zero, and they closed down their units that caused them the problems! Take away the TARP, and let’s see what’s under the hood then! Hmmmm….

Well… It’s a holiday in the stock market today, and in some places around the world. Monday will see the same scattering of countries on holiday. So… The volume today will be very thin… And that could lead to…. Wild Swings! But we’ve all been through these thin volume days before, so we know what to expect. They don’t always pan out that way, but at times, the moves have been eye-popping!

So… Have you heard about these so-called “stress tests”? The government put the major banks under a stress test to get the pulse of their health… I’ve had two stress tests for my heart over the years… I don’t think they really prove anything, but so be it. The government’s stress test will be much the same, because I think the government is doing all this as a circus act! It’s a show, people! The results are not going to be revealed… Now wait a minute here! Don’t we, as “financiers” of these banks through TARP money, have a right to see the results of our investments? The government needs to bolster consumer confidence in banks, so you don’t think Treasury Secretary Geithner is going to chance that with disclosure of the stress tests, do you? I don’t!

China got the bad news overnight that their exports had dropped for the fifth consecutive month… Of course, all they really had to do was to see that U.S. imports dropped 5.1% to know the results of this report ahead of time! The thing that this report does do for the Chinese officials is to get them working harder on stimulating domestic demand. I think the Chinese can do this if they really want to… And if they did, well… That would be the end of the dollar as the world’s reserve currency, for sure!

Speaking of which, a reader sent me a link to a story regarding China pushing for settlement of contracts in renminbi/yuan (CNY)… Hmmm… I read it, and said this in response… “Good article… as it states this is small…but does show China’s seriousness towards removing the dollar as the reserve currency! I liken this to all the hoopla that went toward Iran saying over and over again that they no longer would settle oil contracts in dollars… It never really came to fruition.

The thing to think about with this is that it’s a baby step… The first line in the sand drawn on the dollar as a reserve currency… There will be many more over the years, but we can look back at this move and say it was the first!

I read a story about how the Pentagon is conducting war-game style situations on an economic front between the U.S. and other countries… OK, now that gets my conspiracy blood flowing faster than you can say renminbi! China would probably be one of these “other countries” don’t you think? Do you think it has something to do with China calling for an end of the dollar as the world’s reserve currency? That China has introduced the SDR’s as a solution, and that China has begun requesting payment in renminbi? Ahhh grasshopper… Welcome to Chuck’s Conspiracy Theory World!

OK… I’m coughing my head off here, better go get in my recliner and calm down…. A long-time reader sent me this, and I thought it would be cool to end the Pfennig today with this little ditty…

“If you had purchased $1000 of shares in Delta Airlines one year ago, you would have $49.00 today.

“If you had purchased $1000 of shares in AIG one year ago, you would have $33.00 today.

“If you had purchased $1000 of shares in Lehman Brothers one year ago, you would have $0.00 today.

“But… If you had purchased $1000 worth of beer one year ago, drank all the beer, then turned in the aluminum cans for recycling refund, you would have received $214.00.

“Based on the above statements, the best current investment plan is to drink heavily and recycle. It’s called the 401-Keg Plan.”

Currencies today 4/10/09: A$ .7195, kiwi .5830, C$ .8150, euro 1.3145, sterling 1.4650, Swiss .8635, rand 9.0610, krone 6.6910, SEK 8.2850, forint 221.35, zloty 3.3230, koruna 20.11, yen 100.20, sing 1.5175, HKD 7.75, INR 50, China 6.8335, pesos 13.16, BRL 2.17, dollar index 85.77, Oil $52.24, Silver $12.33, and Gold… $883.30

That’s it for today… Nice game by Chris Carpenter yesterday as he had a no-hitter going in the 7th! If he can actually be healthful for the entire season, my beloved Cardinals just might have a chance to be good! Big game tonight for our Blues… If they win, I believe they make the playoffs… In sports that’s called a “do or die” game… I’m sure Chris and Brendan Gaffney will be in their usual seats cheering on the Blues… People are arriving at work about now, and seeing that my car isn’t in its usual spot… No worries… All the little kids are probably getting pretty antsy by now about all the commotion going on. They are so darned cute! Especially, my granddaughter, little Delaney Grace! She is a walking, talking, person now, and cute as can be! Can’t wait to see her in her dressed all up for Easter. I’m sure my darling daughter Dawn will dress her all up, because that’s what her mom did to Dawn! One of my fave pictures of my three kids sits on my desk… Alex is only about 2 or 3 years old, but it’s all three of them dressed up for Easter in my backyard… Priceless! OK… I’m getting sappy now… Time to hit the send button… I hope your Friday is Fantastico… And your weekend is Wonderful!

The Daily Reckoning