Current Trade Deficit Thoughts

According to the latest trade deficit numbers of the US Bureau of Economic Analysis, "total US exports in July 2009 were $127.6 billion and US imports were $159.6 billion". In the short term, imports have increased by $7 billion over June 2009, and exports increased by about $3 billion over the same time. Typical of the US, we are consuming much more than we are producing. "The gap between US imports and exports grew by 16%, the most in a decade" per Bloomberg.

Here is the breakdown of some important US trade numbers via the US Census Bureau Foreign Trade Statistics:

US trade deficit increased by approximately:
$4 billion with the European Union to $8 billion
$2 billion with China to $20 billion
$1 billion with Canada to $2.2 billion
$1 billion with Germany to $3.2 billion
$500 million with Venezuela to $2.3 billion
$200 million with Japan to $3.9 billion

Obviously the US trade surplus is increasing at a slower rate, here are our top six trade surpluses (numbers are approximations):
$1.3 billion with Hong Kong
$1.1 billion with Netherlands
$950 million with Australia
$870 million with Belgium
$787 million with United Arab Emirates
$500 million with Singapore

The good news is that the US trade deficit at $32 billion has decreased by over half since hitting a monthly record of $65 billion in July 2008. Since the US dollar has been weak lately, our exports have potential of increasing because they will be more competitive in global markets. On the other hand, we are losing many of our manufacturing jobs and the workforce is still contracting, so even if other countries want to purchase our products, what volume of products will we have to sell? We will see what happens to the trade deficit for August.

Since the US has had a trade deficit for a prolonged amount of time, the difference is essentially debt. The larger the debt is the more likely it is for investors to believe that demand for our products is decreasing. As such, I believe if the deficit continues to get larger it is likely to have a negative effect on the stock market. Less buying of our goods from other countries hurts producers in the US and their respective company's stock market values. Investors like Peter Schiff realize there are few investment opportunities domestically, that is why he invests a large percent of his assets overseas and in commodities. I myself think we are headed for a 'W' shaped stock market pattern where we are near the top, and within a short period of time (six months or sooner) we will have a pullback in the market.

Stock Market Gains Created By Government Bailout Monies

If you have been following the stock market closely since March 2009, you would be able to draw the conclusion that the gains of the stock market are not based on solid economics. I think what we are seeing is what market analysts call a 'dead cat bounce'. Per Bob Chapman, "there is low volume in the overall market and short covering", which typically infers a bear market and lower market prices. In addition, the market is pricing in the future economic strength that we are suppose to have, and this is simply not possible with a weak dollar. You cannot have a weak dollar, and a strong economy. Also, there is no such animal as a jobless recovery, especially when our economy is fueled by 70% spending. What's more is that the savings rate among Americans is increasing quickly, so the people that do have money are saving more and spending less. The latest government numbers showed that Americans were saving approximately 7% of their income on average, versus 0% of their income on average a year ago. This is the highest our savings rate has been since 1994. Based on the graphics below, I would conclude that people across all generations are saving more and making less.