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Strategies & Market Trends : Aardvark Adventures -- Ignore unavailable to you. Want to Upgrade?

To: ~digs who wrote (962)	1/12/2005 8:46:05 AM
From: ~digs	Read Replies (1) \| Respond to of 7944

DJ Fed's Minehan: Fed Needs To Raise Rates More DJ Fed's Minehan: Hikes Will Depend On Economy DJ Fed's Minehan: Core Inflation Likely 2% In 2005 DJ Fed's Minehan: Inflation Expectations 'Well Grounded' DJ Fed's Minehan: National Savings Rate Must Rise DJ Fed's Minehan: Labor Markets Remain 'Sluggish' DJ Fed's Minehan: US Econ Likely To Grow 4% in 2005 DJ Fed's Minehan: Current Acct Deficit 'Unsustainable' *DJ Fed's Minehan: US Needs To Cut Budget Deficit

To: ~digs who wrote (962)	1/13/2005 11:07:24 AM
From: Ron	Read Replies (1) \| Respond to of 7944

More on the trade deficit: ANOTHER BLOW-OUT TRADE DEFICIT The overall tone for the markets was established early in the morning before stocks began trading when the Commerce Department announced the U.S. trade gap increased to $60.3 billion in November. The October trade deficit was adjusted higher to $56 billion and analysts were expecting a modest improvement for the November deficit to around $54 billion. As you can see, the trend is clearly in the wrong direction as we continue to buy more items from offshore, but have less and less to sell abroad as time goes by. Some of the mainstream media spin was saying that we hit another record deficit because the U.S. is growing faster than other countries around the globe. An early headline from Bloomberg said, “U.S. 10-year Treasury Note Declines as Trade Gap Signals Growth.” I would suggest that the early decline in U.S. Treasuries was a signal to move away from U.S. dollar denominated assets because of the pounding the dollar took today. With regard to the trade deficit, the fact remains that we are just going deeper into debt to continue buying all the things we need and want. The report showed import growth higher by 1.3% to $155.8 billion, but the big warning comes when we see that exports fell 2.3% from $97.8 billion in October to $95.6 billion in November. This was the first decline we have seen in exports since June 2004. The lower value of the dollar should be making U.S. exports more affordable to the rest of the world, but they’re not buying. Some analysts have suggested that foreigners are pulling away from U.S. products to voice their disapproval of the Bush administration’s foreign policies. Others are saying the huge imbalance with foreign trade indicates the U.S. is simply not up to the competition to produce quality products at a low price. It appears China and other developing countries such as India are taking more than just the “labor intensive” jobs. China is now preparing to make cars for sale in the U.S. The initial production scheduled for the U.S. is 250,000 cars…let’s watch and see how Ford and GM fight back or if they will have to concede sales to the competition. The Dollar and Treasuries The record trade deficit took its biggest toll on the dollar with the U.S. Dollar Index falling to 82.20, and today was the biggest decline versus the euro in the last three weeks. The euro added 1.1% to 1.327, the yen gained nearly 1% to 0.981 and the big gainer in the currency pits today was the Canadian dollar with a 1.5% advance to 0.833. The Bloomberg article I mentioned earlier said, “Trade Gap Signals Growth,” but the columnist went on to say that the reported trade deficit “is raising concerns that a weaker U.S. currency may discourage international investors from buying longer-maturity treasuries.” I would have to agree with that comment. Early this morning treasuries opened lower and continued to move lower, but it didn’t last for very long. Right after the initial decline, treasuries were bought right back up to breakeven from yesterday’s close. I very much believe there was active intervention to prop-up the treasury debt market because the U.S. Treasury was scheduled to auction $15 billion in 5-year notes today. I have NEVER seen treasuries take a significant decline on a day when the government is conducting debt auctions; it just doesn’t happen! Bonds should have sold off today, especially with all the new Fed-speak about higher interest rates and the horrible trade numbers we got this morning. One of the analysts interviewed by Bloomberg had this to say. “We’ve got a dollar that is weakening and the Fed saying they are going to keep hiking rates so there is no compelling reason to buy Treasuries,” said Jonathan Lee, a fixed-income analyst in London at Barclays. “You can understand why foreign central banks are looking to diversify their portfolios out of dollars.” By the end of the day Treasuries moved marginally higher. You can expect more of the same tomorrow since the Treasury will be auctioning another $10 billion in 10-year TIPS. At this juncture the U.S. Treasury cannot afford a big problem with the dollar or treasuries since they plan to borrow more than $100 billion via debt auctions between now and the end of February. It should get interesting. financialsense.com