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To: patron_anejo_por_favor who wrote (90329)	9/24/2007 4:35:23 PM
From: bkcraun	Respond to of 306849

That's the plan, to wait for the next squeeze and short some more.

To: patron_anejo_por_favor who wrote (90329)	9/24/2007 4:44:32 PM
From: Perspective	Respond to of 306849

What do you think of playing a shrinking trade deficit theme here? Had a chance to think things over a bit more this weekend while I was surfing. Actually, I couldn't stop thinking about it. Perhaps I'm reading way too much into the latest Fed move, but it really has me bothered. Maybe it was just a coin flip, but I think it was likely far more deliberate than that. And I came up with one theory that I haven't seen discussed yet. So here 'tis: Bernanke went 50bp with the dollar at such a critical threshold to send a clear message to the world: we're ready to see the trade deficit fixed, and you're going to shoulder the pain. I think the psychological effect of cutting deeply with the dollar against the wall attacks the deficit on three fronts: 1. Traditional import/export pricing differentials 2. Currency dollar pegs 3. Vendor financing #1 - pretty straightforward. Classic textbook economics. Trash your currency and your exports become more attractive abroad, imports become more expensive at home. #2 - when we trash the currency, we're importing inflation. Of course, we're forcing the same on any country that pegs their currency to ours. For China, who doesn't have the luxury of our magical produce-nothing "service economy", they must import a lot of stuff to make the crap they sell to us. And given their lower incomes, the pricing of the basics - like food and gasoline - is far more important to their vast population. They don't have our advanced service economy, with richly paid poodle washers creating so much value out of thin air. So if you are going to peg to our currency, we're going to force you to import inflation, and that's going to hurt. So either you get stuck with the crack-up boom, or you raise interest rates to deal with our inflationary problem. Your choice. #3 - we've told the Chinese and the Saudis in no uncertain terms - the value of that stockpile of U.S. bonds is subject to our willingness to restrain ourselves. And we're not very willing. So I suspect the days of the "virtuous" cycle of trade deficit recycling are over. This vendor financing subverted the role of the currency markets. Instead of pressuring the dollar and making imports more expensive, it perversely pressured U.S. interest rates lower, making it even cheaper to purchase imports. That cycle depends upon the kindness of foreigners. And Bernanke just raised his middle finger and flipped them the bird. This is a new concept for me anyways, that this might be the inflationary way of bringing down the trade deficit. We could have taken the opposite tack and raised rates a while back, enduring a deflationary recession in the U.S.; inflationary route is evidently more politically expedient. It's an unusual form of trade protectionism when viewed through this lens. So, am I nuts, or is there any chance I'm on the right track here? If so, we should consider ways to benefit from a drop in the trade deficit. Perhaps short sales of companies that a focused on importing from China to the U.S. Would that be EXPD? Who else is heavily dependent U.S. imports? BC