Trade Deficit Puts Dollar
Back in The Spotlight
Jul 14, 2005
Ever since the French "no"
vote, the world's attention has been diverted away from the high-wire
act taking place in America, to the side-show happening in Europe.
However, with Luxemburg's "yes" vote on the EU constitution
over the weekend (indicating that the European dominos have stopped
falling) and today's release of a yet another $55 billion dollar
plus monthly trade deficit, the spotlight has refocused on what
is surely the main event. Traders and investors, speculators
of all ages, may I call your attention to the 8th Wonder of the
World, America's gargantuan trade imbalance!
While May's trade deficit was not as horrific as some had feared,
the sheer size of the number provides a potent reminder of the
enormity of the imbalance. Whatever problems Europe may have
in terms of unemployment and slow growth, they pale in comparison
to the U.S.'s monster imbalances. The dollar's sharp two day
decline in anticipation of today's report, partially reversed
by a relief rally today, provides potent evidence that the value
of the dollar will be largely determined by trade performance.
And there should be little room for optimism on that front.
Last week's employment report revealed that while 146,000 Americans
found jobs in June, 24,000 fewer workers were actually employed
making things for them to buy. The result will be even larger
future trade deficits, as newly employed Americans spend their
paychecks on imported products. Further, the continued expansion
of the housing bubble and abundant access to cheep credit means
American homeowners can continue converting paper appreciation
into real purchasing power. Since there is no actual increase
in domestic production, new demand can only be satisfied though
imports. In addition, the renewed surge in crude oil prices will
exert additional upward pressure on the trade deficit.
As quickly as it appeared, the recent dollar rally will likely
fade into obscurity. Nothing more than a small blip in the "mother
of all bear markets." Many novice traders misinterpreted
recent euro weakness for legitimate dollar strength, and placed
foolish wagers on the buck. These bad bets will ultimately be
covered. Still others foolishly concluded that the dollar's ability
to rally in the face of a rising current account and trade deficits
proved that such imbalances do not matter. In fact, bullish dollar
sentiment, which became so extreme so quickly, is likely a harbinger
of a sharp dollar decline to come. Keep your eyes on the center
ring, and your savings out of dollars.
Jul 13, 2005
not wait for pull backs that may never come. Buy gold at current
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For more information on their unique, safe, private, low-cost
program visit www.goldyoucanfold.com.
In addition, as the dollar's
value is likely to sink far faster than those of other fiat currencies,
investors can learn strategies to protect wealth and preserve
purchasing power by downloading my free research report on the
coming collapse of the U.S. dollar at www.researchreportone.com
and subscribing to my free, on-line investment newsletter at http://www.europac.net/newsletter/newsletter.asp.
C.E.O. and Chief Global Strategist
Euro Pacific Capital, Inc.
Mr. Schiff is one of
the few non-biased investment advisors (not committed solely to
the short side of the market) to have correctly called the current
bear market before it began and to have positioned his clients
accordingly. As a result of his accurate forecasts on the U.S.
stock market, commodities, gold and the dollar, he is becoming
increasingly more renowned. He has been quoted in many of the
nation's leading newspapers, including The Wall Street Journal,
Barron's, Investor's Business Daily, The Financial Times, The
New York Times, The Los Angeles Times, The Washington Post, The
Chicago Tribune, The Dallas Morning News, The Miami Herald, The
San Francisco Chronicle, The Atlanta Journal-Constitution, The
Arizona Republic, The Philadelphia Inquirer, and the Christian
Science Monitor, and has appeared on CNBC, CNNfn., and Bloomberg.
In addition, his views are frequently quoted locally in the Orange
Mr. Schiff began his investment career as a financial consultant
with Shearson Lehman Brothers, after having earned a degree in
finance and accounting from U.C. Berkley in 1987. A financial
professional for seventeen years he joined Euro Pacific
in 1996 and has served as its President since January 2000. An
expert on money, economic theory, and international investing,
he is a highly recommended broker by many of the nation's financial
newsletters and advisory services.
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