That the U.S. trade deficit shrank to $34 billion in June is being presented as good news all around (no surprise there, as all news is presented as good news). The petroleum boom in the U.S. has pushed oil imports down by over $2 billion a month to $10 billion/month, and non-petroleum trade generated a deficit of $37 billion/month, down $5 billion. Slowing imports and modestly higher exports are being presented as reasons for stronger GDP growth going forward. Nice, except nobody is talking about the negative consequences of a shrinking trade deficit on U.S. corporate profits. The financial media doesn't talk about this because it doesn't understand the connection, which is based on Triffin's Paradox... All those counting on a weaker dollar and rising U.S. corporate profits will be doubly surprised.
‘The bigger they are, the harder they fall’ has always been true and is seemingly even more so today with regard to the BRICs (Brazil, Russia, India and China)
Overnight, just as Japan was threatening to roll risk over even more (at the end of the day, or rather night, it did, sliding over 200 point bringing the two day total plunge to nearly 800 points) China reported trade numbers which were "better than expected" even though the net GDP contribution from the overall surplus was actually less than expected at $17.8 vs $27.1, which in turn pushed US futures solidly into the green. Ironically, while the China data was enough to give the US a solid green momentum it was not enough to give the China market a green close. Recall that this is the same data that forced Goldman to admit in January that "China is cooking the books"... the same data that prompted a Bank of America report analyzing the Chinese data to say the following: "One important question in investors' mind is whether we can trust the quality of these trade statistics because they seemed to be significantly distorted between October 2012 and April 2013.... we believe the quality of trade data was improved a lot. Using our adjustment method for fake trade..." Of course BofA "believes it", and it is only fitting: fake Chinese trade data to push the fake US stock market higher.
The US trade deficit is now at its lowest point since that date and currently stands at $34.22 billion for the month ofJune 2013.
With the better-than-expected trade deficit confirming Taper is closer and IBM (following Credit Suisse downgrade) weighing on the Dow (knocking 32 points off), US equity markets are struggling this morning. Treasuries are leaking higher in yield and gold, silver, and oil are all sliding quckly post the data this morning. Perhaps most interesting is the deja vu underperformance of the high-yield credit and Japanese stock markets recently as JPY carry unwinds (a la Taper tantrum) re-emerge (and US equities - as they did the last time - are the last to get the joke).
If there was any doubt that the taper would take place shortly, it can be wiped out following the just released June international trade data, which showed a surge in exports to a record high $191.2 billion, an increase of $4.1 billion compared to May, even as imports declined by $5.8 billion to $225.4 billion, resulting in a trade deficit of just $34.2 billion, or 22.5% lower compared to the $44.1 billion in May, which is the lowest trade deficit since October 2009. It is also the biggest beat to expectations of -$43.5 billion since March 2005. Whether this plunge in the deficit was the result of the new GDP methodology is unknown, however the resulting surge in revised Q2 GDP following this bean-counting addition to the last month of Q2, means that the economy grew even more than expected and that the Fed's tapering course is now assured. It also means Q3 GDP based on July trade data will be dragged down as there is no way this surge in the collapsing deficit can be sustained.
One of the unpleasant side-effects for the Fed's forecasting (insert laughter here) abilities, is that following today's GDP revisions, H1 annualized GDP is now 1.4%. It means that there is no way that the economy can grow fast enough in the second half (especially with such early disappointments to the second half as the just released Chicago PMI miss) to meet the Fed's forecast growth of 2.3%-2.6%. Which, in turn, means more egg on the face of Bernanke and the FOMC's 2013 forecasts. Which is precisely what Goldman just said.
The "coming economic collapse" has already been happening. You see, the truth is that the economic collapse is not a single event. It has already started, it is happening right now, and it will accelerate during the years ahead. The statistics in this article show very clearly that the U.S. economy has fallen dramatically over the past ten years or so. The mainstream media will continue to scoff knowingly, "An economic collapse is never going to happen. We can consume far more wealth than we produce forever. We can pile up gigantic mountains of debt forever. There is no way that the party is over. In fact, the party is just getting started. Woo-hoo!"Anyone with half a brain should be able to see what is coming. Just open your eyes and look at the facts...
Recent dramatic declines in gold prices and strong redemptions from physical ETFs (such as the GLD) have been interpreted by the financial press as indicating the end of the gold bull market. Conversely, our analysis of the supply and demand dynamics underlying the gold market does not support this interpretation. As we have shown in previous articles, the past decade has seen a large discrepancy between the available gold supply and sales. Many recent events suggest that the Central Banks are getting close to the end of their supplies and that the physical market for gold is becoming increasingly tight. The recent sell-off was all orchestrated to increase supply and tame demand. We believe that central planners are now running out of options to suppress the gold price. After taking a pause, the secular gold bull market is set to continue.
A new data base decomposes OECD trade flows to discern the value added actually being done. Bottom line is that when this important economic concept is used, the bilateral US trade deficit with China appears considerably smaller than conventional approaches. And to anticipate potential criticism, it does not mean that one time series is lying...
Is the global economic downturn going to accelerate as we roll into the second half of this year? There is turmoil in the Middle East, we are seeing things happen in the bond markets that we have not seen happen in more than 30 years, and much of Europe has already plunged into a full-blown economic depression. Sadly, most Americans will never understand what is happening until financial disaster strikes them personally. As long as they can go to work during the day and eat frozen pizza and watch reality television at night, most of them will consider everything to be just fine. Unfortunately, the truth is that everything is not fine.
Those expecting a massive, epic miss in Initial Claims to keep the critical Baffle with Bullshit narrative going into NFP, did not get it, with Initial Claims printing at 343K, in line with expectations of a 345K print, following the obligatory upward revision in last week's print from 346K to 348K. Continuing claims dropped from an upward revised 2987K to 2933K, below expectations of a 2958K number. And as has been the case for the past year, Americans collecting Emergency and extended claims continue to drop, with 1 million less Americans on EUCs now, at 1.66 million, compared to the 2.62 million a year ago. These are all people who ultimately drop out of the labor force and lead to a "better" unemployment rate. And while ADP and Claims were better than expected, it was the trade deficit that offset the good news, soaring 12% from a revised $40.1 billion to a whopping $45 billion, far above expectations of $40.1 billion, the worst miss in 7 months, and dragging all Q2 GDP forecasts lower with it. This was driven by a drop in exports of $0.5 billion offset by an increase in imports by $4.4 billion. The total May imports were $232 billion - the highest since March of 2012.
If the economy is improving, then why aren't things getting better for most average Americans? They tell us that the unemployment rate is going down, but the percentage of Americans that are actually working is exactly the same it was three years ago. They tell us that American families are in better financial shape now, but real disposable income is falling rapidly. They tell us that inflation is low, but every time we go shopping at the grocery store the prices just seem to keep going up. They tell us that the economic crisis is over, and yet poverty and government dependence continue to explode to unprecedented heights. There seems to be a disconnect between what the government and the media are telling us and what is actually true. The following are 36 hard questions about the U.S. economy that everyone should be asking...
- Pretty much as expected from George W. Bush: Edward Snowden ‘damaged’ security (Politico)
- Gotta love the Keynesian-Monetarist religion: True 'Bullievers' Are Still Sweet on Japan (WSJ)
- Canadian Takes Reins at Bank of England (WSJ)
- Egypt streets quiet, political standoff goes on (Reuters)
- Private Banks Leave Switzerland as End of Secrecy Hurts (BBG)
- How Next Debt-Ceiling Fight Could Play Out (WSJ)
- Easy Money Is Still Central (WSJ)
- Lew Says China Needs Market Policies and Stop Spying (BBG) - China replies with the same
- Ireland Preparing Plan to Tap Euro-Area Rescue Fund, Noonan Says (BBG)
- Poll shows strong shift to Australian PM Rudd, new ministry named (Reuters)
A busy week, with a bevy of significant data releases, starting with the already reported PMIs out of China and Europe (as well as unemployment and inflation numbers from the Old World), the US Manufacturing and Services PMI, another Bill Dudley speech on Tuesday, US factory orders, statements by the ECB and BOE, where Goldman's new head Mark Carney will preside over his first meeting, and much more in a holiday shortened US week.