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June 4, 2013

Is a Trade Deficit Always Bad?

June 4, 2013

Is a Trade Deficit Always Bad?

Chain Store Sales (week ended 6/1/2013)

ICSC-Goldman

– Store Sales Week/Week +1.9%.  Previous was -0.9%.

– Store Sales Year/Year +4.3%.  Previous was +2.8%

Redbook

– Store Sales Year/Year +2.9 %. Previous was +2.7%.

These increases of last week followed the increase we noted last week in the Consumer Metrics Daily Absolute Demand Index.  This index has been flat for 6 days which should translate into flatter store sales in next Tuesday’s reports.

International Trade (April 2013)

– April Trade Deficit $40.3 billion.  Previous was $38.8 billion.  The increase is more about cars, cell phones, and computers including tablets. International Trade is a 2-way street.  If we have a trade deficit we have a identical capital surplus.  This is an issue which can be discussed forever.

The point, I think, is not that trade deficits are per se bad but that their value is measured by what the offsetting capital surplus of US dollars does. If, for example, that capital is invested in U.S. plants to manufacture Toyotas then it may do good.

The Techs

This may not be a fundamental but, at present, is the most important thing we should be looking at for the purpose of forecasting Treasury and mortgage rates.

The technicals of the 30-year Treasury bond future are massively oversold and stubbornly refusing to correct to short tern bullish.  When this happens, small changes in the techs translate into very large movements in  price.  In plain English, if the daily tech does not soon correct then Treasury yields and mortgage rates could easily spike another 0.25% to 0.375% in rate.  This will likely be driven by Friday’s BLS jobs report.

Volatility is high, uncertainty abounds, and have a nice day.