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Steve, you're completely right about the inaccuracy of the trade deficit
number. In fact, the problem is much worse than you described. The trade
number released to the public is technically known as the merchandise trade
deficit, and the word "merchandise" is very important (even though most
people drop it when discussing the number).
The government bureaucrats, in their infinite wisdom, decided that the
proper way to measure foreign trade was to only count the physical value of
merchandise changing hands. In other words, they decided that there is no
place for intellectual value in the trade figures.
For instance, when Microsoft sells a Japanese software store a copy of Win98
for $50 (who then in turn sells it to a customer for $90), does the US get
credited with $50 towards the trade balance? No. We get credited with
about $6. Why? Because $6 is the value of the physical merchandise (the
box, the manual, and the Win98 CD) that was actually shipped to Japan! The
fact that Microsoft actually received $50 is considered irrelevant to the
bureaucrats.
If the true value of US goods exported were used, Microsoft alone would
probably knock about 1 billion off the so-called US trade deficit. Now
apply that same logic across the entire software industry, the music
industry, the movie video industry, etc., and you'll see we're talking about
some serious money here.
I used to think the trade deficit figure at least had some merit in regards
to its trend, but even that is becoming suspect. As intellectual goods
become a larger and larger percentage of US exports, the bias against the US
in the trade figures gets worse.
Your tax dollars at work...
Bruce
-----Original Message-----
From: swp <swp@xxxxxxxxxx>
To: RealTraders Discussion Group <realtraders@xxxxxxxxxxxxxx>
Date: Sunday, February 21, 1999 8:21 AM
Subject: Re: tbond v. us$ divergence?
>Usually, when we buy directly from a foreign producer, such as Japan, we
>pay them in yen anyway. Heck, I get paid in dollars from my foreign
>customers, and when I pay my Swiss back-up data provider, I get charged
>in CHF. So, the weak dollar from trade would then be more immediately
>apparent.
>
>The emerging markets work in dollars anyway. In fact, that is one reason
>why the dollar is strong -- the continued dollarization of emerging
>economies. Remember, a huge part of the deficit is with places like
>China and Korea. They rather hold dollars as their exchange rates are
>not declining. Another thing to remember as far as the trade deficit
>goes, is that it is very deceiving. Much of the electronics and computer
>stuff that goes as a deficit on the trade account is factories producing
>for US firms. That winds up as being US profits. That is one reason why
>the Asian contagion has not hurt our economy. Intel sells raw materials
>in essence to itself in Thailand (or wherever) and buys it back. The
>factory makes a bit, but most of the profits go to Intel.
>
>Ira wrote:
>>
>> With the largest trade deficit in history, based on an article I read,
the
>> sellers to the US have to convert to local currency at one point to stay
in
>> business, therefore sell US$. What do the sellers do with all those US
>> dollars, borrow local currency against their dollar accounts ? If the
dollar
>> slides, then what happens to those US$ collateral accounts? Ira
>>
>> swp wrote:
>>
>> > Gary -
>> >
>> > The relationship between US investments and the dollar is very far from
>> > a direct one. First of all, you need to always remember that the
>> > dollar's gains and losses are not just due to the bond or stock market,
>> > and for that matter, money will not necessarily flow into bonds or
>> > stocks because the dollar is strong. The dollar is used as a medium of
>> > exchange in trade, so part of the dollar's demand -- a large part of it
>> > -- is as a medium of trade.
>> >
>> > Right now, rightly or wrongly, alot of folks are worried that the Fed
>> > could raise rates. Why would you own bonds if you believed that rates
>> > were going to rise? You would probably buy time deposits. Notice that
>> > the curve, I think, is steeper of late.
>> >
>> > There is much more to the story than that, and I do not pretend to have
>> > all the answers, but that might be part of it.
>> >
>> > Steve
>> > --
>> > Steven W. Poser, President
>> > Poser Global Market Strategies Inc.
>> > http://www.poserglobal.com
>> >
>> > Gary Funck wrote:
>> > >
>> > > the US$ made a big move up at the expense of the dmark and jyen
Friday,
>> > > but the bond was down a little (rates higher). This up-trend in the
>> > > US$ has been in place for a while, and the bond is testing the bottom
>> > > of its trading range.
>> > >
>> > > I thought that as the big players moved into dollars, they'd also
tend
>> > > to buy othe US$ denominated assets like the bonds, or stocks, but
>> > > both US bonds and stocks have been looking weak of late. Does that
>> > > mean the money is just 'parked' into US$ waiting to be deployed?
>> > >
>> > > Any ideas on the significance, if any of a stronger dollar, but
weaker
>> > > bond? Any opinions on the impact on US stocks?
>> > >
>> > > --
>> > > | Gary Funck, Intrepid Technology, gary@xxxxxxxxxxxx, (650) 964-8135
>> >
>> > --
>
>--
>Steven W. Poser, President
>Poser Global Market Strategies Inc.
>http://www.poserglobal.com
>
>Tel: 201-995-0845
>Fax: 201-995-0846
>Email: swp@xxxxxxxxxxxxxxx
>
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