The U.S. August net trade deficit has now been reported at U.S.$44.2 billion, with both imports and exports falling, but exports falling by a greater degree. For America, monthly net trade deficits are ‘business as usual’, and have been for over three decades. I continue to believe that where a country experiences continuing net trade deficits that leads to:
continuing weakness in comparative economic strength with its trading partners; and,
all other things equal, being a negative factor in revenue/expenditure balances at all government levels – and hence a negative contributor to government cumulative debt at all government levels.
For me, rightly or wrongly, a country’s net trade surpluses or deficits are an important ‘economic marker’, notwithstanding it seems clear that many economists disagree with this.
The following two charts show U.S. net monthly trade deficits to July 31, 2012, and the build-up of U.S. cumulative net trade deficits to December 31, 2011 (note the chart heading incorrectly says 1979 – 2010 when it should say 1979 – 2011). The U.S. cumulative net trade deficit stood at U.S.$8.54 trillion at December 31, 2011, and at August 31, 2012 had increased by a further U.S.$378 billion (and is virtually certain to have exceeded U.S.$400 billion for the nine months ended September 30.
Note that almost 80% of the U.S. net cumulative trade deficit has been experienced in the post-1999 period, which period coincides with significant U.S. manufacturing job losses.
If you believe the world and U.S. economies over time are appropriately reflected in the world’s financial markets and market prices, I suggest you take careful note of these U.S. trade deficit statistics and continuing build-up of the U.S. cumulative net trade deficit.
Topical Reference: U.S. trade gap widens as exports fall again, from MarketWatch, Greg Robb, October 11, 2012 – reading time 2 minutes.
Financial Markets >> How worried should one be about the financial markets?
For one man’s view on current financial markets risks, you might want to read a comparatively short article titled How Worried Should You Be About the Stock Market. In summary it says that one ought to be worried in the short term, but not in the long term. The author also says:
“Anyone who cannot afford a decline because they have a near term need for their capital should realize they are risking losses in stocks. They always are”; and,
“What is most important: in order to time markets well once, you have to be right twice. First, knowing when to get out, and then knowing when to get back in”.
Financial market returns tend to be comparatively very low today at a time world economic risks seem very high. I suggest you read the referenced article and reach your own conclusion with respect to ‘how worried you should be’ after consider that:
risk and reward are ‘siamese twinned’; and,
‘timing the markets’ is a very difficult thing to do.
Ian R. Campbell, FCA, FCBV, is a recognized Canadian business valuation authority who shares his perspective about the economy, mining and the oil & gas industry on each trading day. Ian is also the founder of Stock Research Portal, which provides stock market data, analysis and research on over 1,600 Mining, Oil and Gas Companies listed on the Toronto and Venture Exchanges. Note: The Commentary and information above is provided ‘AS IS’ and solely for informational purposes, not for trading purposes or advice.
