Mr. Market (global asset markets) has been true to the manic-depressive characterization Benjamin Graham put forth six decades ago. He appears to be lurching between two opposing views. The first is that upon us is a recovery that will drive growth and consumption, leading to runaway inflation and dramatically higher interest rates. “Quick, sell the U.S. dollar. Increase your commodities exposure!” he warns. On other days the opposing view is in vogue, “Deleveraging will continue for years bringing below-trend growth and deflation.”
Many economic indicators in the U.S. and around the world have been steadily improving throughout the second half of 2009 supporting the first, more bullish view. Critics rightly contend, though, that we really don’t know the true health of the economy because of government stimulus which is both artificial and temporary. Thus, we don’t yet know which of Mr. Market’s views are correct.
A look at global trade through the lens of automobiles reveals that we may be headed for somewhere in between. Trade has held up rather well after the expiration of stimulus. As I pointed out in last month’s article, the healthiest outcome for all of us is a return to trade growth without global imbalances worsening. Trade data is pointing to a recovery that is mild by most standards but that brings with it some much needed correction of these imbalances.
U.S. trade is rebounding but deficit is muted. The U.S. trade in goods (both exports and imports) rose for the fifth time in six months in October. In general, increased trade activity is good as it reflects an increase in economic activity. Stores are restocking their shelves, customers are buying, and companies are preparing for a 2010 that is better than the year we are about to leave behind. For the U.S. in particular, though, the trade deficit is a key measure of health.
That deficit which the U.S. runs with most countries has widened since bottoming in May. Relative to a year ago it is down dramatically. Last October was a pretty crazy time (Lehman, TARP, oil prices, etc.) and maybe comparisons with twelve months ago aren’t so appropriate. Let’s go back two years.
One benefit of comparing to 24 months ago is oil prices (a major driver of the U.S. trade deficit) were similar in October ’07 to October ’09,…
