Wednesday, October 22
Jim Griffin writes the most sensible piece I've read on
trade imbalances in ages. He hits the nail right on the head. LLP and I
always joke that Americans end up with loads of wonderful cars, electronics, clothes and other stuff while the Japanese and Chinese end
up with tons of... paper.
"A realist, however, will note that there is no such thing as free trade; not there, not here. But US practices are free-ish,
or at least freer than those of Asian and European trading partners. The marketplace and deregulation are idolatries of ours.
Competition is a way of life. Americans buy on price, not on Made in America nationalism. All of these characteristics are
different, in significant degree, from those in Asia. Implicit in that difference is a trade imbalance, with foreign trading
partner surpluses as the flip side of US deficits. Implicit in their surpluses is an accumulation of dollar balances.
And that's their problem, their Achilles heel. Consider, what can they do with hundreds of billions of surplus dollars?
What can they buy? The euro? Maybe, but only at the margin. Europeans don't want to see their new currency spike higher.
Gold? Not when the world's central banks are chronic sellers.
The barbarous relic is indeed a relic in the era of global fiat currencies. Other currencies? You can't pour a gallon jug
into a tea cup. US goods and services? Wonderful idea, but this option has been available all along and there would have
been no trade imbalance in the first place if it had been taken. It has not been taken because Asian nations don't share
exactly our same ideologies and idolatries.
So all they can do with hundreds of billions of surplus US dollars is buy US financial instruments. That option establishes
a deep interest in the value of such holdings, and of the dollar in which they are denominated. They must trust their
commercial winnings to the hands of the losers. A dollar collapse is no more in the interest of Asian currency manipulators
than it is in ours; they can't spite Uncle Sam's face without cutting off their own noses."
If you don't have the Google Toolbar yet, go get it now. Not only is it incredibly handy, but
the pop-up ad blocker is first-rate!
One thing you can count on when talking about trading with the Chairman is that he won't start spouting a bunch of mumbo-jumbo about "price-behavior loops"
and other pseudo-technical gobbledygook.
Instead of employing the comforting blather of technical analysis to impress his audience, he chooses to
walk you through his trades, explaining things clearly and concisely
in the daily Trading for Dummies lesson.
Looking at LaBranche's chart since the beginning of the year, it isn't a pretty picture. Reviewing their third quarter
results is also
rather discouraging; they've suspended their dividend on the common stock. It would have been smart to short LAB around
the time the Grasso scandal broke, but I didn't think of it.
Bloomberg reports on China's upcoming overseas bond sale:
"A yield below 0.55 of a percentage point more than comparable Treasuries [would be] a record low for a new bond sale by the
Chinese government ... While China doesn't need the cash -- its $346.5 billion of foreign currency reserves as of June
30 was the world's second highest after Japan -- a bond sale would make it easier for investors to value Chinese corporate debt."
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