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Daily Speculations The Web Site of Victor Niederhoffer & Laurel Kenner Dedicated to the scientific method, free markets, deflating ballyhoo, creating value, and laughter; a forum for us to use our meager abilities to make the world of specinvestments a better place. |
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Jean-Paul Schmetz opines on the U.S. Trade Deficit: "A Broken Statistic"
1. Bild am Sonntag (German largest Sunday paper: readership 10m -- in relative terms equivalent to the top 10 US papers put together) had two pages on Sunday with a 5-step method on how to re-import cars from the US and save big money (including telephone numbers of companies that would do it for you). Examples:
Mercedes C230: 25,1% cheaper (incl. taxes, transport, etc...) when reimported from the USA Porsche Cayenne: 19,6% cheaper Toyota Celica: 26.5% cheaper
All together: 30 cars were analyzed and the average saving was around 20% (including all costs: transport, 16% sales tax, etc.).
2. I bought all my Christmas presents in the US this year. Example: Bose QuietComfort headphone. US price $299 (including free CD-Player). European price: $538 (!!!) -- iPods 20Gb are: $299 US price/$430 German price. Last time I did this was 10 years ago when the synthetic Euro (DEM) was at 1.40 -- it crashed over the next five years.
3. The Economist's Burgernomics index is showing 25% overvaluation of the Euro (for the last 15 years it has been a fairly good indicator for the performance of currencies-- at least better that the trade balance/budget deficit combo).
4. I am not sure what Mr. E expects to happen on May 11th but it is the date for the March trade balance. It may get better or worse but it seems to me that the point is that the statistics is broken. One of the companies in my group sold $75m worth of Apple products last year in Germany and I can guarantee you that none of it is showing up as an export from the US. I can also guarantee you that the profit Apple made from it (and believe no one but Apple is making meaningful money on that stuff) is kept in Europe and invested in short US treasuries (they kept the working capital in local currencies and the rest in USD). So what would have been a merchandise export 20 years ago shows up as a capital import today. The same applies to eBay, Google, Microsoft, GE Medical (name it...). Even worse: the iPods Apple sold in the US are all imports whereas 20 years ago they wouldn't have played a role in the trade balance. I know Apple is small stuff in world trade but it adds up. And after 15 years of dealing with US companies overseas, I have some understanding how they manage to do business without exporting while re-importing (but not re-patriating) the profit via the capital accounts (if you do a joint venture there is always the problem that when they do it alone they minimize the value of the intellectual property of what they bring in -- in order to maximize the profit outside the US because they are usually placed in favorable tax environment, e.g,. Ireland, but if they do it with someone else, they have to maximize it which usually makes it uninteresting for them tax-wise and the joint venture breaks apart).
5. Re: the other variable (budget deficit): Germany (and France) has the same relative deficit (4-5%) but with a government/taxation twice the size (in relative term). Combine that with a quarter of the population on the dole and you see the problem in using trade balance and budget deficit as a determinant of currencies relative valuation.
6. If the Euro goes down, US companies are going to have to work overtime to compensate the lost (easy) profits coming from Europe (since they kept the price high and the profit high here cf. pt. 2)