Greek Public Sector Corruption and Tax Evasion

The Greek Prime Minister has to tackle long-term reforms

Wall Street Greek's International & Economic Affairs Columnist Pietro Rabassi bravely engages Greece's Prime Minister Papandreou to tackle the real problem behind the Greek financial crisis, public corruption and widespread tax evasion.

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Greek Public Sector Corruption and Tax Evasion

For two-and-a-half millennia Greece has proudly hosted the Acropolis - the symbol of Western civilization. On 28 April 2010 the Greek financial bubble exploded: Greece has betrayed this pride by almost going bankrupt, leading critics to pompously ponder the sale of Greece's ancient and core assets, including the Acropolis and the Greek islands. However unlikely that possibility is, the hope for a long-term recovery is very slim otherwise.

On 2 May 2010 the IMF and the Eurozone rescued the Greek economy. As a guarantee for the rescue package, the Greek Prime Minister George Papandreou elaborated a detailed recovery plan to raise billions of Euros to salvage the Greek economy: public sector employees had their salaries reduced or, for levels below 2,000 EUR, frozen; the retirement age for men and women were equalized and brought on average from 61 to 65; the value added tax (VAT) was increased; taxes were raised on alcohol, cigarettes and fuel. Some measures were applied also to the wealthier population: luxury taxes were increased by 10%; bonuses were to be abolished at public banks and taxed at 90% in private ones; Google (Nasdaq: GOOG) maps have been used to track undeclared swimming pools.

Yet the recovery plan is shortsighted because it fails to solve the deep problems in Greek society: corruption in the public sector and tax evasion.

These two problems are estimated to cost the Greek government up to 20 USD billion per year and to represent up to 30% of GDP.

An Example:

Have you ever been to a public hospital in Greece? Do you want to avoid waiting longer than a year to have a medical appointment? We have a solution for you: an envelope with a couple hundred Euros. You can be quite confident that the doctor will wisely invest his yearly collection of envelope money to buy a new car or perhaps build a new swimming pool in his villa in Kifisia, one of the luxurious areas of Athens. Why shall he waste time in declaring his envelope money to the Greek authorities? And of course, he knows that all his neighbors have a pool but that nobody declares them: why shall he be different from his neighbors?

Our Letter of Suggestion to the Greek Prime Minister:

Your Excellency, we would like to remind You that it is Your duty to fight corruption in the public sector and to enforce the taxation laws. You should make sure that the rule of law is applied and respected at all levels of society, by the more and less wealthy. This means challenging and changing the current Greek way of life where it is flawed: this may be hard to implement but it is the best long-term solution to avoid future crisis and to establish a more efficient government.

How can You achieve this? There are four avenues.

First, improve the quality of the services Your administration provides by accounting for fraudulent public servants. Only when Your citizens see that the public services are of good quality, will they feel stimulated to pay taxes and co-operate with the government. Let us look at one example. You could hire some young college volunteers or NGOs (rewarded as 'Presidential fellows') to serve on a rotational basis for 6 days a week for at least 6 months in the lobby of major public hospitals. They will invite people to fill out an anonymous survey on whether they have been treated correctly with no corruption requests. If they feel they have been encouraged to bribe, the Presidential fellows will invite them to address the Ombudsman. The Ombudsman will be located in an easily accessible place in the hospital and will report to an anti-corruption team whose chief will report directly to You. This will exercise pressure on the public hospital employees to avoid corruption. If You advertise this, the media will love it and the pressure will be even higher.

Second, to encourage people to declare their assets and revenues, You could grant a tax amnesty on their first declaration. Alternatively, You should train your tax inspectors to detect any immovable asset. You should require tax payers to auto-declare the value of their immovable assets. The State would reserve its right to buy them out at a price 10% higher than their declared value if the market value was different from the declared value. This way, assets will be likely to be declared at their market value!

Third, You could run campaigns in schools, on TV and in public meetings. These campaigns would educate citizens on how important it is to declare their assets and pay taxes: only if they pay taxes, they can expect the government to provide public services.

Fourth, after implementing the other three avenues, You will be able to effect many popular actions for the Greek nation with the billions of dollars that You will have raised. For instance, you might increase the wage of the public servants that have been so angry with You when You cut it down!

If You fail to ensure a long-term recovery, You may really need to sell our beautiful Greek islands. Are You planning to sell the Acropolis soon? Before it is renamed as the AT&T (NYSE: T) or the Bank of China Palace (OTC: BACHY.PK), I would be interested in buying it, not only because it is the symbol of Western civilization, but mainly to save the dignity of our great ancestors and our national pride.

Pietro G. Rabassi
Πιέτρο Γ. ΡΑΜΠΑΣΙ



Editor's Note: This article should interest investors in National Bank of Greece (NYSE: NBG), Hellenic Telecommunications (NYSE: OTE), Coca-Cola HBC (NYSE: CCH), Teekay Corp. (NYSE: TK), Navios Maritime Holdings (NYSE: NM), Navios Maritime Acquisition (NYSE: NNA), Navios Maritime Partners L.P. (NYSE: NMM), Tsakos Energy Navigation Ltd. (NYSE: TNP), Deutsche Bank (NYSE: DB), Banco Santander SA (NYSE: STD), IberiaBank (Nasdaq: IBKC), Barclays (NYSE: BCS), Mitsubishi UFJ Financial (NYSE: MTU), Itau Unibanco Holding (Nasdaq: ITUB), Lloyd's Banking Group (NYSE: LYG), Mizuho Financial (NYSE: MFG), Banco Santander- Chile (NYSE: SAN), Citigroup (NYSE: C), Allied Irish Bank (NYSE: AIB), Credicorp (NYSE: BAP), Westpac Banking (NYSE: WBK), Grupo Financiero Galicia (Nasdaq: GGAL), Banco Latinamericano de Comer (NYSE: BLX), J.P. Morgan Chase (NYSE: JPM), Goldman Sachs (NYSE: GS), Morgan Stanley (NYSE: MS), Bank of America (NYSE: BAC), Wells Fargo (NYSE: WFC), Overseas Shipholding Group (NYSE: OSG), International Shipholding (NYSE: ISH), Excel Maritime Carriers (NYSE: EXM), Safe Bulkers (NYSE: SB), Claymore/Delta Global Shipping ETF (NYSE: SEA), Genco Shipping & Trading (NYSE: GNK), Diana Shipping (NYSE: DSX), Danaos (NYSE: DAC), Tsakos Energy Navigation (NYSE: TNP), Ship Finance Int'l (NYSE: SFL), Nordic American Tanker (NYSE: NAT), Seaspan (NYSE: SSW), General Maritime (NYSE: GMR), DHT Maritime (NYSE: DHT), Brunswick (NYSE: BC), Marine Products Corp. (NYSE: MPX), DryShips (Nasdaq: DRYS), Top Ships (Nasdaq: TOPS), Eagle Bulk Shipping (Nasdaq: EGLE), Sino-Global Shipping (Nasdaq: SINO), Paragon Shipping (Nasdaq: PRGN), K-SEA Transportation Partners (NYSE: KSP), Euroseas (Nasdaq: ESEA), Star Bulk Carriers (Nasdaq: SBLK), Omega Navigation (Nasdaq: ONAV), Knightsbridge Tankers Ltd. (Nasdaq: VLCCF), TBS Int'l (Nasdaq: TBSI), Golar LNG (Nasdaq: GLNG), Claymore/Delta Global Shipping (Nasdaq: XSEAX), American Commercial Lines (Nasdaq: ACLI).

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

Spanish Bond Spread Widens, European Unemployment Grows, Indian GDP Thrives

International Markets

Today's international market news drove broad declines across Asian and European equity markets. In Asian, Indian GDP surged in the third quarter, but both India and China are tightening monetary policy in response to rising inflation. In Europe, the opposite is true. Austerity is choking economic growth and economies are failing. This morning, debt spreads widened significantly across Spain, Italy and Portugal on default concerns amidst a report of rising unemployment across Europe.

Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

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Spanish Bond Spread Widens, European Unemployment Grows, Indian GDP Thrives

European Debt Sells Off

Investors sold off the government debt of Portugal, Italy and Spain Tuesday on fear that the thunder will roll from Greece, to Ireland and across Europe's trouble spots before preemptive austerity measures can have any impact. The yield on Spanish 10-year bonds moved as high as 5.7%, 3.05 percentage points greater than the German 10-year. At this time last week, the difference only spanned about 2 percentage points. The Italian 10-year bond opened up a 2.1 percentage point spread, the most since the launch of the age of the euro. Portugal, the next in line to fail according to most pros, saw its bonds move in the same direction.

European Unemployment Record

Unemployment in Europe climbed to a 12-year high. Eurozone joblessness increased to 10.1%, with an extreme 20.7% rate measured in Spain. The next highest rates were seen in Slovakia (14.7%) and Ireland (14.1%). Italian unemployment moved up three-tenths of a point, to 8.6%, while French joblessness improved to 9.8%, from 9.9%. The German labor market also improved over this last month.

Dollar Gains on Foreign Troubles

With all the concerns about Europe, the dollar and yen drew capital, gaining on the euro Tuesday. The dollar is headed toward its first monthly rise against the yen since April, despite QE2. Given the disintegration of Europe and tensions surrounding the Korean Peninsula, the dollar has gained about 0.3% on a Bloomberg compilation of the currencies of 10 developed nations. The yen is doing well also, as you might imagine, rising 12%, while the euro has shed 9.1% against the group in 2010. Today, more money is flowing into dollars and yen, but the Chinese yuan weakened against the yen on speculation it will tighten monetary policy to cool its economic growth.

Indian Growth Heats

India grew its GDP by 8.9% in Q3, exceeding analysts' expectations. Thus, India is expected to raise interest rates, like China, to tame growth. India's second quarter growth was revised higher as well, to 8.5%. Economists are attributing the growth to domestic drivers, favorable weather and foreign investment. Developing market expansion is acting as a nice counter-balance to western weakness, keeping the hemisphere's distress somewhat salvaged. The risk to India and China is runaway inflation, and so India has raised rates for the sixth time this year. CPI measured 11.6% at last check in India, mostly due to higher food prices.

International Market Movers:

Europe:

* ESTX 50: -1.0%
* FTSE 100: -0.4%
* CAC 40: -1.0%
* DAX: -0.4%
* IBEX 35: -0.9%

Asia:

* NIKKEI 225: -1.9%
* Hang Seng: -0.7%
* S&P ASX 200: -0.7%
* CSI 300: -1.7%
* KRX 100: +0.4%
* BSE Sensex 30: +0.6%

Relevant tickers include National Bank of Greece (NYSE: NBG), Dexia (OTC: DXBGF.PK), Commerzbank (OTC: CRZBY.PK), Barclays (NYSE: BCS), Lloyds (NYSE: LYG), Royal Bank of Scotland (NYSE: RBS) and Credit Agricole (NYSE: ACA), Deutsche Bank (NYSE: DB), Credit Suisse (NYSE: CS), UBS (NYSE: UBS), Banco Santander (NYSE: STD), Allied Irish (NYSE: AIB), Bank of America (NYSE: BAC), Goldman Sachs (NYSE: GS), J.P. Morgan Chase (NYSE: JPM), Citigroup (NYSE: C), NYSE: UNB, Wells Fargo (NYSE: WFC), Toronto Dominion (NYSE: TD), PNC Bank (NYSE: PNC), Morgan Stanley (NYSE: MS), NYSE: RY, NYSE: BAP, NYSE: KEY, iShares MSCI Spain Index (NYSE: EWP), The Ibero-America Fund (NYSE: SNF), The Ibero-America Fund (Nasdaq: XSNFX), European Equity Fund (NYSE: EEA), Vanguard European Stock Index (Nasdaq: VEURX), Powershares FTSE RAFI Europe (NYSE: PEF), Europe 2001 (NYSE: EKH), S&P Emerging Europe (NYSE: GUR), Ultrashort MSCI Europe (NYSE: EPV), Vanguard Europe Pacific (NYSE: VEA), Wisdomtree Europe SmallCap (NYSE: DFE), Wisdom Tree Europe Total Div (NYSE: DEB), iShares S&P Europe 350 (NYSE: IEV), Morgan Stanley Eastern Europe (NYSE: RNE), DWS Europe Equity A (Nasdaq: SERAX), DWS Europe Equity B (Nasdaq: SERBX), Fidelity Europe (Nasdaq: FEUFX), Fidelity Europe (Nasdaq: FIEUX), ICON Europe A (Nasdaq: IERAX), Pioneer Europe Fund (Nasdaq: PBEUX), ProFunds Europe 30 (Nasdaq: UEPIX), Putnam Europe A (Nasdaq: PEUGX), Rydex Europe 1.25x (Nasdaq: RYAEX), Nasdaq: ASIA, Nasdaq: PRASX, NYSE: PUA, NYSE: NWD, Nasdaq: MEAFX, Nasdaq: EBASX, Nasdaq: EVASX, Nasdaq: MACSX, Nasdaq: MATFX, NYSE: CZJ, Nasdaq: CHINA, PCX: FXI, PCX: CYB, NYSE: IWM, NYSE: TWM, NYSE: IWD, Nasdaq: AACFX, Nasdaq: GOPAX, Nasdaq: CHUSX, Nasdaq: GCHAX, Nasdaq: BUFCX, Nasdaq: DXHSX, Nasdaq: XHAOX, Nasdaq: NGCAX, Nasdaq: LNGZX, Nasdaq: DPCTX, Nasdaq: EICGX, Nasdaq: EPHCX, Nasdaq: FHKAX, Nasdaq: FHKCX, Nasdaq: IFCAX, Nasdaq: JCOAX, Nasdaq: XCAFX, Nasdaq: MCHFX, Nasdaq: NPCAX, Nasdaq: OBCAX, Nasdaq: UHPIX, Nasdaq: XGCHX, Nasdaq: TCWAX, Nasdaq: HPCHX, NYSE: ACH, Nasdaq: CHINA, Nasdaq: CBAK, Nasdaq: CSUN, NYSE: CHN, NYSE: GCH, Nasdaq: SOLF, Nasdaq: CAAS.

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

G-20, Divided We Fall

President Obama said, "Instead of hittin home runs, sometimes we're gonna hit singles. But they're really important singles." This was the positive spin that unwound the two-day summit of the Group of 20 Nations (G-20). However, the end result of the Seoul meeting was neither the consummation of an expected trade deal with the South Koreans nor a resolution on the trade imbalance with China. The latter issue weighs heavily on the agenda of the US Administration.

Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

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G-20, Divided We Fall

As quickly as the US could get started complaining, China redirected attention to the US Federal Reserve's recently announced capital markets actions, labeled QE2 by Wall Street. Characterizing China's argument can be simplified to its pointing the finger of blame back at its accuser. While promoted as a strategy to spur economic advance, the Fed's quantitative easing will also serve to devalue the dollar and drive US export demand. If this is not trade war, I do not know what is. And in its quarrel, China has found a strange ally, Germany, which is also struck down by American currency devaluation.

President Obama's singles hitting reference addressed progress in global financial regulation and efficiencies in aid provision to poor nations. More importantly, he may also be conveying his approval for a plan for the G-20, through the IMF, to analyze the effects of trade imbalance on the global economy and local economies. Clearly, the US would benefit from a global acknowledgement, based in economic fact, that China is cheating. By unfairly, and against free market pressure, keeping its currency cheap, China reaps great economic benefits at the expense of other trading partners and competitors.

The argument has grown heated recently, thanks to rising voices back west, including the qualms of Treasury Secretary Geithner, the Democrats in Congress, and the President himself. In the past, a Republican led American government had been cautious about treading on the feet of the dragon, but a new brazen knight has taken over the kingdom by way of valor. Obama is now faced with the challenge of his presidential political career, restoring economic confidence before 2012. Thus, he wields the once forbidden blade for the sake of fairness and the restoration of his kingdom.

The Chinese Yuan has appreciated a bit since the US government began insinuating it would play currency hardball, and certainly following the declaration of QE2 by the independent Fed. Many hopeful global leaders applauded the use of the G-20 forum to work through issues like these, but the fact is that the US and China appear already engaged in a sort of bilateral currency warfare, however cold it may still be. My concern is that given some time to dwell on the US action, and to debate and deliberate it, the EU and emerging nations like India will likely counter US and Chinese maneuvers with actions of their own before any civilized study is concluded. Thus, the race to the bottom will begin. The result: Fiat currency value would dissipate globally, and the gold standard would be re-established.

While the cost of a loaf of bread is already equal to a year's salary in some very poor nations, the inflation that could ensue as currency manipulation is complemented by rising demand for scarce resources in an increasingly globally developing world is terrifying to me. Global cooperation could quickly deteriorate in such an environment, given likely civil unrest and political pressures. Unstable leadership could easily give way then to radical reform, and usher in popular nationalists. Such individuals could be politically wise, but otherwise ignorant or even dangerously selfish. The same mechanisms that allowed Hitler to rise to power would be in place once again, and the angry crowds would cheer for it all.

Instability would replace global organization, and chaos could follow. In such an environment, world war reenters the equation, and given the unfolding situation in Iran, and the importance of its oil reserves to China, a match sits ominously waiting to light the fire.



(Article interests investors in: NYSE: DIA, NYSE: SPY, Nasdaq: QQQQ, NYSE: DOG, NYSE: SDS, NYSE: QLD, NYSE: NYX, Nasdaq: NDAQ, NYSE: ICE, Nasdaq: SERAX, Nasdaq: SERBX, Nasdaq: SERCX, Nasdaq: SERNX, Nasdaq: FEUFX, Nasdaq: FEEEX, Nasdaq: FAEAX, Nasdaq: FBEAX, Nasdaq: FIEUX, Nasdaq: FECAX, Nasdaq: IERAX, Nasdaq: XRNEX, Nasdaq: PBEUX, Nasdaq: UEPIX, Nasdaq: UEPSX, Nasdaq: PEUGX, Nasdaq: RYAEX, NYSE: CEE, NYSE: RNE, NYSE: PEF, NYSE: GUR, NYSE: EPV, NYSE: VEA, NYSE: DFE, NYSE: DEB, NYSE: IEV, Nasdaq: ANEFX, Nasdaq: CNGAX, Nasdaq: HNEAX, NYSE: BAC, NYSE: GS, NYSE: AIG, NYSE: WFC, NYSE: MS, NYSE: C, NYSE: DB, NYSE: CS, NYSE: UBS, NYSE: MCG, NYSE: MCO, NYSE: TD, NYSE: PNC, NYSE: STD, AMEX: GLE, NYSE: BCS, NYSE: GLD, NYSE: XLE, NYSE: XLF, NYSE: BJV, NYSE: SZI, NYSE: BPD, NYSE: IEL, NYSE: PBN, NYSE: CGW, NYSE: LVL, NYSE: FRI, NYSE: PBP, NYSE: RSU, NYSE: RMM, NYSE: REA, NYSE: RFL, NYSE: RHM, NYSE: RTG, NYSE: RSW, NYSE: RMS, NYSE: REC, Nasdaq: PDOWX, Nasdaq: XDPOX, Nasdaq: XDPDX, Nasdaq: NDUAX, Nasdaq: NDUBX, Nasdaq: IDJAX, Nasdaq: NJCRX, Nasdaq: UDPIX, Nasdaq: UDPSX, Nasdaq: UWPIX, Nasdaq: RYLDX, Nasdaq: RYIDX, Nasdaq: RYCWX, Nasdaq: ONEQ, Nasdaq: QCLN, Nasdaq: QQEW, Nasdaq: QQXT, Nasdaq: QTEC, Nasdaq: NASDX, Nasdaq: NDXKX, Nasdaq: POTCX, Nasdaq: DXQSX, Nasdaq: DXQLX, Nasdaq: FNCMX, Nasdaq: INQAX, Nasdaq: MOTAX, Nasdaq: XQQQX)

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

Trade Deficit Expands on China Gap

The trade deficit expanded in August, and the country specific gap with China proved a key driver. With the Treasury report on foreign trading partners due Friday, and with capital controls being discussed privately, and given the fact that the federal government seems to have few bullets left in its traditional expansionary arsenal, this data seems to only provide further impetus to act against the yuan. After all, rising demand for imports could have instead manifested as increased demand for American made goods made by American workers who currently sit on the sidelines of an unfair playing field.

Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

(Tickers: Nasdaq: MEAFX, Nasdaq: EBASX, Nasdaq: EVASX, Nasdaq: MACSX, Nasdaq: MATFX, NYSE: CZJ, Nasdaq: CHINA, PCX: FXI, PCX: CYB, NYSE: IWM, NYSE: TWM, NYSE: IWD, Nasdaq: AACFX, Nasdaq: GOPAX, Nasdaq: CHUSX, Nasdaq: GCHAX, Nasdaq: BUFCX, Nasdaq: DXHSX, Nasdaq: XHAOX, Nasdaq: NGCAX, Nasdaq: LNGZX, Nasdaq: DPCTX, Nasdaq: EICGX, Nasdaq: EPHCX, Nasdaq: FHKAX, Nasdaq: FHKCX, Nasdaq: IFCAX, Nasdaq: JCOAX, Nasdaq: XCAFX, Nasdaq: MCHFX, Nasdaq: NPCAX, Nasdaq: OBCAX, Nasdaq: UHPIX, Nasdaq: XGCHX, Nasdaq: TCWAX, Nasdaq: HPCHX, NYSE: ACH, Nasdaq: CHINA, Nasdaq: CBAK, Nasdaq: CSUN, NYSE: CHN, NYSE: GCH, Nasdaq: SOLF, Nasdaq: CAAS, NYSE: DB, NYSE: STD, Nasdaq: IBKC, NYSE: BCS, NYSE: MTU, Nasdaq: ITUB, NYSE: LYG, NYSE: MFG, NYSE: SAN, NYSE: C, NYSE: NBG, NYSE: AIB, NYSE: BAP, NYSE: WBK, Nasdaq: GGAL, NYSE: BLX, NYSE: JPM, NYSE: GS, NYSE: MS, NYSE: BAC, NYSE: WFC, NYSE: GE, NYSE: F, NYSE: X, NYSE: PGC, Nasdaq: HPCCX, NYSE: RTP, NYSE: BHP, NYSE: WMT, NYSE: TGT, Nasdaq: COST, NYSE: DIA, NYSE: SPY, Nasdaq: QQQQ, NYSE: DOG, NYSE: SDS, NYSE: QLD, NYSE: NYX, NYSE: ICE, Nasdaq: NDAQ)

Trade Deficit Expands on China Gap

With China on our minds, the International Trade Report gets a bit more than its usual attention today. This latest report covering August showed the trade gap expanded to -$46.3 billion, from the -$42.6 billion deficit seen in July (revised). Economists were looking for a trade deficit of -$44.3 billion for August. The expansion came on a greater increase in imports than exports, and an 8.1% expansion of trade deficit with China. The three-month moving average, which perhaps better weeds out noise, also showed the trade deficit expanded to -$46.2 billion, up from $44.7 billion in July. Without a leveling of the playing field, this trend, which has been clear for years now, will only continue, and the unfair divergence will widen.



Exports

Exports increased by $0.3 billion, on a similar increase in the export of services; goods exports remained the same as in July. Exports of consumer goods were relatively unchanged, but this could be a somewhat different story if American made goods stood on fair footing with China.

Decreases in the export of capital goods were offset by increases in the export of food products. Prices were higher for food products though, and thus likely played a role, along with the US filling of the hole left by the Russian export ban. Agricultural goods represent a dynamic area though, with sensitivity to many factors.

Exports of wheat were up 37.9% in August, but exports of soybeans increased 86.3%. While some of this may be on seasonal factors, there is also a replacement demand for food crops that occurs when a shortfall arises in another. We saw this when ethanol demand drew corn, and led farmers to employ more acreage to it, leaving less of other crops and driving an overall increase in the price of foods (due to less corn for food and less other crops generally). This may not be exactly the same case with wheat though, considering it is the main raw ingredient for most breads, and perhaps irreplaceable.

Also of interest, nonmonetary gold exports increased 47.5% in August, as gold prices continued to rise. Civilian aircraft exports decreased by 46.9% in August, but aircraft imports also fell.

Imports

Imports increased by $4.1 billion in August, on a $3.9 billion increase in the import of goods and a $0.2 billion increase in services imports. The increase in imports was largely driven by consumer goods demand, capital goods, and also automotive vehicles and parts. However, we regularly warn investors not to read too much into this, because much of it is likely due to Americans' intensified interest in lower cost items given the economic environment. Thus, it may not be as much a sign of an improving economic environment as it is a fickle shopper with little money to spend.

Increases in fuel and energy imports played a role in aggregate on the general imports rise, but nothing stood out on its own. Crude oil imports rose 1.3%. Industrial metals imports decreased. Imports of semiconductors rose by 22.7% though.

Country Specific Trade

Deficits were recorded, in billions of dollars, with China $28.0 (expanded from $25.9), OPEC $9.0 ($8.0), European Union $8.1 ($9.9), Mexico $6.0 ($5.3), Japan $5.8 ($4.9), Germany $3.4 ($3.6), Nigeria $2.7 ($2.4), Ireland $2.5 ($2.4), Venezuela $2.2 ($1.8), Canada $2.2 ($1.4), Korea $1.3 ($1.0), and Taiwan $1.2 ($1.0).

Clearly, trade with America's largest trading partner, China, is in focus, given the intensification of US government pressure on China with regard to its yuan policy. Imports from China grew 6.1% to a record $35.29 billion. Meanwhile, exports fell $92 million to $7.25 billion.

The August figures show surpluses, in billions of dollars, with Hong Kong $1.9 ($1.8 for July), Singapore $1.1 ($1.2), Australia $1.0 ($0.9), and Egypt $0.4 ($0.4).

President's IT Manufacturing Dream

The President has high hopes that America can expand its exportation of high technology and new technologies, but the US currently has a trade deficit in "advanced technology products," mostly due to American shipping of manufacturing overseas and due to the borrowing of technology by some of our foreign trade partners. This is why we see the sharp increase in the semiconductor commodity; it is a commodity, though, and not generally difficult to produce anymore on average. Of course, advanced semiconductors are mostly developed and produced in technologically advanced nations like ours.

Take note that the great demand of our developed marketplace, economy and civilization also hungers for and draws advanced goods, and thus will always act as a natural cross-current to the President's dream. Without a fair currency environment though, not only will America never export solar panels into China, but Americans will buy all of theirs from China as well.

Advanced technology products exports were $21.8 billion in August and imports were $30.6 billion, resulting in a deficit of $8.8 billion. August exports were $2.1 billion less than the $23.9 billion in July, while August imports were $0.2 billion less than the $30.8 billion in July. Again, the cross-current mentioned above will always come into play.

Against Last Year

The year-to-year comparison is important in this report, as it offers better insight into trade trends.

Goods:

The August 2009 to August 2010 increase in exports of goods reflected increases in industrial supplies and materials ($7.2 billion); capital goods ($6.4 billion); automotive vehicles, parts, and engines ($2.0 billion); consumer goods ($1.3 billion); other goods ($1.2 billion); and foods, feeds, and beverages ($1.0 billion).

The August 2009 to August 2010 increase in imports of goods reflected increases in industrial supplies and materials ($12.0 billion); capital goods ($8.3 billion); consumer goods ($7.4 billion); automotive vehicles, parts, and engines ($6.1 billion); foods, feeds, and beverages ($1.1 billion); and other goods ($0.5 billion).

Services:

The August 2009 to August 2010 increase in exports of services was $4.4 billion. The largest increases were in other private services ($1.5 billion), royalties and license fees ($1.3 billion), and travel ($1.1 billion). Within other private services, the largest increase was in business, professional, and technical services.

The August 2009 to August 2010 increase in imports of services was $2.8 billion. The largest increases were in other transportation ($1.2 billion), other private services ($0.6 billion), and royalties and license fees ($0.4 billion). Within other private services, the largest increase was in business, professional, and technical services.



Article should also interest investors in Deutsche Bank (NYSE: DB), Banco Santander SA (NYSE: STD), IberiaBank (Nasdaq: IBKC), Barclays (NYSE: BCS), Mitsubishi UFJ Financial (NYSE: MTU), Itau Unibanco Holding (Nasdaq: ITUB), Lloyd's Banking Group (NYSE: LYG), Mizuho Financial (NYSE: MFG), Banco Santander- Chile (NYSE: SAN), Citigroup (NYSE: C), National Bank of Greece (NYSE: NBG), Allied Irish Bank (NYSE: AIB), Credicorp (NYSE: BAP), Westpac Banking (NYSE: WBK), Grupo Financiero Galicia (Nasdaq: GGAL), Banco Latinamericano de Comer (NYSE: BLX), J.P. Morgan Chase (NYSE: JPM), Goldman Sachs (NYSE: GS), Morgan Stanley (NYSE: MS), Bank of America (NYSE: BAC), Wells Fargo (NYSE: WFC), Nasdaq: MEAFX, Nasdaq: EBASX, Nasdaq: EVASX, Nasdaq: MACSX, Nasdaq: MATFX, NYSE: CZJ, Nasdaq: CHINA, PCX: FXI, PCX: CYB, NYSE: IWM, NYSE: TWM, NYSE: IWD, Nasdaq: AACFX, Nasdaq: GOPAX, Nasdaq: CHUSX, Nasdaq: GCHAX, Nasdaq: BUFCX, Nasdaq: DXHSX, Nasdaq: XHAOX, Nasdaq: NGCAX, Nasdaq: LNGZX, Nasdaq: DPCTX, Nasdaq: EICGX, Nasdaq: EPHCX, Nasdaq: FHKAX, Nasdaq: FHKCX, Nasdaq: IFCAX, Nasdaq: JCOAX, Nasdaq: XCAFX, Nasdaq: MCHFX, Nasdaq: NPCAX, Nasdaq: OBCAX, Nasdaq: UHPIX, Nasdaq: XGCHX, Nasdaq: TCWAX, Nasdaq: HPCHX, NYSE: ACH, Nasdaq: CHINA, Nasdaq: CBAK, Nasdaq: CSUN, NYSE: CHN, NYSE: GCH, Nasdaq: SOLF, Nasdaq: CAAS, NYSE: GE, NYSE: F, NYSE: X, NYSE: PGC, Nasdaq: HPCCX, NYSE: RTP, NYSE: BHP, NYSE: WMT, NYSE: TGT, Nasdaq: COST.

Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

To Declare China a Currency Manipulator or Not

That is the Question!

And it will be answered this week, when the US Treasury publishes its report on the currency and trade activities of our trading partners. The report is centered around China, and recent hearings have implied that Treasury Chief Geithner might finally formally write what he spoke almost immediately into his tenure at the Treasury, that China is indeed manipulating its currency and affecting trade in an unfair manner. Between this report, International Trade data and the Import/Export Prices release, and given China's big Communist confab, the theme of our copy is clear this week.

Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

(Tickers: NYSE: GE, Nasdaq: CABL, NYSE: ENZ, NYSE: FHN, NYSE: GCI, NYSE: GPC, Nasdaq: INFY, NYSE: KNL, NYSE: MAT, NYSE: PBR, NYSE: WBS, NYSE: GPS, Nasdaq: HALO, NYSE: RTP, Nasdaq: GOOG, NYSE: AMD, NYSE: SWY, NYSE: GWW, Nasdaq: CBSH, Nasdaq: CBST, NYSE: FCS, Nasdaq: HRLY, NYSE: IDT, Nasdaq: JOEZ, Nasdaq: LSTR, Nasdaq: MSW, AMEX: NG, NYSE: VMI, NYSE: WGO, NYSE: CHK, NYSE: JPM, Nasdaq: ACGY, Nasdaq: ADTN, Nasdaq: APOL, Nasdaq: ASML, Nasdaq: ADAT, Nasdaq: OZRK, NYSE: CMN, NYSE: DAB, NYSE: HST, Nasdaq: IGTE, Nasdaq: MTOX, Nasdaq: SPTN, Nasdaq: TESS, Nasdaq: UFPI, Nasdaq: WDFC, Nasdaq: INTC, NYSE: BLX, Nasdaq: CNBKA, NYSE: CSX, Nasdaq: EXFO, Nasdaq: FAST, NYSE: KED, Nasdaq: KMGB, NYSE: MG, NYSE: ODC, Nasdaq: SURG, NYSE: DIA, NYSE: SPY, Nasdaq: QQQQ, NYSE: DOG, NYSE: SDS, NYSE: QLD, NYSE: NYX, NYSE: ICE, Nasdaq: NDAQ)

To Declare China a Currency Manipulator or Not? That is the Question!

The Weekly Schedule:

By The Greek,

We covered Monday's stock market schedule in an earlier article. While the bond market was closed on Columbus Day, along with many government and private organizations, the stock market was open in the United States.

Tuesday

The Federal Reserve releases the minutes from its September meeting at 2:00 PM ET Tuesday. With QE2 (quantitative easing II) at the tip of everyone's tongues these days, and market trading tied to it too, every word within the meeting minutes will be viewed from a certain perspective Tuesday. It's hard to say how the market will find the information, but it has priced in expectations for easing and is looking for reasons to believe in it. In the end, I think it's possible the market might be let down by less action than the blockbuster moves it seems to demand at this point. And we wonder how much zip the Fed's last few bullets have.

At 11:45 AM, Kansas City Federal Reserve Bank President Thomas Hoenig addresses the National Association for Business Economics (NABE) at its annual meeting in Denver. Hoenig plans to speak to the economic outlook and monetary policy challenges.

Seeking to cure one of the many recent ailments of Wall Street, the Commodity Futures Trading Commission will hold a hearing to receive reporting on the flash crash of this past year and high-frequency trading, which was at the root of it. Meanwhile President Obama will hold a tele-town meeting targeted to get the youth vote out in November. The event will be co-hosted by MTV, BET and CMT moderators.

The International Council of Shopping Centers (ICSC) reports on Weekly Same-Store Sales in the premarket Tuesday as always. There is no forecast to mark against, but last week's result for the period ending October 2 showed a drop in weekly sales of 0.8%. On a year-over-year basis, sales increased 2.4%. Redbook also measures the year-to-year change weekly, and reported a 2.7% increase. Both signified slower rates of growth versus recent trend. Monthly Retail Sales is due later in the week.

Markets will be closed in Venezuela and Brazil Tuesday.

The New York Value Investing Congress meets today. Wal-Mart (NYSE: WMT), Procter & Gamble (NYSE: PG), Johnson Controls (NYSE: JCI), Continental Resources (NYSE: CLR) and Chevron (NYSE: CVX) hold investor meetings. Denbury Resources Inc. (NYSE: DNR) presents at the IPAA Oil & Gas Investment Symposium San Francisco. Salesforce.com, Inc. (NYSE: CRM) appears in the Pacific Crest Hosted Bus Tour.

The EPS schedule includes news from Intel (Nasdaq: INTC), Banco Latinoamericano de Comercio Exterior, S.A (NYSE: BLX), Century Bancorp (Nasdaq: CNBKA), CSX (NYSE: CSX), Exfo Electro-Optical Engineering (Nasdaq: EXFO), Fastenal (Nasdaq: FAST), Kayne Anderson Energy (NYSE: KED), KMG Chemicals (Nasdaq: KMGB), Mistras Group (NYSE: MG), Oil-Dri Corp. of America (NYSE: ODC) and Synergetics USA (Nasdaq: SURG).

Wednesday

The SEC is scheduled to vote on derivatives rules under the Dodd-Frank Wall Street Reform and Consumer Protection Act.

The Import/Export Prices data release at 8:30 AM ET might get a bit more attention than usual Wednesday, given the emphasis on China and fair trade this week. Economists see import prices declining 0.2% in September, which compares to a 0.6% increase in August. 58% of the import price rise in August was attributable to a 1.7% increase in fuel prices, but the remainder, still a good portion of imports, rose 0.3% and contributed as well. Export prices increased 0.8% in August, driven largely by a 4.2% increase in the price of agricultural goods. Wheat prices, especially, have risen on Russia's export ban and weather impact to its supply, and the global disruption it has caused.

The Mortgage Bankers Association last week reported that an October 4 change in FHA loan requirements likely spurred last minute purchase activity. In the week ending October 1, the Market Composite Index of mortgage volume decreased 0.2% on a seasonally adjusted basis. However, the Purchase Index rose 9.3% on demand for FHA applications. If that's the case, we should see some more impact in this week's report. The Refinance Index decreased by 2.5%, despite decreases in the contracted rate for the average fixed rate mortgage. 30-year rates dropped to 4.25% from 4.38%, while 15-year contracts fell to 3.73%, from 3.77%. This is the kind of thing that troubles Pimco's Bill Gross, and makes him speak of financial crisis and leads us to speak of economic muscle attrition. When rates decrease, economic activity is supposed to increase! Troubling...

Look for September's Treasury Budget data at 2:00 PM ET. Economists expect September to show a $32.0 billion deficit. Over the past five and ten year periods, September has produced reliable surpluses of $41.0 billion and $39.9 billion on average, respectively, but last year's period produced a deficit of $45.2 billion, given the economic situation. For the fiscal year-to-date through August, the treasury budget deficit stood at $1.26 trillion.

Federal Reserve Chairman Ben Bernanke contributes to the discussion on business innovation at a Cleveland Fed event in Pittsburgh. Look for Bernanke's remarks around 4:10 PM ET. At 6:45 PM ET, Richmond Federal Reserve Bank President Jeffrey Lacker addresses business leaders in Chapel Hill, NC.

The corporate docket includes Chesapeake Energy's (NYSE: CHK) Institutional Investor & Analyst Meeting. The EPS schedule keys on reports from J.P. Morgan Chase (NYSE: JPM), Acergy S.A. (Nasdaq: ACGY), ADTRAN (Nasdaq: ADTN), Apollo Group (Nasdaq: APOL), ASML Holdings (Nasdaq: ASML), Authentidate Holding (Nasdaq: ADAT), Bank of the Ozarks (Nasdaq: OZRK), Cantel Medical (NYSE: CMN), Dave & Buster's (NYSE: DAB), Host Hotels & Resorts (NYSE: HST), iGate (Nasdaq: IGTE), MEDTOX Scientific (Nasdaq: MTOX), Spartan Stores (Nasdaq: SPTN), Tessco (Nasdaq: TESS), Universal Forest Products (Nasdaq: UFPI) and WD-40 (Nasdaq: WDFC).

Thursday

Again, with China in the headlines, the International Trade Report will get more than its usual attention at 8:30 AM ET. This latest report covering August is expected to show the trade gap expanded to $44.3 billion, from the $42.8 billion deficit posted in July.

The Producer Price Index for September is due at 8:30 as well. Economists surveyed by Bloomberg expect the Headline PPI to show a 0.1% increase, matching against the 0.4% jump seen in August. Core PPI is expected to have increased by 0.1% as well, following the August gain of the same rate.

Weekly Jobless Claims fell by 11K last week, to 445K. The four-week moving average marked its sixth straight decline, moving to 455,750. This week's data covers the period ending October 9, and has economists looking for a reading of 443K. And, The Greek has been sensing improvement in these figures; could sub-400K be in our near future? We think so, but so what. We need economic expansion and job growth. Who is left to fire anyway?

OPEC meets this week, and the consortium is expected to maintain its production quotas at current levels. The EIA reports on both Petroleum and Natural Gas on Thursday this week, due to the holiday. Look for the Natural Gas Report at its usual 10:30 reporting time, and the Petroleum Report at 11:00. Last week's natural gas data, covering the period ending October 1, showed natural gas inventory increased by 85 Bcf. At current levels, natural gas inventory stands 149 Bcf less than last year at this time and 220 Bcf above the 5-year average. In the period ending October 1, crude oil inventory increased by 3.1 million barrels. Total motor gasoline inventory decreased by 2.6 million barrels. Both gas and oil stood above the upper limit of the average range for this time of year.

The U.S. Business Council meets Thursday. In corporate news, look for Gap (NYSE: GPS) and Halozyme (Nasdaq: HALO) to hold analyst meetings. Rio Tinto (NYSE: RTP) reports on its third-quarter output. The EPS schedule highlights reports from Google (Nasdaq: GOOG), Advanced Micro Devices (NYSE: AMD), Safeway (NYSE: SWY), W.W. Grainger (NYSE: GWW), Commerce Bancshares (Nasdaq: CBSH), Cubist Pharmaceuticals (Nasdaq: CBST), Fairchild Semiconductor Int’l (NYSE: FCS), Herley Industries (Nasdaq: HRLY), IDT Corp. (NYSE: IDT), Joe's Jeans (Nasdaq: JOEZ), Landstar System (Nasdaq: LSTR), Mission West Properties (Nasdaq: MSW), NovaGold Resources (AMEX: NG), Valmont (NYSE: VMI) and Winnebago (NYSE: WGO).

Friday

The holiday shortened week concludes with a bang. The news schedule will be powerful even before the five economic report releases hit the wire.

The US Treasury is due to publish its highly anticipated report on foreign countries' exchange rate policies. This is the report in which the Treasury might label China a currency manipulator, and trade war might ensue. We are looking for less poignant language, but still a stronger message to be sent China's way this time around. At least that's what was implied in the latest Congressional hearings on the subject. Meanwhile, on the same day, China's Communist Party Central Committee holds its annual meeting, from which perhaps a rebuttal might come. Also, a World Policy Conference is occurring in Morocco on global governance Friday.

"The market will be monitoring Bernanke for any signs of quantitative easing. Hopefully, he's taken his medicine to stop that uncomfortable sounding situation though."

Federal Reserve Chairman Ben Bernanke speaks to the Boston Fed's conference on Revisiting Monetary Policy in a Low Inflation Environment Friday morning at 8:15 AM ET. The timely topic has market enthusiasts giddy for potential hints with regard to QE2. The market will be monitoring Bernanke for any signs of quantitative easing. Hopefully, he's taken his medicine to stop that uncomfortable sounding situation though. Also in the early morning, look for Atlanta Federal Reserve Bank President Dennis Lockhart's Q&A session with the Executive Women of Goizueta, in Atlanta.

Retail Sales are due for the month of September at 8:30 AM ET. Economists are looking for an increase of 0.5% this time around, with ex-auto sales rising 0.4%. Sales increased 0.4% in August and 0.6% when excluding automobiles.

The Consumer Price Index is also due for September at 8:30. Economists see the Headline CPI increasing 0.2%, and Core CPI rising 0.1%. That would compare against August change of +0.3% and 0%, respectively, in August.

Look for the Empire State Manufacturing Survey at 8:30 as well. The New York Fed's reading of area manufacturing is expected to mark the General Business Conditions Index at 8.0, which compares to 4.14 in September.

At 9:55 AM, catch the University of Michigan's Consumer Sentiment Index. This mid-month reading is expected to show confidence gained slightly, with economists forecasting the metric to mark 69.0, versus 68.2 at the end of September. That is an insignificant change folks, so be careful not to read too much into it if the result matches expectations.

Business Inventories are due for August at 10:00 AM ET. Economists see an increase of 0.4%, versus the 1.0% gain in July. We'll need to see sales rise at a faster pace for any enthusiasm to build around the data-point.

The Rock & Roll Pop Auction is taking place; it will be run by Gotta Have It!

If you filed for an extension to file your taxes, today is likely your deadline to finally do so.

Look for EPS results from GE (NYSE: GE), China Cablecom (Nasdaq: CABL), Enzo Biochem (NYSE: ENZ), First Horizon National (NYSE: FHN), Gannett (NYSE: GCI), Genuine Parts (NYSE: GPC), Infosys Technologies (Nasdaq: INFY), Knoll (NYSE: KNL), Mattel (NYSE: MAT), Petrobras (NYSE: PBR) and Webster Financial (NYSE: WBS).



Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

Sensing a Stock Market Rally 09-09-10

Morning Greek
Greek Factor: +1

I'm sensing the start of something here folks. Mark down the date. It's just a sense at this point, without much to explain it, but the data this morning is also supportive. It's the first supportive data though, mind you. Weekly Jobless Claims again moderated, but remain at a troubled state, and are at risk of significant revision. The International Trade Deficit narrowed sharply, and that bodes well for Q3 GDP, or at least the trade impact to it. The "Greek Factor" ranges from +3 to -3, and is a subjective measure of The Greek's view of the market impact of individual and aggregate news and the day's scheduled events.

Our founder earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV and radio. While writing for Wall Street Greek, Mr. Kaminis presciently warned of the financial crisis.

(Tickers: NYSE: DIA, NYSE: SPY, Nasdaq: QQQQ, NYSE: DOG, NYSE: SDS, NYSE: QLD, NYSE: NYX, NYSE: ICE, Nasdaq: NDAQ, NYSE: MCD, NYSE: TXN, NYSE: UBS, NYSE: YUM, NYSE: EMR, NYSE: NSM, NYSE: CHP, NYSE: KFY, Nasdaq: OPTT, Nasdaq: OXBT, Nasdaq: SWHC, Nasdaq: HOFT, Nasdaq: IRET, Nasdaq: MYRX, Nasdaq: PPHM, NYSE: PNY, Nasdaq: GAME, Nasdaq: SNDA, NYSE: SPA, Nasdaq: STEI, Nasdaq: DSGX, Nasdaq: ULCM)

Investing prowess requires both science and art, and my artistic side is nudging at me this morning. Expectations have been tamed, and so there is little friction to keep stocks from rising on any catalyst of solid good news. Capitulation seems to have occurred at this point, in my view, despite the lack of a dramatic single day drop. I'm feeling a positive tone emerging on the streets, and believe better data might help stocks easily rise higher in this environment.

That said, we are in a period hot with the possibility of terrorist attack. So, you might want to keep your finger on the trigger, and hope nothing happens, but buy if it does. I would be buying a bit here anyhow, though, while saving cash for the possibility of a deeper discount too.

Weekly Jobless Claims
Greek Factor: +1

The latest Weekly Jobless Claims figures showed another decrease to 451K in the week ended September 4, down 27K from the prior week's revised figure of 478K (478K the week before that too). The four-week moving average also gave way, dropping 9,250, to 477,750. Insured unemployment was unchanged at 3.5% for the August 28 period. Today's labor data is clearly good news, and that should be reflected in trading. However, a weekly shed of 450K+ is nothing to celebrate; it's just that it is better than last week. Also, 9 states had to estimate data this week, due to the Labor Day holiday, and they included California. Thus, there is risk for a major revision next week. However, I believe the states' estimates are probably close enough to reality, which would make this a solid positive factor this morning. If we can break lower, in terms of claims, we might have something finally developing in the job market. Keep your eye out for this, as it should spark a swift rally eventually.

International Trade
Greek Factor: +2

International Trade data for July was released this morning. Trade corrected in July, after a weird divergence occurred in June. July's deficit narrowed dramatically to $42.8 billion, down from $49.9 billion. The move was so surprising, it left the economists' consensus hanging high and dry at -$46.8 billion. This is good news folks, and offers reason for hope for Q3 GDP, at least as far as the trade component is concerned.

Bank of England Decision
Greek Factor: +1

The Bank of England (BOE) made its latest monetary policy decision today and acted as expected. The BOE kept its key lending rate at record low 0.5%, while maintaining its bond buying program at 200 billion pounds ($309 billion equivalent).

Russia's Global Political Forum

Russian President Dmitry Medvedev holds his global political forum; this should be interesting. We wonder if there might be some more new world order type speak coming from here as well.

Oil & Gas Data

The EIA will report on Petroleum and Natural Gas on the same day this week, due to the holiday. Look for the Natural Gas report first at 10:30. Last week's data covering the period ended August 27 showed natural gas inventory increased by 54 Bcf, to 3,106 Bcf. The level stood 208 Bcf less than last year at this time and 169 Bcf above the 5-year average of 2,937 Bcf. The August 27 period Petroleum Status Report is due for 11:00 AM release. U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 3.4 million barrels from the previous week. At 361.7 million barrels, U.S. crude oil inventories are above the upper limit of the average range for this time of year. Total motor gasoline inventories decreased by 0.2 million barrels last week, and are above the upper limit of the average range.

Corporate Wire

The corporate wire highlights McDonald's (NYSE: MCD) August sales results release and an update from Texas Instruments (NYSE: TXN). Australian regulators will decide on National Australia Bank's $12 billion bid for Axa Asia Pacific. The UBS – Best of Americas Conference highlights a report from Yum! Brands (NYSE: YUM). Emerson Electric (NYSE: EMR) holds a conference call to discuss its Chloride Group Acquisition.

Reporting EPS, look for National Semiconductor (NYSE: NSM), C&D Technologies (NYSE: CHP), Korn Ferry International (NYSE: KFY), Ocean Power Technologies (Nasdaq: OPTT), Oxygen Biotherapeutics (Nasdaq: OXBT), Smith & Wesson (Nasdaq: SWHC), Hooker Furniture (Nasdaq: HOFT), Investors Real Estate (Nasdaq: IRET), Myrexis (Nasdaq: MYRX), Peregrine Pharmaceuticals (Nasdaq: PPHM), Piedmont Natural Gas (NYSE: PNY), Shanda Games (Nasdaq: GAME), Shanda Interactive Entertainment (Nasdaq: SNDA), Sparton (NYSE: SPA), Stewart Enterprises (Nasdaq: STEI), The Descartes Systems Group (Nasdaq: DSGX) and Ulticom (Nasdaq: ULCM).



Please see our disclosures at the Wall Street Greek website and author bio pages found there. This article and website in no way offers or represents financial or investment advice. Information is provided for entertainment purposes only.

Trade Deficit Expands in June 2010

Trade Deficit Expands

It looks as though June's stronger dollar played a short-term role in international trade. The latest trade report showed an expanded deficit, mostly due to the trade of non-petroleum goods and an expanded trade deficit with China, the EU and OPEC nations. We found it troubling to see exports fell in June, while imports grew. The best case realistic scenario is one where both imports and exports are growing.

Markos N. Kaminis earned clients a 23% average annual return over five years as a stock analyst on Wall Street. "The Greek" has written for institutional newsletters, for Businessweek, Real Money, Seeking Alpha and others, while also appearing across TV & radio. While writing for Wall Street Greek, he presciently predicted the financial crisis in detail.

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Trade Deficit Expands in June 2010

The headline report today came in the form of the International Trade data for the month of June. The report was released in the pre-market, and offered an exaggeration of expectations. Economists expected the deficit to show modest expansion in June, to $42.35 billion. Rather, the deficit widened broadly to -$49.9 billion, the widest mark since October 2008. While a return to the economic activity of years past should translate into higher trade deficit, the drivers this month were not entirely positive in nature. The trade deficit for June will also play a negative factor in Q2 GDP revision.

The deficit expanded, not due to faster growth in imports than exports, which would be healthy and normal historically speaking, but due to polar divergence between imports and exports. While imports increased by $5.9 billion, exports dropped $2.0 billion against May levels. All the action was centered around the trade of goods versus services, and goods carry 3.4 times the importance of services in trade, based on June's data.

You might have expected the deficit to be greatly impacted by reduced European demand for US exports given EU issues, and the deficit between the EU and US did expand to $7.8 billion, from $6.2 billion. However, it was an expansion of the trade deficit with China that did most of the driving in June, with deficit expansion to $26.2 billion, from $22.3 billion.

The deficit also expanded between OPEC nations and the US, to $8.9 billion from $7.8 billion. We would expect this to be the result of change in the price of energy and petroleum based goods in June. However, oil prices came down sharply from May, and the average price of oil in June was lower as a result of little change through the month. Indeed, the non-seasonally adjusted petroleum deficit stood at $21.2 billion, while the non-petroleum unadjusted deficit was $40 billion. The government notes the numbers do not add up due to seasonal adjustment and rounding. Petroleum imports greatly outweigh exports, and so the petroleum trade deficit actually narrowed slightly in June. It seems something else is driving the general trade deficit expansion between the US and OPEC nations. After inspection, it was the seasonal adjustment to petroleum trade that led to the expansion, and volumes demanded increased by 32 million barrels. Perhaps Gulf moratorium and related issues played a role.

The details of the report show that the deficit was mostly driven by decreases in the export of capital goods ($1.4 billion), industrial supplies and materials ($1.0 billion) and increases in the import of consumer goods ($3.1 billion), automotive vehicles and parts ($1.3 billion), other goods ($0.6 billion) and capital goods ($0.5 billion). The decrease in exports is troubling in this context against a sharp increase in imports, and it may be due to the stronger dollar that existed in June.

The euro and British pound have gained ground against the dollar over the past month though, thanks to EU stress tests, and the yuan is doing the same on China's economic reins. However, in light of the latest Fed informal forecast published within its monetary policy statement, risky assets are selling off and the dollar is strengthening again.

Buyers of commodities are global shoppers, and will take from cheapest source; it seems where options exist and where differentiation is minimal, the US can't compensate its exporting activity for dollar strength. The good news is that we're a finished goods producer, wherever we still produce goods. However, with the rapid development of the emerging world, perhaps the American differentiation advantage dissipates. Perhaps then trade is even more sensitive to currency fluctuation, in the world's favor versus the US. This brings currency policy with unfair players like China into focus, and so expect to see a rising argument in the American political spectrum.

The gain in imports may also have been affected (like exports) by relative dollar strength in June, versus the organic demand for goods we would hope for in economic recovery. Are American products losing their luster overseas and at home, as we demand more payment in foreign currency and find cheaper foreign goods more appealing? I would not lose too much sleep over this, as I think it's clear this is only a temporary effect, as the dollar should lose value over time (and has since June), in my long-term view. Also, transportation costs look to rise as global growth resumes and pressures fuel prices again, putting pressure on foreign producers selling into the states.

I also look for (hope for) an American manufacturing revival in the alternative energy technology space, which could boost demand for American differentiated goods again overseas. I'm not just speaking to solar panels, but to the autos and other goods that will include new and hopefully well protected technology. This is something any American president should be seeking, as the nation has its working class majority to provide for, as well as the sophisticates we all seem to think we are.



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