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[TTHQ Staff]

BEING STREET SMART
____________________
Sy Harding

SIMPLY BUYING AMERICAN WOULD HELP! January 14, 2005.

One of the largest risks to the U.S. economy is the record trade gap we have with the rest of the world. That danger was highlighted again this week with the report that the U.S. trade deficit surged another 7.7% in November, to yet another monthly record of $60.2 billion. Since oil prices had fallen some, economists expected the trade deficit would decline in November. That it did not, but soared to a new record high, underscores the seriousness of the situation.

It shows the degree to which the problem is not just the price of oil, which consumers have little control over, but the soaring purchases of foreign products by U.S. consumers. Meanwhile consumers in foreign countries, many no longer in love with the U.S., continue to demonstrate how much they can affect the other half of the U.S. trade deficit, by buying fewer American products.

In November imports of foreign goods into the U.S. rose to $155.8 billion, while U.S. exports fell to $95.6 billion, producing the $60.2 billion deficit. When December’s numbers are released a month from now and added to the total, the deficit for the year will exceed $600 billion. To call such a number merely a ‘deficit’ is like referring to the Grand Canyon as an indentation.

So what? you might say. Deficits are just numbers that concern economists; they have nothing to do with me. But they do, they do. As foreign consumers purchase fewer and fewer goods and services offered by U.S. companies, and U.S. consumers also buy foreign goods rather than those of U.S. companies, those companies have no choice but to retrench. Not only must they lay off employees, but their needs for material, supplies, and services also decline, which spreads the problem to other businesses and their employees. When U.S. consumers insist on French wines and Italian cheeses, it’s not just the California vineyards and Wisconsin cheese-makers that suffer, but their suppliers of bottles, labels, packaging, etc.

The auto industry is a good example. Last month Ford and General Motors announced significant production cut-backs due to continuing declines in their sales, while the sales of most foreign car-makers continue to grow impressively. The U.S. ‘big-three’ of GM, Ford, and the Chrysler division of Daimler-Chrysler lost another 9% of the U.S. auto market over the last three years, in spite of attractive new models, zero percent financing, and large cash rebates and discounts. They now have just 59% of the U.S. auto market, a new low in the dismal trend.

Meanwhile executives of Japanese and European automakers, meeting in Detroit this week for the big International Auto Show, said they are gearing up to grab even more of the U.S. market. Unfortunately, they are probably in a position to do so, given that their profit margins are much fatter than the thin margins of the ‘Big-Three’, which are burdened with unionized labor and soaring U.S. healthcare costs. (Standard & Poor’s has estimated that healthcare costs for General Motors alone amounts to a stunning $5 billion a year). With their fat profit margins foreign auto-makers are able to invest heavily in new models aimed at the U.S. market, along with more aggressive marketing. For instance, Honda has unveiled its first ever pick-up truck, taking dead-aim at the one area of sales in which GM and Ford still excel. And U.S. consumers will probably buy them as thoughtlessly as they made best-sellers of Toyota’s pick-ups.

The auto industry also illustrates how trade problems spread into the entire economy. As they lost sales to foreign auto-makers, the “Big-Three” U.S. auto-makers cut 69,000 factory jobs in three years. That’s bad enough. But it’s estimated that parts suppliers to the ‘Big-Three” had to cut 180,000 jobs in the same period. And then there are their suppliers.

To persuade both U.S. and foreign consumers to buy more U.S. products and fewer foreign products, Washington engineered a substantial three-year plunge in the value of the U.S. dollar against other currencies. That makes foreign imports more expensive for U.S. consumers, and U.S. exports less expensive in foreign countries. But, as this week’s report of yet another record monthly trade deficit indicates, that tactic has shown no sign of working so far. The dollar will apparently have to sink much lower in value before consumers on either side of the water respond.

It is a shame because eventually U.S. consumers will pay the piper, probably in the form of a serious economic recession. Administration officials this week blamed foreign countries, saying they are not growing fast enough for their consumers to increase their spending on U.S. goods. European countries claim the U.S. is being predatory in allowing the dollar to decline, trying to finance its own problems at the expense of its international trading partners. White House spokesmen called on other nations, particularly China, to assist the U.S. with its trade gap.

Increased buying of American products by foreign consumers would be a big help. But perhaps the U.S. should begin at home, by first convincing U.S. consumers themselves to buy American. Hey, those California wines are very good, and you can pick them up just as well in a GMC SUV as in a Toyota SUV. Who knows, the job you save may be your own.

Sy Harding is president of Asset Management Research Corp., DeLand, FL, publisher of The Street Smart Report Online at www.streetsmartreport.com and author of 1999’s Riding The Bear – How To Prosper In the Coming Bear Market.


Sy Harding
Email us at Subs@StreetSmartReport.com
Website link: www.streetsmartreport.com

ABOUT SY HARDING:

Sy Harding is the founder and president of Asset Management Research Corp., which has been providing market and economic research to institutions and serious investors for more than 16 years. The firm’s research, market-timing signals, and portfolio recommendations, are published on-line at StreetSmartReport.com.

With a background in engineering, Harding founded and operated successful high-tech manufacturing companies in Connecticut and New Hampshire. After selling them to NYSE listed corporations in the 1980s, Sy turned his life-long obsession with the stock market into a new career, founding Asset Management Research Corp. With his background in engineering and business management, it was natural that his economic and market research combined both fundamental and technical analysis.

Less than two years after founding Asset Management Research Corp. in 1988, Sy was ranked in the Top-Ten market-timers in the U.S. as compiled by Timer Digest. He was ranked #2 in 1990, and has been consistently highly ranked since. He was ranked the #1 Gold Timer in 1991 (Gold Timer of the Year), and remains highly ranked in that category, ranked #1 Gold Timer in 2003, as of September, 2003.

Harding authored Riding The Bear - How To Prosper in the Coming Bear Market, which was released in March, 1999, just 9 months before the Dow rolled over into the severe 2000-2002 bear market. In it, he revealed Street Smart Report’s Seasonal Timing Strategy™ as a method to prosper in both bull and bear markets. And indeed, it has significantly outperformed the market, with a 5-year total return (1998-2002), through the last two years of the super bull market and the subsequent 3-year bear market, of 114.1% compared to 2.9% for the Dow.

Harding says he is ‘the unknown investment advisor that beats the big names’ because “while the 'big names' spend most of their time out on the interview and seminar circuits promoting themselves, we keep our nose to the grindstone, working on what our subscribers pay us to work on - constant analysis and research of the markets.”

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