U.S. Trade Deficit Decline Not a Silver Lining

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Includes: PEP, YUM
by: TraderMark

Pepsico (NYSE:PEP) follows in Yum Brands (NYSE:YUM) footprints - a large international company whose international sales are booming. No surprise, and look for this trend to just continue indefinitely. If you have to buy big cap consumer names, those are the names you want to park your money in. Pepsico had 22% revenue growth in its international business, which for a company of its size is quite impressive.

And on the economic news front, the devaluation of the dollar is great! Well for the largest international companies in the US (so it might stink for consumers, people who want to travel abroad, and 95% of America) but its a wonderful thing for those selling products into international markets: The U.S. trade deficit fell to the lowest level in seven months, helped by record-high sales of American products. The deficit with China declined as imports edged down slightly following a string of high-profile recalls.

So for one narrow part of our economy things are great. I am sure these companies will pass along their great benefit to their workers in the form of higher wages and benefits! So all you Taco Bell, KFC, Gatorade, Frito Lay, Pepsi, Coke workers - let me know when you get the raise and lowered health care premiums! I mean, we are all in this together right?

Let's take a closer look:

  • The improvement reflected a 0.4 percent rise in exports, which climbed to a record $138.3 billion. Sales of farm products including wheat, soybeans and corn, and exports of industrial products such as chemicals and steel both hit record levels. (remember, we are giving our taxes to subsidies for large corporate farmers already enjoying record prices in soybeans, wheat, and corn)
  • Imports actually dropped by 0.4 percent to $195.9 billion, reflecting lower shipments of foreign cars and furniture, which offset a big increase in the foreign oil bill, which rose to the highest level in a year. (slower spending anyone? who needs furniture when we are not flipping homes like stocks! )

This is the part I love the most:

The boom in U.S. exports is helping to cushion the U.S. economy. Overseas demand for U.S. goods is being helped by a falling value of the dollar against many other currencies. That development pushes up the cost of foreign vacations and imports for American consumers but makes U.S. products cheaper in foreign markets.

Oh really? Who exactly is it helping? A narrow band of multinational companies. Not the mom and pop on the street. In fact the cost of imports (in theory) you know... all that cheap stuff you get at Walmart should rise with a falling dollar. So I guess what helps a narrow band of multinational companies = helps the US economy.

Because as we all know, when they are more profitable they pass these gains down to their workers (many of which no longer even exist in the US) Yep, looks great from this point of view all over) Ah these journalists.... always finding a silver lining. The U.S consumer has less ability to buy goods as their dollar buys less and less by the day, imported inflation during worldwide commodity cost explosion continues and a government institution fueling the fire for these trends by cutting rates to bail out the upper 2%.

Sounds all good to me too! I just need to get to that top 2% to feel the benefit myself! Anyhow back to business! Retail sales, retail schmales, economy slowing, potato, tomato - none of it matters - time to push up Baidu for the 37th consecutive day!