The Hand Grenade
You have no doubt seen movies about war where someone had thrown a hand grenade at the enemy in order to affect the worst damage possible. Near the end of the 16th century, soldiers began to realize that hand bombs could be very effective in close-quarters combat, and their use became widespread throughout Europe.
What Does This Have To Do With Asset Prices?
When we trade our goods and services with other countries, the goal should be balance. As you know, this has not happened for a very long time. (When there is no balance,?things just blow up)
The US trade deficit in goods and services in 2021?exploded?(like a hand grenade) by?27%?from?2020, to $859 billion, according to data by the?Commerce Department. This is the result of 30 years of rampant and government-policy-encouraged globalization by Corporate America, from Walmart, Amazon, and the vast auto industry to the pharmaceutical industry.?Explosive?growth in the wrong direction.
The trade deficit is a negative for GDP, and a negative for the overall economy in America, and it contributes substantially to the current supply-chain chaos. But US trade deficits are a huge positive for China, Germany, Vietnam, Mexico, and many other countries. The driver behind the trade deficit is Corporate America.
An example of this problem comes from the import of pharmaceutical products. The U.S. imported?$139.52 Billion?during 2020, according to the United Nations COMTRADE database on international trade. United States Imports of Pharmaceutical products was last updated on February of 2022.?
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Our Troubles Are Being Fed by the FED
St. Louis Federal Reserve President James Bullard made his case for a rapid move higher in interest rates, saying Monday that the central bank needs to react to accelerating inflation.
“I do think we need to front-load more of our planned removal of accommodation than we would have previously. We’ve been surprised to the upside on inflation. This is a lot of inflation,” Bullard said in a recent interview.
This, after years of cheap money that has made asset prices balloon to the point where bubbles in the economy are seen in every direction.
One thing for sure, our asset managers will be running their systems every day to be sure we are not surprised by anything.