Schiffreport: January 5, 2018

Trump: We Will Win on Trade

Earlier this morning the government released the December Nonfarm payrolls report, AKA the Jobs Number.  But rather than start with that, I want to talk about another number that was released at the exact same time. It unfortunately gets very little attention in the media, in fact nobody has really paid attention to this number since the late 1980’s – early 1990’s.  Of course, I am talking about the trade deficit.  In fact when Donald Trump ran for office, he actually made the trade deficit an issue in his campaign, which was quite rare.  In fact, Donald Trump said that we were losing on trade and he was correct.  He promised that if he was elected, we would be winning on trade.

Biggest Trade Deficit in almost Six Years

Well we just got the number for November, and it was the biggest trade deficit in almost 6 years.  $50.5 billion. What’s more important than that number, look beneath the surface of the number that’s bad and it gets a lot worse.  If you take out oil, and America is still a net importer of oil – but if you just focus on the rest of the trade deficit, it was an all time high.

Oil Headed Higher

The biggest monthly trade deficit ever.  We finally broke the record that I believe was set when Bush was President. But think about this: oil prices were pretty low in 2017.  We just started to rise, in fact we closed the year above $60/barrel for the first time in 4 years. So imagine how much higher these trade deficits are going to be if the price of oil returns to $80-$100, which it was earlier in the year when it dropped below $60/barrel. In fact, I think that’s exactly where it’s headed.

All-Time Record Low against the Yuan

Also, look at what’s happening with the dollar. The dollar fell last year for the first time in 5 years. It was he largest annual decline in 14 years, measured against the dollar index.  But look at the Chinese yuan.  the dollar fell by the most against the yuan in 9 years. In fact, I think we’re going to hit an all-time record low for the dollar against that currency next year.

Upward Pressure on an Already Rising U.S. Trade Deficit

If you remember, when the year began, all of the strategists on Wall Street were universally bullish on the dollar and bearish on everything including the Renminbi. A lot of people were shorting the Chinese currency. In fact, they were as bullish on the dollar back then as they are on the U.S. stock market right now. Of course, the markets did the opposite of what they expected. If oil prices keep rising, and the dollar keeps falling, that is going to put even more upward pressure on an already rising U.S. Trade Deficit.