Market Reacts, You Win

Here is the top story on CNBC at the moment:
The Fed talks; the Dow swings 134 points
Stocks rally after notes from the March Fed meeting suggest rates won’t rise too rapidly. U.S. trade deficit at a record $61 billion. Oil prices tumble; asbestos-related stocks shoot up. Specialist traders hit with fraud charges.
There is a lot of good mixed in with bad here. It looks like the Feds will not be increasing rates drastically any time soon, and by drastically I mean in half point chunks. Instead they seem to favor more measured increases – quarter point increases. This is becasue Mr. Greenspan and company do not fear inflation as much – they have less reason to based on their research. This sent the rates in somewhat of a downward spiral – I’m exaggerating here of course.

Other news about the US trade deficit breaking records, well it seems to break records all the time. In fact I remember back in the Clinton years the trade deficit was always breaking records. With China, Korea and Japan holding such huge trade surpluses, they’ve got to be getting their cash from somewhere. However, one missing peice of this whole trade deficit is, the US is gaining wealth even though it appears quite the opposite.

Let me explain. All these “Chinese” exports – well they’re actually not Chinese exports. They are American and European companies located in China sending their goods over to the US. This means the profiits these companies are making is being brought back to the US. So, while the trade deficit seems to increase all the time, company profits are increasing all the time too. China benefits from being able to employ its cheap labor, and US/European corporations continue to rake in profits – a big win/win situation. This is exactly how free trade is supposed to work.

Well, I’m going off on a tangent here. Send me some of your comments. I always love hearing from you my readers.

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