Handel's Big Trade

When Handel composed The Messiah,
The markets were caroling highah.
He sold, shouting "Boo-yah!
Now sing Halleluia!
To be a contrarian buyah."

For many investors at this time of year, 'tis the season to review portfolio investments that hath been exalted, or laid low. If unto you a gain has been given, shall the government be more upon your shoulder this year, or next?

One man who handled such questions adroitly was George Frideric Handel, according to Jason Zweig of the Wall Street Journal. Mr. Zweig says that the renowned composer "never went Baroque" because he knew when to get into and out of the hot investments of his day. The greatest investment bubble of the early 1700's was the South Sea Co., driven by the mania of colonization. Mr. Handel played the South Sea Co., but acted earlier than contemporaries such as Sir Isaac Newton, buying his shares at lower cost and selling them before the bubble burst. It is estimated that Mr. Handel doubled his South Sea investment, making a £15,000 profit, roughly 2.9 million in today's dollars. At the end of his life, Mr. Handel's estate comprised about £20,000 ($3.8 million today).

As a footnote to this Yuletide tale, we must ask whether the German-born Mr. Handel came to the market with a natural advantage: his name, in his mother tongue, means "trade."

China's New Trade Deficit

A worsening balance of trade
In the land in which everything's made
May be read as a sign
Of commercial decline
In the rest of the world, I'm afraid.

The news of China's large global trade deficit in February came as a shock, and may evoke some Schadenfreude in Americans who have despaired over the size of our nation's trade deficit with China. However, this is no time for malicious glee in the centers of manufacturing, or legislation. For one thing, the $4.1 billion Chinese trade deficit in the first two months of the year did not redound to the benefit of the US, with which China still has a large trade surplus. Second, the Chinese trade deficit indicates weak consumption among its European trading partners, to which Chinese exports declined by 1.1%. This is a sign of a possible global slowdown, which benefits nobody.

A Refined American Export

The GDP targets we've missed of late
Makes Americans' fuel use desist of late,
But with fuel usage surging
In markets emerging,
We ship more petroleum distillate.

The Wall Street Journal recently reported that booming US exports of gasoline and other refined petroleum products would soon make America a net fuel exporter for the first time in 62 years. Though still the world's leading importer of crude oil (that's right - we're still dependent on "foreign oil"), the US' huge and growing refining capacity feeds the demand from growth markets such as Mexico, Brazil and Singapore. Even moribund Europe are "PIGS" for Yankee petrol. Of course, there is a dark side to this good news: the net export balance is helped by our slow economy, which has reduced US fuel consumption.
Graphs courtesy of The Wall Street Journal.

Yuan an Alternative?

The factors that long ago made
US dollars the means of world trade
May soon usher in the
Yuan (or renminbi)
For cross-border bills to be paid.  

China's currency may soon become a medium of regional if not global trade, writes Barry Eichengreen in the Wall Street Journal.  He argues that three factors led to the dollar's heretofore exclusive role: the depth of US securities markets (including Treasuries as well as the instruments for hedging risk); safety, particularly in times of international crisis; and the lack of alternatives.  China's growth may soon bring it the first two attributes, while making the third irrelevant.  The Euro, meanwhile, is even closer to becoming a dollar alternative.

Analogies Économiques IV: Pastries

"Bernanke's not using his noodle,"
Snapped Herr Schäuble, in protest quite futile;
"We don't need more air
In the chocolate eclair,
But more Äpfel inside of the Strudel."

Germany's finance minister Wolfgang Schäuble (SHOY-bleh) criticized Fed chairman Ben Bernanke (bur-NAN-key) as "ahnungslos" (clueless) following the announcement of the $600 bn second round of quantitative easing (QE2). QE2, designed to stimulate US credit creation through the Fed's buying Treasury notes, would also stimulate US exports by making them cheaper, thus cutting into the pre-eminent position of such export powers as China and... Germany.

Special thanks to US Navy veteran Charles Weatherwax and greetings to all of our veterans!

Trade War 101

To gainfully utilize labor, 
Export nations play "Beggar Thy Neighbor;" 
While the deficit spenders, 
Resenting their lenders, 
May rattle the trade-tariff saber.  

Thanks to Prof. Michael Pettis of Peking University (no, that's not a typo) for his timely comment in the FT.