U.S. trade deficit fell an unexpected 1% in November. This was due primarily to a fall in oil prices. Our trade deficit with China fell slightly in November but it is still at a record high.
China’s trade surplus with the world last year jumped a staggering 74% to a record $177 billion. Pressure on China will increase to raise the value of their currency (the yuan).
From the International Herald Tribune: “Economists said the figures would increase political pressure on Beijing to let the yuan rise faster to head off the risk of protectionism by governments fearful that Chinese companies are eroding wide swathes of their manufacturing sectors”.
The dollar, euro and yen will have to depreciate faster against the yuan in order to stabilize the situation. Owning foreign unhedged bonds and international stocks unhedged is a solid strategy for 2007.
Libby Mihalka
The Financial Pragmatist
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