Market Bulls Get Gored, Oil Price Soared, Trade Deficit Roared

Stocks took a major flogging today as the U.S. trade deficit with the rest of the world went into orbit, easily exceeding any on record. The index of top blue chip stocks dropped more than a full percentage point, the broader index of top companies' stocks went down more than eight-tenths of a percent, and the NASDAQ dropped by almost a percent.

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In finance jargon, a "bull" is an optimist, an investor who believes the stock market is going to go up; a "bear" is a pessimist, an investor who believes the stock market is going to go down.

  The pounding started at the opening bell, with the numbers for the trade deficit already published. Stocks slid through the day, and several meager attempts at a rally were quickly smashed into powder as the bears went to work, thumping stock after stock in selling waves that left the bulls looking for cover and the Bush Administration apologists characteristically silent about how the fiscal genius of the neo-conservative policies could explain the brutally objective assessment investors are making that huge flocks of deficit-riddled chickens are coming home to roost as the sky is falling on top of the neo-conservatives who took over Washington more than four years ago.

Oil prices moved toward orbit today as reports indicated that, although oil supplies are doing well, inventories of gasoline and other petroleum products dropped unexpectedly. Light sweet crude made it to almost $56.50 on the New York Merc, and Brent crude pushed to within twenty cents of $55 a barrel.

Dark Wraith CyberGloss

When market participants have a broad sense of optimism about an economy, they tend to react very little to bad news; but when they becoming broadly pessimistic about the overall prospects for an economy, even less important bad news will cause strong reactions because it serves to confirm their predisposition about the economy's direction.

  Reports earlier this week and last add fuel to growing concerns that the rapid pace of industrialization in China is becoming a significant factor in the global demand for oil, meaning that the United States, Europe, and other major users now have a powerful, financially flush, and energy-hungry new competitor for the limited world supply of oil. The sense within the markets is that, with this new game afoot, any news whatsoever about supply disruptions, unexpected drops in inventory, or even certain regional conflicts merit sharp reaction among oil traders. Adding to the pain for consumers in the United States is that more and more of the globally weakening American dollars would be required to buy the same amount of oil even if the global price weren't rising.

Few economists have yet made a case for it, but objective analysis of the situation points to the still-small but real possibility that, should the current situation not improve, stock markets in the United States and possibly even Europe and Asia could slip into a substantial downward correction because of the jitteriness of major market participants right now. While calming reassurance would be helpful from senior Administration officials, President Bush today used the gathering economic firestorm caused by rising gasoline prices to promote his oil industry friends' desire to open the Alaska Natural Wildless Refuge to oil exploration and exploitation, once again using real crises to press ahead with interests the neo-conservatives had anyway, as was the case with using the 9/11 attacks to proceed with an already long-planned invasion of Iraq.

On the trade deficit front, the total for red ink in the current account last year was today reported to be $666 billion—a deeply troubling number in and of itself—representing an increase of one-fourth over the deficit for the year previous.

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The "current account" logs the flows of a country's currency into and out of that country; the "capital account" logs the flow of long-term investment money into and out of that country. If a country needs to use foreigners' investment dollars to finance its deficits, for example, it must run a negative current account balance so those foreigners will have enough of that country's currency to lend it.

  The trade deficit for just the fourth quarter of 2004 was a whopping $182 billion, well more than what analysts had predicted, given that the weakening greenback should have started to slow foreign import sales domestically and spurred American export sales overseas. Unfortunately, with the federal budget deficits going up year after year during the Bush Administration, the current account has to parallel it so that foreigners will have the greenbacks available to lend to the U.S. government to continue its irresponsible fiscal policies of marginal tax rates too low for a major, industrialized society.