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Trade deficit in Colombia

I think this Trade Pact will determine the short term direction of the peso. Colombia has been running a Trade Deficit versus a surplus. Interesting how ex-oil Colombia is running a deficit. The Peso will need to weaken to adjust this factor and the fact that 20,000 labor jobs have already been lost. This is not a huge figure but don't expect 6.8% GDP growth with the Peso this high. Implications: Lower real estate values and continued job loss. Loss of US Aid would or a cut back would also have major ramifications. Budget deficits and trade deficits kill currencies. Be careful out there. This can create big problems. Remember Colombia needs GDP to expand at a moderate rate. Cut backs in Federal Programs and or golbal economic slowdowns are the largest risk to the economy. The Peso is only creating further problems. I for one feel that we will see an extreme weakening of the Peso as I do expect worlwide growth to moderate. US GDP already under 1.5% and we still don't know the full impact of the housing bubble. Anyway my two cents take it for what it is worth but I think we can expect a weak Peso unless A: Trade Pact signed B:Continued Aid from US C: Worldwide growth continues at a healthy rate. Other than this the Peso can't be sustained at current levels.

http://www.iht.com/articles/ap/2007/05/04/america/NA-GEN-US-Colombia.php

By Brians on May 13, 2007, 08:04 in Friendly Talkzone.

Waterdawg says on May 13, 2007, 08:35:

Fingers crossed ! Brian . sure hope you got this one right ! Trying to get my small biz off the ground & the WEAK dollar is killing me !

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miamimike says on May 14, 2007, 01:59:

China Should be Mentioned also as a lot of Colombia's future hinges on what they do. Right now they are are working on perfecting their Air Transportation of Cut Flowers(read Roses) from China to the USA, When they resolve that problem, Colombia's Cut Flower industry is in for some tough cruising. Not to mention with the strong CP, it is already damaging it(exports)to the US at this moment. Import Lids on textiles like socks, underwear, bras have been removed so look for Colombia, like the USA, to be hit by even more of an onslaught(cheap clothing) from China in textiles. More CP Textile Job losses! Plus their Currency(china) is frozen at a low rate against the CP, as well as the USD, another serious disadvantage. China has the ball now!

"Wait a minute. What did you just say? You're predicting $4-a-gallon gas? That's interesting. I hadn't heard that." -- Feb. 28, 2008 --George W. Bush, Washington, D.C.

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Brians says on May 14, 2007, 04:49:

Fixed curriencies will eventually have to revert. I agree the the Yuan being extremely undervalued against the dollar and all curriencies for that matter. This is because China's economic model is job based and not economically based. To make this as basic as I can it means that they are currently subsidizing our standard of living. The TVs etc. that they produce should not be as cheap as they are. There will be a day which this will happen and usually it's is scary and very bad. Credit created from credit will eventually revert and it will be swift and a lot of people will be hurt. On top of this the US is running a budget deficit of 6% of GDP. If we were Brazil the currency would already be in the trash can. We are running huge trade deficits which compound the problem. Miami I agree that Colombia is in the same boat with regard to China. Both will be hurt eventually. It may be a month a year or two years but at some point standards of living will have to fall. I have been buying puts on the dollar against currencies with surpluses with some money. This has been working quite well. Anyway right now everyone is happy until we see a liquidity situation and then remember my warnings. Think of it as running a credit card balance every month. Eventually you have to pay the bill and you have to cut your budget to do so (standard of living cuts). If you don't pay you have to go to bankrupcy (currency crisis). Believe it or not Colombia is vulnerable also but at least they are not running deficits like the US. People easily forget places like Argentina etc. which this has happened. This has never happened in the US but with the dollar less significant as the benchmark currency the risks of this will rise. I don't believe it will be anywhere as extreme as an Argentina but bills need to be paid and Americans just don't save. Losest savings rates in the world. Believe it or not I and usually an optimist but we have to have a strong Treasury Secretary which the jury is still out on. China is really a beast that needs to be dealt with in order to avoid things but right now the US and everyone seems to just want to buy products on the cheap.

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Brians says on May 14, 2007, 07:28:

Tinto good link pretty much sums up what I was saying. I had mentioned that if funding is cut from US this deficit becomes a major problem. I don't see that happening but Peso has probably seen it's best days or at least we are in the 9th inning of the rally. However both the US and Colombia have very expensive curriences. The way to play this is net longs on countries with account surpluses and trade surpluses. The interesting part is to look at Japan. If the Yen strenghens against the dollar the carry trade becomes fragile again. That will create major problems. Nowhere to hind except a strong currency. I have been buying dollar puts against Russia, India (probably not great play), China, Indonesia. Take it for what it is worth but I have no confidence in this liquidity in world markets which has been mostly funded through the Yen carry trade.

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Tinto (Moderator) says on May 14, 2007, 07:51:

After looking at that table again and the budget surplus/deficit column, I want to become a Norwegian and hop aboard the social welfare gravy train!

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mecca says on May 15, 2007, 07:46:

Brians, so what kind of time are you buying on your puts? Thanks.

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