Annex Newsflash 2005-07                                  March 12, 2005

GLOBAL TRENDS

Updated 4/12/05, 10:45AM PDT (adds "Dollar Dichotomy"; "A Perfect Storm")

The Ides of March Revisited: U.S. Dollar's Slide Wreaks Havoc Around the World, Brings Few Benefits Home

The Worst of Both Worlds

China - The Big Winner as U.S. Trade Deficits Soar

PHOENIX, Mar 12 - Hu is the president of China?  Yes, Hu is. Ostensibly.  But W ought to be.  Why?  Because W's economic policies are helping China while hurting America (also see "Hu's on First?").  

And who is the president of America?  W is.  Ostensibly.  But Hu ought to be.  Why?   Because Hu is using China's dollar reserves to help America's ailing dollar (so we can keep on buying Chinese-made goods).  

Helping adversaries used to be considered treason.  Not anymore.  Not in the globalist-run world.  America's president is helping communist China, while China's president is helping "capitalist" America.  Wouldn't George Orwell marvel at this turn of events?

Nothing new there.  Check out "America's Sellout" (Oct 2004), "China Follies Revisited" (Mar 2004), "China Now Bigger Than the U.S." (Jan 2004) and  “China: The Real Cold War Winner” (Mar 2002) - for some of our prior warnings about this dangerous trend.   Lenovo's acquisition of the IBM PC business is but a drop in the bucket in this new trend.

W's foreign and economic policies are giving us the worst of both worlds.  The weak U.S. dollar isn't helping America's exports, but it is increasing the cost of our imports.  The result is a soaring trade deficit and more job losses as domestic exporters are forced to retrench (an international English term for layoffs).  The big winners are China and the American companies that use China's cheap labor in their factories. 

As you can see from the above charts, the U.S. trade deficit is widening as the U.S. dollar is dropping against the major currencies.  That certainly runs against common economic theories and the optimistic comments of the Bush administration officials.  But it is a sad reality.

"The United States trade deficit hit $58.3 billion, its second-highest level on record in January, defying predictions that a weakened dollar and lower oil prices would improve the American trade picture," the New York Times noted in a front page story on March 11.

But the weak U.S. dollar isn't causing hardships only at home.  It is wreaking havoc and unleashing suffering around the world.  

In dirt-poor Lesotho, for example, a tiny southern Africa country, six of the nation's 50 textile factories have shut down in the last three months, unable to match the prices of foreign competitors and still make a profit, the New York Times reported today.  That has eliminated 5,800 of the 50,000 garment-making jobs here. Layoffs have claimed at least 6,000 more.

Nor is Lesotho alone in its misery.  Across southern Africa, industries that depend on American customers or compete with American producers are feeling the effects of the dollar's fall, the Times reported. South Africa, which surrounds Lesotho, has lost an estimated 30,000 textile jobs since 2002. In neighboring Swaziland, nearly three in four textile factories say they have no firm orders beyond March.

South Africa's fabled gold-mining industry lost 11,000 jobs from January 2003 to June 2004, in part because income from its dollar-denominated exports fell sharply. Botswana's budget tipped from a surplus to a $325 million deficit last year as its dollar income from diamond sales was diluted by a 10% rise in its currency.

"One man's loss is another man's gain," they say.  Once again, the Chinese are the main beneficiaries.  "In January, China's powerful apparel industry was freed from the so-called multifiber arrangement, which for decades set nation-by-nation quotas and capped its garment exports to the developed world," the Times said. "Now China, which keeps its currency tightly pegged to the dollar, has begun to pursue the American market much more avidly."

So forget the American military imperialism.  Forget the American Emperor W telling other countries what they "must do or else."  The fall of the American dollar that Emperor W's bosses have orchestrated is causing far greater carnage across far wider swaths of the world than the U.S. military would be able to effect.  

Together, however, they are a potent force.  Never before in the history of the world have the two tentacles of the American Empire caused more people to hate one country with so much passion and so little compassion.  And not just in the Muslim world; and not just since 9/11...

Here's, for example, what we wrote about Argentina over seven years ago:

"Deceitful chameleons that the globalists are, at the Wal-Mart in Buenos Aires, an Argentine flag flutters in the store there is a sign reading, 'Proudly in Argentina'," the New York Times reported.  "Families stroll down the wide, bright aisles, past displays of Paul Newman's salad dressing.  What is clear is that it is changing the Argentine way of life: families buy their bicycles here, sometimes using dollars; the corner bicycle store is no more." 

(from "Don't Cry for Me, Argentina!", Feb 1998).

And things have only gotten worse in Argentina since 1998 (see "Global Investments Plummet," Jan 2003).

But the world's anger is aimed at the wrong person and the wrong country.  Emperor W is nothing but a puppet of global banks and multinational companies (see "Stitching Together the NWO Flag," Nov 1999).  Main Street America is as much a loser in Emperor W's schemes as is Main Street Lesotho or Main Street Argentina.

America's Heartland is also suffering a massive heartache from which it may not recover.  This writer's car journey through some Midwestern towns last summer was nothing short of heartbreaking.  Once prosperous communities lay in ruins (literally!) while Wal-Mart's and shopping malls prospered and proliferated in the suburbs.  A whole way of life is being eradicated, giving way to crass materialism and self-indulgence.  It is a scene being repeated all over America and all over the world.

Like the bicycle store in Buenos Aires, gone is also the corner hardware store in Quincy, Illinois.  And this olddsc00309.jpg (153694 bytes) gas station, too...

This dilapidated site was evidently once a gas station (right).  Now it is being used as a weed-encrusted newsstand in front of a rusty store.  

"O tempora! O mores!"  ("What times!  What ways!" - Cicero).  Or putting it a little more positively, "tempora mutantur, et nos mutamur in illis" ("Times change, and we change with them" - Ovid).

But are we changing for the better, Ovid?  Here's what we concluded a year ago, in our "China Follies Revisited" piece:

"If the Chinese or the Indians are willing to work for wages 10 times lower than the Americans without either government's intervention, more power to them.  But there is plenty wrong with duping the population of the world's once most prosperous country into becoming the global bankers' stooges.  And that's what successive Washington administrations and the acquiescent Congress have been doing (honorable exceptions noted).

After all, aren't national leaders supposed to defend national interests?  Evidently not anymore; not in this country, anyway; not in a plutocracy. With the increasing concentration of power in the hands of an ever smaller number of people, one cannot help but recall another lesson to be learned from history."

"Ancient Rome's Juvenal (a.d. 60-130) wondered about a similar situation some 20 centuries ago: "Quis custodiet ipses custodes?" ("Who will guard the guards?").  And that's our 2004 "beware of the Ides of March"-message."

(from "China Follies Revisited," Mar 2004)

We're once again approaching the Ides of March[1], a time to be wary of empty promises and heed such warnings.  But when the skies are dark and prospects gloomy, that's also the best time to look for silver linings.  And levity makes the best silver lining.  

So we'll let James Sherman's "Hu's on First?" be our last word on this Ides of March Eve 2005.

China's Saber-Rattling Again on Taiwan

PHOENIX, Mar 15 - Hu's Bush's friend?  Hu is.  No doubt about that.  And not just because both presidents are all smiles in the above hand-shaking photo op.  The leaders of communist China and "state capitalist" America have something else in common.  Both know how to marshal out most primitive emotions among their citizens when it serves their political purposes.  Such as hate, for example...

Bush did it in the aftermath of 9/11 with his never-ending "war on terror." Hu did it this weekend, when China resumed its anti-Taiwanese saber-rattling. The anti-secession law approved by China's parliament this weekend authorized force to stop Taiwan from seeking formal independence. The island - just 100 miles off China's southern coast - has been resisting Beijing's rule since the Communists took over the mainland in 1949.

Taiwanese officials issued angry and emotional denunciations of the Chinese law. Joseph Wu, the top official in charge of China policy, warned the measure would cast a shadow of war over East Asia.  "It also brought emotional pain to the Taiwanese people, restricts Taiwan's freedom and democracy," Wu added, according to a March 15 Associated Press report.  

[For more on China-Taiwan relations history, check out this writer's 1999 article, "Who Lost China?", Aug 1999; and for more on Sino-Western relations, see "End of Western Dominance?", Nov 1994].

Meanwhile, while politicians fume and feud, business between the two China's is booming.  Taiwanese companies have invested more than $100 billion in China, and each year more companies are shifting production to the mainland.  Taiwanese computer makers, for example, are the biggest in the world.  And nearly three-quarters of their output came from their China factories last year, Taiwan's Institute for Information Industry reported recently.

This mutual reliance that leads many to think a war would never happen.  They should think again.  Czechoslovakia, for example, was the "Taiwan of the Soviet Union" prior to 1968.  And we all know what happed there in August 1968 when Soviet tanks entered Prague.

IBM's "founder," Tom Watson, Sr., believed that, too, when he coined the "world peace through world trade" slogan.  He was one of America's industrialists who was heavily invested in Hitler's Germany before World War II.  After America entered the war, he had to scramble to prove his patriotism.

His son, Tom Watson, Jr., didn't seem to learn much from his Dad's experience.  IBM invested heavily into the Soviet Union in the 1970s during a Cold War thaw (under Frank Cary's leadership, whom Watson had picked as successor).  Watson, Jr., was actually Jimmy Carter's ambassador to the Soviet Union when all hell broke loose in Afghanistan (in late 1979), and IBM lost its shirt in the U.S.S.R.  Again.

So "world peace through world trade" is a fool's slogan, especially in a world in which "perpetual commerce through perpetual war" is the guiding principle.  Americans should keep that in mind, and not just the business leaders of Taiwan.

Dollar Dichotomy Continues: Low Dollar and Low Exports

PHOENIX, Apr 12 - The dollar dichotomy continued in February 2005.  The currency's three-year slide has failed to lift America's exports (see "The Worst of Both Worlds," Mar 2005).  But high oil prices and surging textile imports from China did lift the U.S. imports in February to an all-time record of $61 billion, surpassing the previous high of $59 billion set last November.  For the first two months of this year, the trade deficit is running at an annual rate of $717.2 billion, a full $100 billion above the record imbalance of $617.1 billion set for all of 2004.

So what's ahead?  An even lower U.S. dollar.  Why?  Because oil prices rose even more in March and imports from China and elsewhere continue unabated.  

"Oil prices are surging and it is likely that we will see more trade deficit records set,'' Joel Naroff, chief economist at Naroff Economic Advisors, told the Associated Press.  

Trade deficits of this magnitude have raised worries among economists about America's ability to continue to attract the foreign financing needed to cover the shortfall between exports and imports.  If foreigners decided to hold fewer dollar-denominated investments such as stocks and bonds, it could trigger steep declines in U.S. stock prices and sharp increases in interest rates.  A move by U.S. investors to diversify into foreign assets, so as to lessen the deflation of their U.S. assets, could compound the situation.

No wonder the Dow slumped over 70 points this morning on the news of new record deficits.  

Another thing that is slumping these days is George W. Bush's approval ratings.  After the first 100 days of his second term in office, Bush has the lowest approval rating of any president at this point in his second term, according to Gallup polls that go as far back as WW II

A "Perfect Storm" Pummeling American Workers

One reason for it are the job and wage losses that are a consequence of flat exports and surging imports.  For the first time in 14 years, the American workforce has in effect gotten an across-the-board pay cut, the Los Angeles Times reported yesterday (Apr 11).  The growth in wages in 2004, and the first two months of this year trailed inflation, compounding the squeeze from higher housing, energy and other costs.

Now contrast that jobs reality with the the jobs fiction and prosperity Bush administration has been promising the American public (see the March 2004 chart).

The effective 0.2-percentage-point erosion in workers' living standards occurred while the economy expanded at a healthy 4%, better than the 3% historical average.

But that may not last long, thanks to the soaring trade deficits.  The economic team at Bear Stearns, for example, said they were lowering their real GDP growth estimate for the first quarter to 4.0% from 4.4% as a result of the trade data, according to CBS Market Watch.

Meanwhile, corporate profits hit record highs as companies got more productivity out of workers while keeping pay increases down.  And what if the workers push back and demand higher salaries?  Well, they may price themselves right out of the job as the companies move the workloads to India or China.

Besides, higher wages could actually hurt the economy by stoking inflation further.  Employers might pass the costs on to consumers in higher prices, and that in turn might prompt the Federal Reserve to raise interest rates more aggressively, possibly slowing the recovery or even triggering a recession.  Which the sliding U.S. dollar could further exacerbate, by raising the cost of imports.

So it's a lose-lose deal for employees.  "For now, workers' wallets are being pummeled by something of a 'perfect storm' of economic forces: a weak job market, rising health insurance premiums and other inflationary pressures," the LA Times said.  Back to W's approval ratings... 

But who cares about that now?  The only poll that counted was the one last November.  Bush is now spending the political capital that he accumulated during the campaign.  And is looking like a "poster president" for his corporate sponsors.

A "perfect storm" for some; a perfect plutocracy for others... that is America 2005.

Happy bargain hunting!

Bob Djurdjevic


[1] Everybody who's been touched by classical education also knows about the "beware the Ides of March"-warning that Julius Caesar had reportedly received (the Ides can fall either on the 13th of the 15th of the month, according to the Roman calendar).  The word the Roman emperor got was that betrayal was brewing in the Senate.  

Hu's On First?

by James Sherman

"Hu's On First?" is a takeoff on Abbott & Costello's "Who's On First?."
Playwright Jim Sherman wrote this after Hu Jintao was named chief of the Communist Party in China in November 2002.

w

(We take you now to the Oval Office.)

George: Condi! Nice to see you. What's happening?

Condi: Sir, I have the report here about the new leader of China.

George: Great. Lay it on me.

Condi: Hu is the new leader of China.

George: That's what I want to know.

Condi: That's what I'm telling you.

George: That's what I'm asking you. Who is the new leader of China?

Condi: Yes.

George: I mean the fellow's name.

Condi: Hu.

George: The guy in China.

Condi: Hu.

George: The new leader of China.

Condi: Hu.

George: The Chinaman!

Condi: Hu is leading China.

George: Now whaddya' asking me for?

Condi: I'm telling you Hu is leading China.

George: Well, I'm asking you. Who is leading China?

Condi: That's the man's name.

George: That's whose name?

Condi: Yes.

George: Will you or will you not tell me the name of the new leader of China?

Condi: Yes, sir.

George: Yassir? Yassir Arafat is in China? I thought he was in the Middle East.

Condi: That's correct.

George: Then who is in China?

Condi: Yes, sir.

George: Yassir is in China?

Condi: No, sir.

George: Then who is?

Condi: Yes, sir.

George: Yassir?

Condi: No, sir.

George: Look, Condi. I need to know the name of the new leader of China. Get me the Secretary General of the U.N. on the phone.

Condi: Kofi?

George: No, thanks.

Condi: You want Kofi?

George: No.

Condi: You don't want Kofi.

George: No. But now that you mention it, I could use a glass of milk. And then get me the U.N.

Condi: Yes, sir.

George: Not Yassir! The guy at the U.N.

Condi: Kofi?

George: Milk! Will you please make the call?

Condi: And call who?

George: Who is the guy at the U.N?

Condi: Hu is the guy in China.

George: Will you stay out of China?!

Condi: Yes, sir.

George: And stay out of the Middle East! Just get me the guy at the U.N.

Condi: Kofi.

George: All right! With cream and two sugars. Now get on the phone. 

(Condi picks up the phone.)  Condi: Rice, here.

George: Rice? Good idea. And a couple of egg rolls, too. Maybe we should send some to the guy in China. And the Middle East. Can you get Chinese food in the Middle East?

(c) Copyright 2004 by James Sherman.  Reprinted with author's permission.

For additional Annex Research reports, check out... 

2005 IT:  The Worst of Both Worlds (Mar 2005); IBM PC Sale Okayed (Mar 2005);  Octathlon 2005: Accenture Wins (Mar 2005);  IBM Global Services: Smaller, Shorter - Better? (Mar 2005);  IBM 5-yr Forecast: Quality over Quantity (Mar 2005);  Rumor Lifts EDS', Fujitsu's Shares (Mar 2005);  Capgemini: Turning the Corner (Feb 2005);  IBM Servers to Grow Again (Feb 2005);  Carly's Fickle Fans (Feb 2005);  CSC: Gearing Down on Purpose (Feb 2005);  EDS: Grossly Overpriced Stock (Feb 2005);  IBM Historical Update: 2004 Shot in the Arm (Feb 2005); New HeadTurners Series #1 (Feb 2005); IBM: A Crescendo Finale! (Jan 2005); Accenture: Strong Finish, Better Start (Jan 2005); Annex Coverage 2004: IT Services Dominate (Jan 2005)

2004 IT: EDS: The Titanium Stock (and other Wall Street tales) (Dec 2004); IBM PC: Good Riddance (Dec 2004); Fujitsu: Recovery Continues (Nov 2004);  IBM Server Renaissance (Nov 2004);  HP Hits Home Run (Nov 2004); Capgemini: Revenue, Stock Soars (Nov 2004); EDS: Jordan's Swan Song? (Nov 2004);  To Russia with Love and $ (Oct 2004); IBM: Slow Quarter No Longer (Oct 2004); Accenture: Revenues, Profits Up, Stock Down (Oct 2004); Capgemini: A Takeover Target? (Oct 2004); Sellout of America (Oct 2004); Spy Wars (Sep 2004); Outsourcing Boomerang (Sep 2004); EDS to Cut Up to 20,000 More Jobs (Sep 2004); Capgemini Stock Plummets on Unexpected Loss (Sep 2004); HP Savaged by Wall Street (Aug 2004); Moody's Lowers the Boon on EDS (July 2004); HP: Delivering Value Horizontally (June 2004); Accenture: Revving Up a Notch (June 2004); Beware Your CFO! (May 2004)IBM: Changing of the Guard (May 2004); Capgemini: Texas-size Home Run (May 2004); Following the Money (May 2004);  EDS: On a Wink and a Prayer (Apr 2004); HPS Wins by a Nose! (Octathlon 2004); Accenture: Burning the Track (Mar 2004);  IGS: "Crown Jewel" Restored? (Mar 2004); HP: Still No Cigar (Feb 2004); Cap Gemini: Another, Smaller Loss (Feb 2004); CSC: Good Quarter Gets Boos (Feb 2004); EDS: "Hot Air Jordan" Flaunts Flop as Feat (Feb 2004); IT Industry: Whither Goeth It? (Jan 2004); Cronyism Is Alive and Well at EDS" (Jan 2004)

Or just click on and use "financial engineering" or similar  keywords.

Volume XXI, Annex Newsflash 2005-07
March 12, 2005

Bob Djurdjevic, Editor
(c) Copyright 2005 by Annex Research, Inc. All rights reserved.
e-mail: annex@djurdjevic.com

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