By Jim Sinclair
The US trade deficit unexpectedly shrank in January, reflecting a big drop in imports of oil and foreign cars. American exports also fell, a potential blow to hopes that the economic recovery will be aided this year by U.S. sales abroad.

A country that habitually consumers more than it produces, the definition of structural deficits, will always see its trade deficit decline when the economy slows. If this was unexpected, then the strength of the economy going forward should be unexpectedly weaker.

The Obama administration is also hoping to get a boost in exports from a fall in the dollar’s value against the Chinese yuan.

It has been lobbying China to allow the yuan to rise in value against the dollar, responding to complaints from American manufacturers that China is unfairly manipulating its currency by holding down the yuan’s value to gain trade advantages.

No worries, devaluation, not investment in new plant, equipment and innovation, will save us. Unfortunately, Americans, sold on the idea that the worse is over, thus, by extension a recovery is around the corner, will have to experience the harsh reality of scrapping along the bottom for many years.

The imports to exports trend from 1991-1997 gives a similar, but smaller model of the scrapping yet to come.

And while we wait, import prices, similar to late 2007 to early 2008 have reached double digit growth rates in January. Last time this happened the stock market was in process of rolling over.

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