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Ford, Home Depot, Wal-Mart, Chesapeake and EnCana

^{Published on 2010-09-10 14:15:31 - Market Wire}
 

CHICAGO--([ BUSINESS WIRE ])--Zacks.com Analyst Blog features: Ford (NYSE: [ F ]), Home Depot (NYSE: [ HD ]), Wal-Mart (NYSE: [ WMT ]), Chesapeake (NYSE: [ CHK ]) and EnCana (NYSE: [ ECA ]).

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Here are highlights from Thursdaya™s Analyst Blog:

Trade Deficit Falls to aJusta $42.8B

The trade deficit is a far more serious economic problem -- particularly in the short to medium term -- than is the budget deficit. In the second quarter, the increase in the trade deficit subtracted a full 3.37 points from the economic growth rate. If we had somehow managed to keep the trade deficit at the same level as in the first quarter, then second quarter growth would have been 5.0%, not 1.6%.

The trade deficit is directly responsible for the increase in the countrya™s indebtedness to the rest of the world, not the budget deficit. That is not just a matter of opinion, that is an accounting identity.

Think about it this way: during WWII the federal government ran budget deficits that were FAR larger as a percentage of GDP than we are running today, but we emerged from the war the biggest net creditor to the rest of the world that the world had ever seen up to that point. Then, the federal government owed a lot of money, but it owed it to U.S. citizens -- not to foreign governments.

Slowly but surely, the trade deficit is bankrupting the country. While most of the foreign debt is in T-notes, try thinking of it as if we were selling off companies instead of T-notes. This montha™s trade deficit is the equivalent of the country selling off Ford (NYSE: [ F ]), while last montha™s deficit was the equivalent of selling off Home Depot (NYSE: [ HD ]). How long would it take before every major company in the U.S. was in foreign hands if this keeps up?

The Two Major Parts

The goods deficit has two major parts, that which is due to our oil addiction and that which is due to all the stuff that lines the shelves of Wal-Mart (NYSE: [ WMT ]). Of the total goods deficit of $55.23 billion, $20.91 billion -- 37.9% -- is due to our oil addition.

The monthly improvement in the overall deficit in July was mostly due to the non-oil side, where the deficit fell to $33.20 billion from 39.73 billion in June. That is an improvement of $6.53 billion, or 16.4%. In contrast, the oil deficit fell only slightly from $21.30 billion to $20.91 billion, a 1.8% improvement. Relative to a year ago, the non-oil side of the deficit rose by 31.2% while the oil side rose by 16.6%.

Still, the oil side should be the low-hanging fruit to bring down the overall trade deficit and thus help spur economic growth. Oil is primarily used as a transportation fuel. The technology exists and is widely used abroad for natural gas to power cars and trucks. Thanks to the emerging shale plays, we have ample domestic supplies of natural gas, and on a per BTU basis, natural gas is selling for the equivalent of oil at $22.44 per barrel.

We need to get past the "chicken and the egg" problem of nobody wanting to buy a natural gas-powered vehicle because there are no convenient places to refuel, and gas stations' reluctance to install refueling stations for natural gas-powered vehicles since there are not many of them on the road. Not only would such a move save money for drivers in the long run (there is an upfront capital cost as natural gas-powered engines are more expensive than regular gasoline powered engines), but it would substantially reduce our trade deficit.

Natural gas is also a much cleaner fuel and emits far less CO2 than does gasoline. Thus it would be a very useful step towards stopping global warming. Doing this, especially breaking the chicken and the egg problem, will take federal government leadership. The benefits for the economy, however, would be huge. It seems inevitable to me that it will eventually happen, and when it does, it will be a great boon to major natural gas producers like Chesapeake (NYSE: [ CHK ]) and EnCana (NYSE: [ ECA ]). The timing of it happening is very uncertain, but the sooner it happens, the better.

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