Here are the numbers for the first nine months of the 2009 U.S. fiscal year, which ends September 30th.  Federal receipts are down 18% from 2008 levels.  Individual income tax receipts are down 22%, and corporate tax receipts are down 57%.  Meanwhile, federal outlays are up…a lot.  The budget deficit for the nine months now stands at $1.086 trillion versus a deficit of just $286 billion over the same nine months of fiscal year 2008

As the budget data was released, Treasury Secretary Geithner was in Saudi Arabia speaking to our allies (and financiers) in the Middle East about how the United States would pursue policies that preserve the dollar’s value, and that their U.S. dollar assets are safe.  Geithner assured his audience that, "The policies of the United States are designed to lay the conditions for a strong dollar for more stability in the international monetary system and among the major economies."

In addition to owning significant U.S. assets, the six Arab states that make up the Gulf Cooperation Council (Saudi Arabia, the UAE, Bahrain, Qatar, Oman, and Kuwait) have pegged their currencies to the dollar, or to heavily dollar-weighted baskets.

Secretary Geithner also said that he sees signs of strength returning to the economy.  "We are seeing very active issuance in corporate bonds and equity markets and the banking system itself in the United States shows signs of more confidence thanks to aggressive banking system actions and stimulus programs.”

Secretary Geithner did not discuss the recent calls from Washington lawmakers about the need for more stimulus programs, but instead focused on what his Gulf Cooperation Council (GCC) audience wanted to hear.  He said the United States would quickly unwind the exceptional measures it has put in place and get its budget deficits under control saying, "We are very committed to make sure that as we get through this crisis to bring down our fiscal deficits and to reverse these extraordinary interventions that we have taken."

Of course hoping that Mr. Geithner is right is not enough for the GCC countries…nor should it be for investors around the world.  The GCC countries know that they must have long-term contingency plans that reduce their dependence on the dollar.


The GCC’s bond with the U.S. dollar served them well for many years.  Their economies and wealth grew tremendously as they sold oil to energy thirsty consumers in the developed world.  But as some like to say…nothing lasts forever.

As times change and new trends evolve, the successful adapt.  The declining economic power of the U.S. and the status of U.S. dollar is not necessarily a bad thing.  It is part of an evolutionary process.  The reality is that the increasingly multi-polar global economy demands that investors have more flexibility and more ability to take advantage of macroeconomic changes.


Singapore’s economy, which is heavily dependent on global trade in technology, financial services, and petrochemicals, was particularly hard hit in the global economic crunch.  After falling for three straight quarters, Singapore’s GDP fell a whopping 12.7% in the first quarter of 2009.  However, the data for the second quarter is in and it shows the economy rebounded strongly, growing by 20.4% over the past three months.

The Singapore government raised its annual economic forecast.  While officials admit it is susceptible to more setbacks, the government said it now expects the economy to contract by 4% to 6% for the full year versus a previous estimate of minus 6% to 9%.

Historically, Singapore’s data has been closely watched since the export-dependent economy has been seen as a bellwether for the rest of Asia and an important indicator of global demand and also because many believe Singapore’s data is less massaged by government officials.

China is to report its second quarter gross domestic product Wednesday, July 15th.  Given Chinese loan growth and fixed asset investment in the past three months, the numbers should be quite good relative to the rest of the world.

South Korea will release its second-quarter figures next week.  Last week, South Korean officials said they expect the fastest quarter-on-quarter growth for five and a half years.

Even though many of the Asian economies’ second quarters benefited from inventory restocking after a dismal first three months of the year, the numbers do point toward growth.  However, we do not expect Europe, the U.S, and Japan to show strong numbers for some time.


For years, discussions of India’s economy revolved around the monsoon rains.  While the Indian service and industrial sectors have grown rapidly and broadened the economy, agriculture still employs over 55% of India’s workers, and represents over 25% of GDP.  This year’s monsoons are getting off to a poor start, and the situation bears watching as outlined in the Reuters article below.
NEW DELHI, July 14 (Reuters) – India is scrambling to divert power supplies to the countryside to irrigate rice and oilseed crops and limit damage after the worst start to the vital monsoon season in eight decades has raised fears of a drought.

The shift threatens to worsen the summer power deficit that has plagued India for decades, particularly with the country’s hydropower plants running below 40 percent of capacity as scanty rains have depleted reservoirs.

Power Minister Sushil Kumar Shinde is worried about the shortfall in monsoon rains as hydropower accounts for one quarter of India’s total power generation of 149,400 megawatts.
He said the government had ensured a higher supply of electricity to Punjab and Haryana states, the key grain producing regions, to help irrigation.

"They have the water but they don’t have the power," Shinde said, adding India already faced a power shortage of 15,000-20,000 megawatts.

India’s farm minister, Sharad Pawar, said on Monday that monsoon rains were expected to improve this week, while the latest weather office bulletin forecasts heavy rains in coastal areas of southern India and parts of central India.

Last week the U.S. government said that an El Nino weather pattern is developing, putting countries from Asia to North America on alert for meteorological havoc to crops and infrastructure.
The phenomenon is caused by a warming of seas in the Pacific.

In the mineral-rich eastern state of Orissa, at least 5,000 people were affected by flash floods and 11 people were drowned, Orissa Flood Control Officer B.B. Patnaik said.

In the western city of Mumbai, waters in the main river rose and services on the crucial railway lines were shut because of incessant rain since Monday night.

Television channels showed images of people wading through knee deep water and flooded railway tracks.
In the farm sector, which provides livelihoods to two-thirds of India’s 1.1 billion people, weak monsoons would hit the oilseed crop and could force India to import a record amount of edible oils in the crop year to October.

In central India, the output of the soybean crop may fall, potentially hitting oilmeal exports from Asia’s top meal exporter, traders said.

The government has already shown signs of nerves, stopping wheat exports 10 days after it lifted a two-year ban on shipments this month.

So far, the government has declared four districts in the central Indian state of Jharkhand and the northeastern state of Manipur as drought-hit but these states are not key grain producers.

But sowing of rice, groundnut and soybeans has been delayed in most parts of northern and central India, junior farm minister K.V. Thomas told parliament on Tuesday.

Industry officials are also worried about the fall in domestic oilseed production in India, the world’s top vegetable oils importer after China.

"The erratic monsoon and likely lower summer-sown oilseeds crop will further push imports in September and October months and overall imports are likely to be about 8.0 million tonnes," the Solvent Extractors Association said in a statement.

India’s monsoon rains were 46 percent below normal in the month of June, while in the first week of July, rainfall was 29 percent below normal, according to the Indian Meteorological Department.

India depends heavily on monsoon rains as only 40 percent of its farmland has access to irrigation facilities.

We are looking for opportunities in India.  If the weak monsoons cause the Indian stock market to pull back, we will look for an entry point.


Last week’s G8 meetings in Italy received a lot of front page coverage leading up to and during the meetings, but we expect it will be quickly forgotten due to the lack of substantive developments.

China and India are not included in the G8, so the relevance of the G8’s agenda regarding global economics, free trade and energy usage should be questioned.  These meetings are for the cameras.  The more important events between nations take place behind the curtains.  These meetings are great venues for worlds’ leaders to offer sound bites to their electorate from the world stage, perhaps do some passive aggressive diplomacy through the press, and drop hints at what they want in future meetings’ agendas.  There are rarely surprises in the post meeting communiqués.

Every country had an axe to grind last month, last week, this week, and will have an axe to grind tomorrow…

Thanks for listening.

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