Heinz Blasnik- Views You Can Use Message Board

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Strategies & Market Trends : Heinz Blasnik- Views You Can Use

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To: Perspective who wrote (2324)	6/10/2003 1:50:08 PM
From: GraceZ	Read Replies (3) of 4905

What I would say, though, is that an unwarranted surge in the money supply (an increase when prices are NOT increasing and real output is NOT increasing, like we've had in the past five years) will have the lagged effect of producing an inflation in the future. How far in the future? Japan has been trying this for some time and prices are falling 1% a year. FWIW consumer prices have been increasing steadily here in the US. The CPI is far from negative. This is what makes their expressed concern about deflation seem ludicrous. Although short term sharp increases in the price of oil can have a deflationary effect because wages cannot rise fast enough to make up the difference. A rise in oil reduces the amount of money for other goods unless it is met by wage increases. As I said earlier we're not in an environment where wage increases can be pushed through except in those areas of the economy where labor has a monopoly power (like the West Coast dock workers, or BART drivers, etc). What is driving the bond market (which is also what is driving the mortgage rates lower) is an irrational (or rational) desire for safety. But you also have to remember that the bond market has been a terrific performer in the last three years. I've made a ton holding bonds in the last two years and I'm sure those foreign holders have as well, especially those whose currencies are not rising relative to the dollar. One could say that the Japanese are being irrational expecting rates to continue to fall but you have to remember they've already been through this in their own country. I've sort of given up expecting the bond market to correct and rates to move up, I expected it last year and the year before that.

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