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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory

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To: GST who wrote (50901)	1/23/2006 12:34:28 PM
From: mishedlo	Read Replies (3) of 110194

Can you understand persistent changes in prices merely by looking at money supply in the US? -- no chance in hell. Can you understand prices by looking merely at the US$? No chance in hell. Home prices in the US skyrocketed in 2004 while the bottom fell out of the US$. My model explained it all very very nicely, and in fact even predicted it. Your model based solely on the US$ certainly did not predict it or even explain it. Instead it looks at the result after the fact and simply concludes there is a bubble in the US$. It ignores the cause was a bubble in credit! It should be obvious to ANYONE that a bubble in credit caused this echo boom in housing. I have no doubt that Russ would agree with that statement. It should be equally obvious that the Naz bubble was fueled by credit and money supply growth that worked its way much more so into the stock market than it did prices. Again, my views allow for that. And again, I bet Russ would agree with that statement. Finally there was a collapse in credit and a rise in the demand for money and a rise in bankruptcies in the dot com bubble burst. A destruction in credit explains the drop nicely. Again I would bet Russ agress with that general idea. A destruction in credit explains the housing bust in Japan. I hardly need to look at anything else. An expansion in credit fueled a property bubble and a contraction in credit fueled a housing bust. Nice and neat! Prices? Who cares. I guess your model suggests there was no deflation in Japan because the CPI barely moved. Of course that is totally preposterous. I am the one looking at a multitude of variables rather than getting stuck on a single idea there is some sort of dollar bubble. Furthermore, whatever US$ bubble there is has its roots in easy credit and monetary printing and US consumers living beyond their means BORROWING to consume (ie CREDIT). One must understand cause and effect. It is that borowing to consume that has weakened the US$ and that spending WILL be curtailed simply because consumers can not and will not keep spending more than they make forever. If they do they will be wiped out in bankruptcies (and we are seeing rising bankruptcies right now). My model handles this very nicely and once again predicts rising bankruptcies and rising foreclosures. It is happenening as we speak. It predicts a housing bust and that seems to be happening as well. I take into account, that productivity improvents can mask TRUE inflation (defined as an increase in money supply and credit). I also take into account that money supply increases may go into stocks or gold or other things that do not affect the CPI. That of course is why focusing on prices instead of money supply has it ass backwards and that my friend holds true whether or not we are under a gold standard or a bloated fiat regime like we are now. So no, I am not stuck on some simple gold standard view of things either as you incorrectly suggest. You seem to have a simple model: The US$ is in a bubble so prices must go up. Whose model has done a far better job at describing and even predicting what has and is taking place? Mish

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