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

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To: GST who wrote (66167)	7/16/2006 2:16:30 AM
From: mishedlo	Read Replies (3) of 110194

The days of the big US consumer driven economy are over. American consumption will stall out here -- I don't know of anybody that strongly doubts that to be the case. That is an absurd statement. Bears have been predicting the death of the US consumers for years and taunted for that prediction everywhere, especially CNBC and all of the economic pundits. But yes, I agree with you... it is FINALLY OVER. The markets are JUST beginnning to price that in. American consumption will stagnate and could decline. That in many ways would be a very good thing insofar as Americans consume far too much in the first place. 100% agree except I would change "could" to "WILL". The issue then becomes "what happens to the global economy", and this is where we part company. The global economy is now far bigger than simply American consumption. We do NOT disagree on that Wealth exists outside the US and hundreds of millions of people with money and unmet needs are buying and selling from each other without as much need to buy things from us or to depend as heavily on us as final consumers. To assume that the world cannot transit from a US centered pattern is naive given who has money to invest and spend (people outside the US) and who does not have money to invest and spend (people inside the US). Of course there are still going to be lots of Americans investing and buying things, it is the aggregated numbers that show the extent of the weakness. Again believe it or not we have common ground. I have no problem with that paragraph. So my expectation is not so far-fetched -- US stagnation with slower but positive economic growth and for US consumers a future where they are increasingly "poor" as oil rises, the cost of borrowing rises and others in other countries focus more on non-US markets and raise the price of their labor to us. For the US, the future is increased irrelevance and economic stagflation. Here we disagree but not brutally so. The agreement is the ever increasing irrlevance of the US. The disagreement is the timeframe. It seems you expect it to be immediate, while I expect it to take place over 10-20 years and possibly more. Right NOW, the US is the largest economic forec in the world. There can be no dispute about that. I do NOT disagree with you that the the US WILL (at some point) pass that economic torch to China. I do not know if that happens in 10 years or 50 but I am convinced that it WILL happen. More common ground. My problem with you is in timing. We seem to see the same thing. Thank god we have far far more common ground than I thought. The problem is timing. This is funny because I almost did a post to you on this a coiple days ago. Well you beat me to the punch. GST I think you have SOME things nailed. You may indeed be a visionary. BUT..... you expect that vision to happen NOW. Sorry. That is where you are wrong. That vision will take time. Lots of ups and downs. Over the course of those ups and downs things can and will change. Were people WRONG in predicting a housing crash in 2004? Not really becase no one figured the Fed would slash rates to 1% prolonging the bubble for 2 more years. I still FIRMLY believe you underestimate the rellevance of the US..... TODAY. You do so because you are a visionary. You see the US will pass the torch to China and you are CORRECT. But...... You are dead wrong on the timing just as housing bears were wrong in 2004. You might find this shocking but I agree with you that the US$ is toast. But..... EVENTUALLY. I accurately predicted the rise of the US dollar in 2005. IF Japan drags its feet that advance could have one more blast up. Treasuries can and I believe WILL have one more blast up. I do not know the timing of that blast but it will come as the FED reacts to the housing bust. Unfortunately I do not know the duration either. It all depends on how fast housing crashes. But once that is in, I agree with you the dollar will sink. One more BUT.... But much of the rest of the world (as in the UK, and EU and Mexico etc) is in as bad a shape as the US. Thus I do not expect the US$ to sink by 50% across the board. In fact the EU is so F'd up as is the UK that the US$ might not sink at all vs those currencies. So.... the US$ falls by another 20%. To that I say "big deal" as productivity and competition will NOT equate that 20% drop to a 20% rise in prices (in anything but oil). All in all I am surprised by our common ground. Unless you are willing to dispute this "common ground". Mish

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