Shades, I agree that CAT is making equipments at faster rate (their selling price is rising significantly faster though) to the miners. But my belief is that: US has lost manufacturing capability and especially the early stages of manufacturing like mines. When the credit bubble bursts, US will have to invest a lot in these commodities domain. As Doug Noland said, investing in these commodities itself will be extremely inflationary i.e all the printed credit/money has to go into making commodities (CAT will be a beneficiary in the long term). Because of this inflation, Bernanke is not going to print money/credit to support housing, stocks and bonds!! This is going to be Argentina style 2002 deflation where you have credit deflation and yet the peso buys less goods!! I only see short term blip in commodities (the dip happening when the credit bust happens).
I think Chromatic has to revise his view on systemic risk. He was predicting that housing bust will happen first which will cause deflation in prices and hence fed will print money to buy houses, stocks etc. Well, housing market has slowed, but the prices are still raising - did you see copper, steel prices? Soon, corn, wheat etc should also start rising. Today, I dont see anyone talking about helicopter money!! Everyone is saying the inflation is going straight to become hyperinflation (notwithstanding housing market crash)!! Doug Noland said, the systemic risk happens when the Fed is not in a position to lower the interest rates!! Did the Fed lower the interest rates in late 1930, 1931 when banks started defaulting? Oh my, the record says, they increased the interest rates inspite of bank failures in 1931!! Did Japan lower the interest rates when market was crashing in 1991? Oh my, they maintained the high interest rates inspite of the crash!! Will the Fed lower the interest rates when the crash happens next year? Why wont the Fed lower the interest rates? Could it be inflation or dollar crash scenario? When Fed wont even lower interest rates how do you expect them to buy houses, stocks etc? So how would Fed pump money into commodities? The US govt must be creating commodities project! You should ask Chromatic to post his updated view especially If he still anticipates an initial wiff of deflation in prices. You know, Eric Janszen of iTulip used to espouse the same view as Chromatic. Just last month he updated his view that there is not going to be any wiff of deflation!! He is also falling into Doug Noland/Andy Xie/Russ's view. I'm sure, Chromatic will also accept this view now!! It is Argentina style 2002 deflation (I understand Argentina had hyperinflation for most of its history). |
