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Strategies & Market Trends : Mish's Global Economic Trend Analysis
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To: Elroy Jetson who wrote (63324)2/4/2007 11:22:00 AM
From: jimmg  Read Replies (2) of 116555
 
Elroy, given your experience in Mexico during the 80's where you lost most of your net worth due to currency devaluation, I can understand why you think that is happening again in the US today.

However, the facts disagree with your preconceived conclusions.

What you are saying is that retail sales in nominal dollar terms are skyrocketing because of price inflation while unit volumes are falling. Not true at all.

Here are the 12 month price changes for retail stores according to the BLS total store index:

2006: 0.2%
2005: -0.6
2004: -1.0
2003: -1.6
2002: -2.7
2001: -2.7
2000: -1.6

data.bls.gov

These store total inflation numbers are weighted according to the inventory mix for all retailers as a whole. Electronics, computer equipment, consumer durables and many other categories show significant price declines over time.

Now, of course you'll probably say that retail store inflation is really 10% and the government is lying right?

Then look at all of the unit based economic statistics.

1. Capacity utilization at a cycle high - over 80%.
2. Unemployment near cycle lows and job openings at an all-time high. We would be shedding jobs like mad if the economy were in stagflation.
3. Look at the Baltic Dry Freight index...it has skyrocketed. Ships are loaded with goods and causing capacity constraints even as the number of ships has increased dramatically:
investmenttools.com
4. While housing activity slowed markedly in 2006, it was still the 3rd highest turnover in history.
5. Gasoline usage at an all-time high and growing: tonto.eia.doe.gov

What we have is simply a debt induced spending orgy. People borrowing and spending to their heart's desire. Real economic activity is brisk. Is it sustainable? Hell no. We will have a horrific price to pay for all of this when the bills come due and the spending party ends.

But let's not distort reality. This isn't currency devaluation and stagflation driving the economy. It's brisk real economic activity financed by debt and extreme willingness to take risk.

I'm watching carefully for signs of the end. They aren't here yet. Paradoxically, the consumer appears to have increased spending in the face of a soft real estate market. The economy has clearly accelerated in the 4th quarter of 2006 and remains strong today.
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