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To: patron_anejo_por_favor who wrote (4458)	7/19/2000 2:03:06 AM
From: patron_anejo_por_favor	Respond to of 436258

"We are not alone"--a classic! contraryinvestor.com Let's start our little story right here. Once upon a time there was a trade deficit....<snip> And this trade was so big that it allowed the country sponsoring this trade deficit to import deflation over a number of years where its trading partners were having a bit of a rough go economically. It's trading partners to the East and the South had suffered severe financial market, economic, and currency setbacks a number of years earlier that made their exports enticingly cheap. Being the good neighbor that it was, the apparently strong economy country bought all the cheap goods it could from its forlorn neighbors so that its neighbor's economies could grow strong also. Over a number of years, its neighbors did grow strong and began to experience good economic times themselves. So, did everyone live happily ever after? Not quite. Clearly the strengthening Asian, Latin American and even European economies have caused global inflationary characteristics to begin to normalize over the past few years. The depths of the global (ex-US) downturn in '97-98 were the anomaly, not the rule. Oil at $10/barrel was the aberration, not the new paradigm. Just what are we getting at here? As long as the US continues to run a significant trade deficit, the inflationary fires will continue to build. Market bulls would have you believe that the trade deficit is a blessing from the heavens and proof positive of the strength of the US economy. Unfortunately for the bulls, the law of unintended consequences is waiting to pull the rug right out from under them. The strengthening foreign economies have been and are continuing to put upward pressure on global commodity prices. We have to believe that at this point it has become a Catch-22 situation. Foreign economies will not turn down until the US consumer stops borrowing from them to fund imports to the States. (And maybe they do not turn down even then.) US consumers most likely won't back off until the US economy cools significantly. Inflation is not a phenomenon controllable only by the Federal Reserve of the US. Simply put, we are not alone. In the meantime, market participants and central bankers stateside refuse to look at their own PPI factor data and acknowledge the trends. You know we won't refuse.