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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: Real Man who wrote (2275)	11/17/2003 12:13:03 PM
From: ild	Read Replies (2) \| Respond to of 110194

IMO we all use words inflation/deflation and each of us may mean something different than others. As always the current economic situation is pretty unique and it's normal to be confused. At least I must admit I'm confused.

To: Real Man who wrote (2275)	11/18/2003 9:30:01 AM
From: Wyätt Gwyön	Read Replies (2) \| Respond to of 110194

I'm not trying to convince you of anything. well, i am glad you are not trying to convince me that a simple arithmetic average of the PPI is the magic key to understanding the entire world economy and the real yield on the world's most popular 10-yr instrument, and that you don't think your approach is superior to looking at, say, 50 or more different data points in addition to your one data point, and making an educated guess, which one acknowledges in advance must be an imperfect understanding of a complex, evolving situation. at the most basic level, consider this: yes, the dollar may need to fall quite a bit more (i believe this), but if and when this translates into higher-priced finished goods, there will be no marginal buyer for the entire world's excess capacity. if our currency is worthless, then so is their excess capacity! and the AMOUNT of said excess capacity will grow in lock step with the degree to which the American Consumer cannot buy their garbage. this point has not been lost on the Japanese, who have accumulated the world's largest international net investment position in an effort to prop up the dollar for going on 30 years now. there are huge costs to such an effort, but the alternative is that their entire capital stock suffers massive deflation. as other Asian countries have followed the Japanese Mercantilist model, they too are building in structural C/A surpluses with respect to the US, at least, and can be expected to face similar dilemmas. US dollar destruction, it seems to me, means worldwide DEFLATION absent a new Consumer of Last Resort. the inability of advanced economies to face this situation is the only reason the C/A deficit has continued to rise all these years. you want to say it will stop now, at 5%. well...why? people said the same thing in the mid-1980s at 3%. it was all unprecedented. we can expect that it will end EVENTUALLY, but the manner in which it ends, and the consequences for the rest of the world, are likewise going to be unprecedented. meanwhile, the Global CB prescription remains: More Of The Same! interesting times, indeed. as for the rest of what you say, i already know all that. i had a very good year thanks to gold, commodities, Euro value stocks, and other plays which benefited from a tanking dollar. but i hold the strange opinion that things in the market work to confound as many as possible. with everyone now barking up the Commodity Inflation Tree, i know when not to look a gift horse in the mouth. The only thing that's not in line is the government inflation statistics, which shows inflation levels close to zero. yeah, and i guess the 1.5% deflation in over 150,000 Walmart SKUs is also just a govt statistic. it seems to me that your methodology gives you no flexibility to incorporate seemingly contradictory real-world data points. but good luck. USD declined since Jan 2002 from 121 to 91. This translates into a 33% inflation from Jan 2002 and again: where is the finished goods inflation of 33%? go to Walmart and find it in the SKUs? good luck! if you look deeper, you will see that a lack of pricing power (reflecting a lack of consumer buying power, which reflects a lack of income growth) means contracting margins. as margins contract, capacity is eventually idled. hence low Cap-U. hence more: deflation. think of deflation as a disease which can spread throughout the economic tree. you have been looking at (commodity) INFLATION in some parts of the tree, and presume that it will spread to the rest of the tree. but if you look at other parts of the tree (like the Walmart SKUs! like Cap-U! like pathetic income growth!) you will see the marks of DEFLATION. so consider: maybe deflation will eat inflation alive. just a thought.