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

To: Silver Super Bull who wrote (4468)	1/6/2004 10:53:11 AM
From: russwinter	Read Replies (5) \| Respond to of 110194

<I would tend to think not very sustainable.> There's a profit squeeze coming. Bernanke would tell you that labor costs are "stable" and are 75% of input costs. What he doesn't tell you is that other labor costs besides wages are inflating. The other 25% of input he non-wage cost he dismisses is no laughing matter either, especially given $34 oil/$7 nat gas. That's disruptive. Also the real reasons wages are "stable" is that a steady stream of these wage paying jobs are being sent overseas to boost the "productivity miracle" nonsense he and Easy Al spout. Of course this further guts the American income base, just creates weaker demand (which I agree with the deflationists is coming), and makes those debts harder to service. I suppose the debate here between the deflationists and inflationists may be leading us to the same destination. The only difference is the interest rate question. I think there will be a foreign induced spike and some version of a USD defense, followed by a huge bust. Others like tippet and misheldo don't even think a spike (except perhaps in long dates)will be necessary to create the bust? That's possible I suppose. Maybe it's all academic, if the end result is the same?

To: Silver Super Bull who wrote (4468)	1/6/2004 12:08:35 PM
From: mishedlo	Read Replies (1) \| Respond to of 110194

But my question RE: "it is not a good sign for inflationists that end prices are deflationary" is how sustainable is raging input prices (costs) and steady/declining finished goods prices? I would tend to think not very sustainable. If there is no demand then prices can stay low for a long time. Why do you think we see 0% loans on cars? M

To: Silver Super Bull who wrote (4468)	1/12/2004 12:20:47 PM
From: Wyätt Gwyön	Read Replies (2) \| Respond to of 110194

deadbull, sorry for the delay in responding... But my question RE: "it is not a good sign for inflationists that end prices are deflationary" is how sustainable is raging input prices (costs) and steady/declining finished goods prices? I would tend to think not very sustainable. i agree it is not sustainable. this is i believe what Greg Weldon calls a "spectrum stretch". other "stretches" are burgeoning consumer spending growth in the face of stagnant income and a weak job market; and a housing bubble in the face of same. if we look at the input/output stretch, we must ask WHY there has been no flow-through to end prices. the Occam's Razor answer, i believe, is that people can't/won't pay for higher prices. this is consistent with another WalMart indicator besides the SKUs which i like to mention--namely, the spike in purchases occurring on the local payday for the predominant employers near each store (or the welfare payday in the absence of employers). WMT mgmt recently noted that this spike is at an all time high, i believe. this is an indication of extreme "hand-to-mouth" living, where people don't spend until they get their paycheck. obviously it happens all the time, but there is a range to these things, and WMT is now saying that the current value is at an extreme end of the range. more "spectrum stretch". so, an inability to pay higher prices is consistent with prices not going higher. it is also consistent with low income growth, low wage pressure, high supply of workers, high supply of capacity, and so on. as for the inconsistency on the input side: anomalies can always happen in this or that commodity (weather patterns affecting coffee, orange juice, etc.). and we also have a rising demand from China. if we accept that the input/output stretch is not sustainable, then one or the other has to give. i'd say that the American consumer will not budge without jobs growth. this suggests to me that the "blink" may come on the input side--i.e., commodities could tank. another possibility is that intermediaries (companies) accept a lower profit structure...but this eventually leads to lower stock prices, and stocks being such a large part of the economy, methinks this would be deflationary as well.