Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

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

To: Wyätt Gwyön who wrote (5477)	1/19/2004 11:44:14 AM
From: russwinter	Respond to of 110194

<the volatility in these prices in both directions is much greater than the rest of the prices in the series> Yes, that's THEIR theory: up and down volatility. MY theory is that the volatility has been UP in a major way, and continues to trend UP in a major way. So I'm saying it's a secular shift and change, not statistical noise. This doesn't strike me as "volatility", but more of a train wreck: eia.doe.gov Message 19689119 <if persistent, should eventually be reflected in overall prices. thus there will be a delayed impact on the core indices.> Agreed. <3. because food and energy are necessities, rises in their prices are a consumption tax which reduces demand in nondiscretionary areas. secular food/energy price increases, in an environment where the broader market lacks pricing power, are deflationary.> I do feel that the food/energy (and other input costs) "consumption tax" is depressionary. But to call it immediately deflationary is sort of like arguing that the patient is susceptible to a FUTURE sudden heart attack (deflation), therefore we just ignore the spreading cancer (inflation) he has TODAY. I'm focused on the cancer (or the hurricane), and think it's still too early (but yes, I know the heart attack is out there, if the patient survives the cancer)to be setting one's sight on the heart attack (or monster icebergs). So to summarize, I'm calling this Train Wreck scenario a demand pull inflationary event (with the demand coming from Asia into short supply crude goods). That also leads to a vicious cost push inflation into intermediate and finished goods, that will further strike at the primary pressure point (the US consumer) in the global economy. This pressure manifests itself in two primary ways: 1. Diversion of spending from discretionary items into the non-discretionary non-durable items like food and energy. 2. American based employers meet higher input costs (cost push inflation) across the crude and intermediate goods spectrum by shedding costs where they can (labor), transferring even more labor costs overseas, or finding even more non-US suppliers. Of course at some point (probably soon, if it's not starting already), US consumer demand for Asian goods just completely falls off a cliff, and we get a bust. So 1 and 2 further stresses how Joe Sixpack spends his already overleveraged and stressed budget. Obviously, as the later event works it's way through to the Asia bust too, the feedback then becomes deflationary, as the assets backing up the overstressed and leveraged US consumer go into a prolonged liquidation phase, and the need and demand for runaway crude goods consumption out of Asia evaporates. But the analogy to Japan is not the correct one, as the Japanese consumer had the savings and liquid wealth to survive the deflationary phase. The US consumer does not, so it will be a different model (perhaps more like Argentina).