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: yard_man who wrote (6606)	1/31/2004 1:03:42 PM
From: russwinter	Read Replies (1) \| Respond to of 110194

<the implication of that output gap and that it isn't getting any better > Yesterday's papers and rear view mirror type stuff. Hoisington has an output gap chart from 2Q, 2003. I'd like to find an updated chart of this, but the CBO was indicating 3Q (also old news) was minus 0.5% or so. Of course capacity utilization is low, but I have to ask if it's real capacity? For example would a gas fired utility plant that breaks even at $4.00 natural gas (and where costs can't be passed on to consumers) be considered excess capacity? Maybe very loosely so, but not in the real world. The St. Loius Fed put out an article this month about using output gap as an inflation indicator. Here's the key excerpt, "There is no agreed upon method for calculating the value of potential output". My sentiments exactly, in fact I feel output can become obsolete very rapidly in an input inflationary spiral.

To: yard_man who wrote (6606)	1/31/2004 2:12:23 PM
From: russwinter	Read Replies (5) \| Respond to of 110194

I'm not able to get my computer to copy this as a link page, but it has some excellent remarks about "Inflation and Output Gap: Misleading Benchmark. www.wachovia.com/ws/econ/view/0,,1509,00.pdf It asks the question, "If the output gap drives prices then why are prices rising when capacity utilization is unchanged? Wachovia offers two theories, both of which I have elaborated on at length: 1. In a low inventory-sales ratio environment the real output gap is vendor performance if the purpose is to forecast inflation. and 2. capacity utilization may be picking up a lot of obsolete capacity in a post-NAFTA global trading environment where a significant portion of US industrial capacity is no longer relevant. I think that's more correct than most at sleep commentaries, but it's merely the tip of the iceberg as the problem is not only "low inventory-sales ratios", it's more at the core, a complete trainwreck unfolding in a vast range of input commodites and goods.