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

To: russwinter who wrote (7553)	2/10/2004 11:29:37 AM
From: Jim Willie CB	Respond to of 110194

Crude Oil Gains on OPEC Agreement, Cut Output April Quotas Feb. 10 (Bloomberg) -- Crude oil rose after the Organization of Petroleum Exporting Countries agreed to cut production quotas by 4.1 percent in the second quarter of the year, when demand normally slows. Iran's oil minister Bijan Namdar Zanganeh said the group will reduce output by 1 million barrels a day beginning on April 1 after eliminating cheating on existing quotas by 1.5 million barrels. Officials expressed concern that prices would fall without bringing its supply more in line with demand. ``We're giving OPEC a lot of credence,'' said John Kilduff, senior vice president of energy risk management at Fimat USA Inc. in New York. ``Given where prices are they will be hard pressed to follow through with the agreement. They will be like a bunch of dieters around a dessert table.'' quote.bloomberg.com / jim

To: russwinter who wrote (7553)	2/11/2004 1:03:10 AM
From: glenn_a	Read Replies (1) \| Respond to of 110194

Hi Russ. I really respect and appreciate the degree to which you dig for "the facts" in your analysis. You have commented that you are continually "ahead of the curve" in your research, and indeed I've often found you to be at the forefront of emerging trends and pockets of investment value. In fact, I have acted on your insights a few times. I'm not sure to whom you were targeting your statements, but you stated "I am tired of just hearing opinions ... those who just shoot from the hip without any backup may be dealt with derisively by me." I really appreciate your sentiment. But at the same time, I don't follow day-to-day commodity prices or monetary aggregates as closely as yourself. However, I am deeply interested in historical and economic patterns, and feel I have enough of a background to intelligently converse about structural similarities and/or differences between today's economic environment and other similarly fascinating environments like the 1930's or 1970's. I'm not an "expert", but I am sincere. Again, I really appreciate your and others' up-to-the-moment analysis of existing economic conditions, but I personally also value discussing analytical frameworks that underlie one's perceptions ... stepping back from the trees to look at the forest so to speak. I find often, the "facts" we see, we "see" because our analytical framework predisposes us to see them. Alternatively, we may agree on the same "facts" but arrange them in different patterns and come to different conclusions based on our divergent analytical frameworks. I believe the current environment is very prone to "discontinuous" events (I guess sort of like Puplava's 10-sigma event - I think that's what he calls it). The Belgium Chemist Ilya Prigogine would say the system is approaching a "far from equilibrium" condition, where a very small shock could result in a systemic condition of high volatility and instability. And preparing for such a discontinuous event is largely a matter of very broad context and perspective ... for the momentum of the moment can turn on a dime if a complex system turns unstable. (Beware the assumption of continuity one could say ... though I appreciate I am saying this to an expert contrarian! :) ). Sorry Russ, I don't have the ability to rigorously quantify the degree of instability and vulnerability of our present-day financial system and global economy. But I feel it. And I trust that feeling. (And I could be wrong. After all, in the end its a matter of balancing risk, reward, and perceived probability of outcomes.) Jim Willie, yourself, Doug Noland, and many, many others have quantified 'aspects' of this systemic vulnerability, but in the end, after all the analysis is done, I find I still make decisions based on a "gut feeling". And my gut feeling is telling me to be very, very careful in the present environment. Anyway, king of rambled here, and am ending this message with the feeling that I didn't quite express myself the way I wanted to. Ah well, once again, I confront my imperfection. :( Respectfully, Glenn

To: russwinter who wrote (7553)	2/11/2004 12:55:20 PM
From: Biomaven	Read Replies (1) \| Respond to of 110194

russ, anybody who wishes to enter this debate needs to present third party evidence one way or the other. Well one good source of external evidence (linked to earlier by Archimedes on this thread) is the ECRI future inflation gauge: businesscycle.com They claim: Our group of researchers, led by Geoffrey H. Moore, pioneered the creation of leading inflation indexes. This work began two decades ago in the wake of the 1970s stagflation when weak growth was accompanied by high inflation, demonstrating that cycles in growth and inflation, while related, were distinct. In the late 1990s growth and inflation again de-linked with strong growth now accompanied by subdued inflation. The monthly FIG has a mean lead of 11 months and a median lead of 9 months at inflation cycle turns. For the period ending January 2004, the indicator stood at -5.8% - hardly auguring big inflation ahead. However, they also have figures supporting the recent rise in industrial prices, particularly metals: joc.com Now that I threw in some hard data, I get to give my opinion as well: <g> 1. I think there is a general consensus that the housing and auto areas are totally dependent on continuing low interest rates. Further, consumer re-fi activity has clearly funded much of the consumer spending. 2. Let us assume that the current inflation in raw materials and the continuing effects of the dollar's decline do create some increase in overall price levels. (The alternative is a big squeeze on industry profits). Presumably the Fed would respond by some degree of tightening. 3. Once the Fed tightens even a little, re-fi activity screeches to a halt, and housing (and perhaps auto) slow rapidly. In that environment I can't see raw material inflation continuing for long. Further, there are no real mid-term supply constraints in raw materials. 4. Bottom line is that I do believe we will see a moderate uptick in inflation, but the uptick will rapidly be snuffed out later this year by Fed tightening. 5. My overall thesis is thus that it will require very little tightening by the Fed to have a fairly dramatic slowing effect on the economy. Thus the carry trade is likely to continue for a good while (good for financial institutions) but credit risk will increase (bad for financial institutions), and a moderate dollar decline will continue. 6. This thesis doesn't really suggest that any available investment class will do well this year. A moderate increase in US rates might well force a moderate increase in foreign rates as well. Right now I'm personally still long biotech (which is where I normally hang out) but short the overall market and have the highest cash position in a few years. Biotech fundamentals are pretty independent of macro-economic trends, but biotech stock prices are not - they are fairly heavily driven by hot money. Right now there is still plenty of it around - just look at the typical gains since the beginning of 2004 in SI's biotech charity portfolio contest: Message 19697838 Peter