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Strategies & Market Trends : Mish's Global Economic Trend Analysis -- Ignore unavailable to you. Want to Upgrade?

To: FiveFour who wrote (70)	2/16/2004 5:03:52 PM
From: mishedlo	Respond to of 116555

From Hamlet on my board on the FOOL on wage deflation ======================================================= Well, here is the calculations for the median income dataset. Adjusted for inflation in terms of purchasing power: 1995's $34,100 is equal to $39,746.07 in 2002. From the $42,400 figure we get compound annual growth rate in real terms of .93% over the last 7 years. 1996's $35,400 = $40,254.95 in 2002. A CAGR of .85% over the last 6 years. 1997's $37,100 = $40,959.31 in 2002. CAGR of .69% over the last 5 years. 1998's $38,900 = $42,228.67 in 2002. CAGR of .10% over the last 4 years 1999's $40,800 = $43,593.75 in 2002. CAGR of -.92% 2000's $42,300 = $44,008.24 in 2002. CAGR of –1.84% 2001”s $42,900 = $43,586.40 in 2002. CAGR of –2.72% As you can see, when you factor in purchasing power, i.e. the effect of inflation on income, we see that the median income growth rate has been declining when seen as real versus nominal; tipping over into a negative rate of growth from 1999 on. Of course the 2001 data is skewed by the mild recession we had. Nevertheless, given the low rates of inflation over the last 4-7 years, that overall CAGR is anemic. What is interesting, and troubling, is that the growth rate of incomes is lagging the growth rate of the economy. If I were to use a business model analogy, what you are seeing is increasing is a steady decline in the net profit margin despite increasing revenues. Or in other words, general economic growth is having a declining effect on income growth. I tend to avoid forecasting – in serious way, unlike playing the who will win the Oscar's, or the somewhat lightly put out “fearless predictions” I posted on this board a little while ago. But, from my reading of the trend lines, and an overall sense of the macro-economic gestalt, I can see real incomes for average American households being 10-15% lower in the next twenty years. As to whether that can be reversed, and the implications if it isn't, are very unclear to me. By nature I'm not a pessimist, but it is very hard to be optimistic – there are too many things that can go wrong, and too few that I can envision going right.

To: FiveFour who wrote (70)	2/16/2004 5:29:42 PM
From: mishedlo	Read Replies (3) \| Respond to of 116555

Positioned for USD fall, however, it is troubling me that I am not hearing much or am selectively filtering out the case for a stronger dollar. Have recently seen mainstream-public news/research that would have been considered "way out there" a year ago... maybe a contrarian signal. Asside from short term CB intervention noise, what fundamentals would stop the USD from a continued fall in the intermediate term? What is the case for a dollar recovery? 1) trends will continue until they stop 2) What can cause the trend to change? a) US reduces spending b) US aggressively raises interest rates c) more Foreign intervention d) US reduced budget deficit e) US jobs growth f) Rate cuts in Europe g) US lives within its means h) US cuts trade deficit Of all of those only c and f are likely in a short to intermediate timeframe. Others think b is given but I think they are totally nuts. In fact I think so much f and the exact opposite of b that I have interest rate plays on in 4 currencies and zero currency plays themselves. Furthermore I think c has only a short duration affect. Oddly enough, the anti-US$ bet seems so one sided but nearly EVERYONE thinks b is going to happen. Those are contradictory and I suggest the trends on BOTH hold. Perhaps that is the key for you. Everone thinking it is only a matter of time before the US agressively is "forced" to raise rates. If the US does not raise rates and does not do the other things I suggested (fat chance in an election year and besides I think they WANT a lower US$), then why shouldn't the US$ continue dropping? Mish