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

To: mishedlo who wrote (384)	2/21/2004 2:36:19 PM
From: TH	Read Replies (2) \| Respond to of 116555

mish, Regarding which definition of inflation is correct, I would lean more towards number two, for a very simple reason. Number two is the only definition that can validate/indicate that inflation is actually occurring. Rising wages, if not used for consumption, may not create any inflation. The Fed's infamous productivity effect would have to be considered, as certainly a direct pass of the cost of wage increase to the consumer could ultimately result in inflation. Macro economics is the dismal science. Seems that "science" has no place in a definition of economics. Words like "could", "should", possible", all predominate economic "theory". The larger problem at the present is that we have active manipulation of the few economic indicators that have been meaningful in the near-past. Food and energy are volatile, but should they be excluded or rather seasonally adjusted? Can anyone dispute that energy costs have risen? Regarding disinflation. I do not think disinflation in the long term is possible. Disinflation maybe is a precursor to the next economic phase. What that next phase is going to be is almost a total mystery to me. In 91 it was no mystery, as there were clearly signs (even with the lag in employment) that my industry was gearing up to expand (automotive). I might be getting a little too micro in the following examples, but I have three or four strong indications that my costs (for production of automotive components) are increasing, with almost no opportunity to pass the cost up to the OEM and ultimately down to the consumer. Recently we shut a 35 year old plant, as the demands of labor and the price point of interest/value to the market could not be reconciled. I have another example in that a new technology we are offering (at a 30% cost reduction in 2001/2002 "dollars" over the incumbent's production process), is fast approaching a zero benefit level because of increases in plastic resin. "The real keys are wages IMO but falling wages and stagnant prices would be called inflation in the above example and I think that is wrong, and in fact rapidly falling wages vs less rapidly falling prices would be inflation and that surely is wrong." Interesting. Regarding wages, I have seen various data that suggests we have a 25% decline in wages for those reentering the job market. Still this percentage of workers does not reflect the whole, maybe 5-8 percent. Certainly we do not have rising wages, but of the majority that have retained employment, I do not see wage cuts. The question is rather, is the purchasing power of those same dollars less? With the reported levels of inflation so low, then there should be little difference. If I can buy a German car for the same number of dollars as last year, then someone (a German) is eating some cost lost in the exchange. Is this German eating my disinflation for me? How long can this last? Can I buy a German car for the same amount as last year? I really don't know. Housing is going to be a major key to this puzzle. I live in a trendy neighborhood in the Detroit area. Property sells faster here than just about anywhere else in the area. I recently invested in some land and found many buyers, one of whom exceeded my asking price. Spec homes are still moving in my old city, and at a price level of 30% higher than the average older and smaller homes. The interesting thing was that none of the reasonable offers came from professional builders. It was the little guys all wanting a piece of the action that were willing to pay the steep premium I was asking. I have followed real estate closely in my area for about 13 years, and this is a clear sign of the top to me. Makes me want to sell my house and rent for a year or two. I am not in the deflation or inflation camp yet, but its clear that there are major imbalances, and like water, they are going to find the right level. I think we in a period of disinflation now, we are going to progress into a full blow melt of the global economic balance, and then I don't know what next. Certainly enjoy the point-counterpoint you engaged in over at Epic. I hope you continue to post and debate over there, as I found it thought provoking. Thx TH