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

To: Chispas who wrote (872)	2/29/2004 6:11:19 AM
From: Chispas	Read Replies (2) \| Respond to of 116555

GOLD RUSH MAY STALL AS FALLING BUCK REBOUNDS By Mike Norman, NEW YORK POST, Feb. 29, 2004 (The most Completely WRONG ! story of today !!) nypost.com

To: Chispas who wrote (872)	2/29/2004 9:09:34 AM
From: mishedlo	Respond to of 116555

theoretical gold price kitco.com Sarting with a gold price of $35 an ounce in 1947 (last week's column) it is now possible to calculate the theoretical gold price for every year since then. In 1971, for instance, when Nixon closed the Gold Window in a desperate attempt to retain some gold in the Treasury, the gold price should have been $103 an ounce. It is therefore no surprise that gold was being bought hand over fist at thirty five dollars an ounce, and that the gold price began to increase immediately after it was emancipated. Still, it would be unreasonable to expect that after thirty eight years of a fixed, thirty-five dollars an ounce gold price, the market would immediately trade at the correct level. But by 1974 it had essentially reached its correct price. The chart below compares the theoretical gold price with the actual US dollar gold price between 1971, when Nixon closed the Gold Window and left it up to the market to establish its price, and 1978.

To: Chispas who wrote (872)	2/29/2004 9:18:31 AM
From: mishedlo	Respond to of 116555

SCRAP STEEL : "The problem is the Chinese are outbidding us." goerie.com The cost of steel rod has increased by more than 60 percent during the past six months. Almost every form of steel — from scrap to plates to coil — have seen similar increases in recent months, the result of a sharp increase in demand from China and the recent consolidation of the U.S. steel industry. The largest factor is China, which has been devouring U.S.-produced scrap steel. Chinese companies, McCain said, are outbidding their U.S. counterparts for scrap. In turn, they are making it difficult for U.S. companies to produce steel plates, coils and rods. "There really is enough scrap in this country to make steel," McCain said. "The problem is the Chinese are outbidding us." Steel supplies are also getting clipped by a shortage of coke — a component of steel — and the recent consolidation of longtime U.S. steel producers. That consolidation has lead to a series of closings of major mills — leaving the industry short on capacity. "I've never seen anything like this," said McCain, who has been in the steel supply business for 25 years. "This thing is so global it's out of the hands of the steel mills." "Unless this problem faces a quick solution, there is a real likelihood that we are going to see a significant bump in the economy and potentially another slowdown," said U.S. Rep. Phil English, chairman of the Congressional Steel Caucus. "This is coming at the worst possible time." At best, the steel shortage will push up costs and slow turnaround times for manufacturers and construction companies. At worst, it has the potential to drive some companies out of business. ======================================================== Thanks for that article Chispas Above are my favorite parts Mish

To: Chispas who wrote (872)	2/29/2004 9:23:14 AM
From: mishedlo	Read Replies (1) \| Respond to of 116555

Gold Indexes, the mirror of gold's soul. gold-eagle.com

To: Chispas who wrote (872)	2/29/2004 9:34:52 AM
From: mishedlo	Read Replies (2) \| Respond to of 116555

Conversation on the fool From Readyteddy: “I sometimes get the feeling that the CPI is based on the prices of useless crap like VCRs and cell phones (I have neither)”. Response From Vegeli: Your quote is very relevant. IMO two expressions are vital feeling I have neither Both point in the direction of “perception”. Although I am in the deflation camp, I too have mixed feelings when I observe the cost of living. But let me muse a little on the issue, starting from personal experiences too. I've been working hard this weekend to get a forecast ready for a company. Almost one year ago, I made already a forecast for the same company. Back then the company was established through the merger of the two main market players in their branch. In fact all I had to do was adapt my first forecast, relying on the real numbers of December 31st. I remember that one year ago they complained that the price per unit of the “raw material” was on a level close to the price before WWII. Some flashes of what I wrote one year ago (free translation): “The price per unit in our main assumption is € 175 …. consequently the price per unit, included the direct services, will be € 190 for the first year (during the year 2001/2002 prices fluctuated between € 186 and € 206 per unit) …. The estimation of the price close to the bottom of the fork, is justified because world market prices are still way lower and the globalization and international competition are a continuous threat …. On top of that the EU reformed its agricultural policy (CAP) which caused and still can cause price deflation in the sector…. and a stronger euro would surely increase the price gap with a world market dominated by the dollar…. In general this cocktail must lead to an increasing loss of European market share in East Asia and Russia, to countries like Thailand, Brazil and Australia…. but the effect must be minor for the company itself, for its clients are in general located in the EU…” Today I have the following numbers. Price per unit: € 143 Price per unit included direct service costs: € 156 Sale price (it's not sold per unit but we projected it per unit bought): € 198 (€ 226 one year ago) The margins increased considerably, because they still want to make a profit. In absolute numbers the gross profit is even bigger but the final result is not because non-direct costs increased. Nevertheless the consumer should have benefited, no? (I sure underestimated the effect of globalization on the local market) Now do take a guess: is my perception inflationary or deflationary today? Having noticed this, I went to my wife, who does almost all the shopping, and I asked her opinion on the evolution of the prices of consumer products needed daily. Her impression was that the prices had gone up overall. Then I asked her whether she didn't confuse the rise of individual prices with a rise in our household budget. After all, we have two daughters (8 and 11 years old) who take an ever bigger part of the necessarily increasing cake. As an example I gave her the doubling of the number of croissants I fetch on Saturday and Sunday (and that's about all the shopping I do). She couldn't answer. Again take a guess: is her perception inflationary or deflationary? Or doesn't she have a clue? Then I asked her if the prices of the products (related to the company I made the budget for) lowered. She told me prices hadn't gone up much but they sure hadn't gone down. Then she added that there were big differences in the stores and that the greatest challenge today was to find the best price/quality bargain. What I do know is that the wholesale companies in the sector which are not at the very source as my client but in between the source and the retail and the retail companies and some industries, have made huge profits in the year 2003. They cashed in the difference! It is clear that in this case the consumer didn't benefit from the lower prices …. at least not yet! Another characteristic is the ever increasing burden of the service sector on the manufacturing environment. We have good and bad parasites and every wild animal needs the good parasites. A company needs lawyers, accountants, …, needs to pay taxes, …. needs regulations, …. A state needs civil servants, police, …. But too much is too much. And it's not only the manufacturing environment that is loaded with or too many or with bad parasites, but the consumer too. Directly increasing costs of drugs, insurance, taxes, doctors, … and indirectly the cost laid on the shoulders of the manufacturing industry. Unfortunately these services are not supporting a healthy corporate and consumer sector anymore but started a life of their own. Again take a guess: is an environment where the burden of the service and government sector, directly or indirectly, compensates the deflation caused by excess capacity and increasing productivity, inflationary or deflationary? Or perhaps more relevant is it sustainable? On some of the elements you named. You don't buy clothes! I hope you don't live in Nebraska or North-Dakota now :). On clothes: I notice that there is a kind of scam ongoing today. Some clothes are sold very cheaply but a lot is simply junk. Many consumers are fooled by low prices and buy more instead of choosing for quality that lasts longer. In the end they sometimes spend more. But what do they rely on for determining whether life is cheap or expensive? On individual prices or on the speed of exhaustion of their household budget? You don't need a new car! I cannot agree with your perception that you can deny the purchase of a car in the debate because you don't need one right now. When you buy a car you'll need let's say, at least $ 20.000 and you'll use it for let's say, five years. And that investment decision is one you need to take in account or spread over a period five years. Making such an investment is not an instant decision like buying a loaf but that's no reason to leave it aside. It surely will affect your purchase power for several years. Travelling! When I want fly to a vacation spot, I have to hurry to find a seat on the plane and the prices are very low. But when I need a (business) flight to Russia or Bulgaria I have to pay a lot. On the other hand when I need a flight to London, Dublin, Girona or Carcassonne, and I time it right, I can fly for 99 eurocents (plus airport taxes). It all depends where you go to and what you choose. And perhaps furthermore, are you representative for the US population? I can tell you I am not a representative consumer in my country. I do recognize that I too have the impression that the rule today is rather inflation than deflation, but IMO it's not the relevant question. More relevant is whether the present situation of let's say, “inflation” is representative for the near future. A couple of days ago I had a chat with my neighbour who owns a butcher store and with the owner of a gas station. The butcher told us that by the end of the month he sells half of the meat he normally sells at the beginning of the month, and the gas station owner immediately replied that by the end of the month the majority of the drivers fill their tanks only partially (for an amount of € 10 to € 20). And in recent years several bankers have confirmed me that many are living from hand to mouth. When the consumer in the West abandons or returns to reality, companies will have to stop grasping profit opportunities due to deflation and governments will have to return to fiscal austerity. Both will lead to more cost cutting and the reduction of parasites and consequently an increase in unemployment and a decrease in global purchase power. More important than the debate whether we have inflation or deflation today is what is awaiting us in the near future. And I see no favourable outcome. Veg.

To: Chispas who wrote (872)	2/29/2004 11:30:36 AM
From: mishedlo	Respond to of 116555

Stock options, Bubbles, Treasuries and other musings corporate.bmo.com The Bounty Hunters of the Valley One thing did not change. Apart from Microsoft, almost no tech companies accounted for stock option expenses in their profit reports. How important such accounting can be was demonstrated by Microsoft's latest quarterly report: per-share net was 14 cents, after 20 cents a share for stock-based compensation costs. In contrast, the $38 million in option profits cashed by Cisco's John Chambers can't be found in Cisco's good-news earnings reports. Mr. Chambers took time from his ebullient—and successful—promotion of his company and its products to lead Silicon Valley's charge against stock option charges. He somewhat grandiosely claimed that the American way of life was at stake. America would become an uncompetitive nation if corporations accounted for options. Rather than wistfully waiting for cheap money to work its historic magic, he should be more vociferous in his calls to impose stock option accounting NOW—not in a year or two. A job-loss recovery and corporate fibbing on stock option costs go together like love and marriage. If employees show up on the income statement as costs, and options show up nowhere except in management's personal net worth statements, it's an invitation to fire people—to increase personal profits. In 2001, Cisco let 8,500 employees go, about which it was very sad—the same year in which Chambers received $1 salary and 4 million new stock options. What did those 8,500 employees cost in terms of salaries and benefits? To have equaled the real cost to Cisco—the cost that would be deducted from its taxes when the optionholders exercise them, but not reported to stockholders, they'd have to earn $176,500 each. In the First Quarter of this year Cisco issued 75 million options. The stock's strong performance since then means the holders are up more than three-quarters of a billion dollars. But the implied value today of those calls for nine years is more than $1.5 billion—and rising. ============================================== Starting on page 10 a great discussion on Bubbles “...many of the same people now spotting bubbles everywhere couldn't see the technology bubble, suggesting that they have no demonstrated skills in bubbleology.“ ========================================================= Treasury Warning... how long can the Fed price its money at a fraction of the growth rate of GDP? This is an unprecedented bargain. If the dollar were still at $.84 for the Euro and $.65 for the Canadian dollar, then such a bargain rate might be justified. But the dollar is in a bear market. When will the Fed start paying America's creditors a rate of interest that encourages them to hold America's paper? Time was that only the Japanese Central Bank would consider a 1% base rate. Japan has an endless current account surplus and its citizens have high savings rates, so it can set its base rate independently. The Fed is acting as if the entire world had to direct its savings to a spendthrift Uncle Sam—regardless of return on its investment. A European who bought a Treasury bond a year ago has lost 15% on the currency and has recouped a mere 4% of so on the coupon. Yet the US needs foreigners to pony up more than $3 billion each working day to fund the twin deficits. Conclusion: for now, as Greenspan told Berliners, there seems to be no problem financing the American deficits. But Bush and three hundred million other Americans are collectively adding to those external debts at a mind-numbing rate. What seems more and more probable is that the Treasury bond market and the mortgage market will get into trouble once the Fed finally starts to close the spigot. The carry trade will be selling heavily, while most retail and institutional investors will stand back, remembering the chaos of 1994, when Greenspan tightened.