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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 (9619)	3/7/2004 12:01:51 PM
From: mishedlo	Read Replies (1) \| Respond to of 110194

Offshoring Silicon Valley Message 19888406

To: russwinter who wrote (9619)	3/7/2004 1:00:31 PM
From: mishedlo	Read Replies (3) \| Respond to of 110194

Unfortunately, it's not just oil, although that's a big one and could well be the "trigger" to spook consumers. But, it's also food, and the whole range of metals and other input goods. So I consider it an aggregation of goods inflation, not just specific to energy or copper, or nickel. If you don't choose to call runaway prices in all the items I've posting inflationary, fine, but it's still an overwhelming Train Wreck(), not isolated. Clearly, consumer led economic strength is on an extremely weak foundation. The excesses are beyond belief, so of course your saturation argument has merit. I haven't really been arguing that point with you, except to say that fresh double digit type credit growth (the tiger) is the driver of the economy, not jobs (the wildcat). The other catalyst could be a sudden bond panic or withdrawal of credit from US consumers. We can't rule that one out either, but as of this weekend there is no evidence of that. So far the saturation argument is only working for cars. Perhaps you debate that but personal experience as well as what dealers are publically admitting suggests otherwise. GM does not see it yet, however. Not sure how they don't but they don't. If and when the saturation point hits for houses it's good night Charley. That's when the sht hits the fan. There are two saturation points. One is absolute. Absolute as we discussed on my board is when everyone who wants a house has one. (unlike cars with a max useful lifetime of 6 years or whatever- once housing hits saturation it hits). Some people just prefer renting and living in a big city and just do not want a house. Those people are NOT potential buyers. Relative is based on easy credit. People want a house only depending on cheap rates. That number is probably even harder to comput but whatever it is, it is far less than absolute saturation. So far we have not hit absolute and we are trying to figure out when it might hit. We could be a ways off. I believe, but can not prove that relative saturation would be here almost immediately if there were a couple of hikes. It is also possible for relative and absolute saturation to hit at the same time (given the easy money that is sloshing around). We agree that this foundation is on quicksand. IF we were adding jobs we would have a base for recovery. All we have done is increase debt everywhere. People were happy that their houses were going up so they took money out and bought cars and took trips and bought junk and paid off credit cards only to max them out again and...... Now they are getting laid off, upset, and can not take any more equity out of their houses to support absurd lifestyles. Let's call that a tipping point. As long as people could draw out of their house, they were really happy if they had a job, and not worried if they did not. They had money to tide them over and Bush, Snow, the Labor Scretary, and Greenspan all promised jobs. Well jobs were not delivered. So here we are. Possibly on the tipping point of not being able to pay bills with bankruptcies, foreclosures, repossessions, upside down loans, and late payments are all up. hmmm we need to see by how much. Not looked at the figures for a while. What can put off that tipping point one more time? Well the only thing I can figure is another round of refinancings or possibly a huge surge in bankruptcies. I do not know if Greenspan is trying to force another round of refinancings. For the record, I would NOT recommend treasuries here, and I am taking some eurodollar/euribor profits off the table on monday. A strong move in EITHER dircetion on treasuries could happen now, depending on what FNM is forced to do or already has done (on Friday). I have no way of knowing but I suspect if there is a weakness the market will exploit it. Let's review: 1) big time inflation in commodities that is impossible to deny 2) a huge wildcard in oil with instability in the ME and Venezuela, potential disruptions in parts and commodity supplies 3) possible breakdowns in just-in-time processes such as delphi 4) more mergers (and more job losses associated with that) 5) a trend in outsourcing that is unstoppable 6) rising inventories IN THINGS (e.g. cars) 7) shrinking inventories in stuff to build things 8) a PPI that has to be thru the roof if they would ever dare publish it 9) A US that wants a LOWER $ and is in fact out to destroy it 10) A world that wants a HIGER and is willing to spend billions trying to prop it up 11) an administration that wants China to float the Renmimbi 12) A FED chairman that does not want China to float the Renmimbi 13) China telling the US to go to hell on Renmimbi float 14) Japan telling Greenspan to go to hell on US$ prop job 15) Japan and Europe threatening a currency war (they both want the US consumer and Japan is winning) 16) rising chants of protectionism from both democrats and republicans 17) a federal budget totally and irresponsibly out of control 18) A slowing Europe on the verge of recession 19) enormous trade deficits 20) interest rates at absurd levels (yes I mean that but...) 21) an economy so fragile we will crash if rates are hiked 22) trillions and trillions in interest rate swaps, equity puts, currency spreads and god knows what else 23) FNM leveraged 200-1 (or whatever it is) 24) a world totally dependent on US comsumers that are already up to their eveballs in debt 25) and a stock market that is humming a long singing a happy song cheering consumer spending, a falling US$, and job losses as if it can NEVER matter. Does that summ it up nicely? When does this unstable pyramid house of cards tip over? As you can see, possible tipping points are many. Mish