Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

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

To: CalculatedRisk who wrote (2602)	3/21/2004 12:02:47 AM
From: mishedlo	Respond to of 116555

I like your post CR. Put it on the FOOL for comment with a link pointing here. Want to see what plunger has to say. Mish

To: CalculatedRisk who wrote (2602)	3/21/2004 10:10:36 AM
From: mishedlo	Read Replies (1) \| Respond to of 116555

From Plunger in response to CR's post on Japan Agreed totally. Unless Japan gets internally balanced supply and demand they are ball and chain around the world economy's leg. Plunger.

To: CalculatedRisk who wrote (2602)	3/21/2004 10:40:07 AM
From: mishedlo	Respond to of 116555

veg on the fool comments on Roach's article entitled Europe's Speed Trap Roach morganstanley.com ============================================================ From Veg................. I agree with the statement that Europe is changing but not fast enough, but I don't agree with Roach's analysis which I consider short-sighted. With his reference to the lack of IT-enabled growth characteristics he sticks with the symptoms, not the causes. And the currency shock, the lack of fiscal discipline and terrorism are not really relevant for the slow pace of change. I'd even dare to say completely irrelevant for what is (maybe terrorism could speed up the change). FWIW First let's be realistic. Politically Europe took giant strides. From a historical view, this is after the death and destruction of WWII, a united Europe as it exists today, could only have emerged in man's wildest dreams. I'm sure and as far as memory serves, that even in the beginning of the eighties, what we have achieved would have been judged simply impossible. On the other hand I must recognize that economically Europe is evolving too slowly to challenge a world globalized by cheap transportation and communication. But I say Europeans cannot cope with a faster speed, it's as simple as that. We do know where we want to go to, but right now we don't know how to get there. You'll ask: why not? There are many reasons and I'll try to name some. American capitalism takes a man as he is, an individual who strives for his wellbeing. European capitalism or Rhein Capitalism, is the same principle with a Christian option (often confused with socialism but it doesn't really matter what name we use). The option is that once a man is unable to take care of himself, society will. At the start we assumed that man would only turn to solidarity moderately. Unfortunately today this isn't true and the system is exploited free and easy, not by those who need it most but first by the wicked and deep ones and later on by everyone who sees a chance to profit or is able to create the opportunity to profit. Worse is that exploiting the system has become generally accepted. It isn't immoral anymore, on the contrary taking one year off and getting paid by the system is an act of looking for the right balance between your professional and your family life. Resourcing they call it. Also look at the degree of participation of the 55+ employees in the EU. In Belgium only 25 % is actively working, the rest has a kind of pre-pension. The average in the EU is 40 % (Anglo Saxon reference: 55 % for the UK). You know I could write a book about abuses and misallocations in our system. Therefore, for most European countries, the generous social system has become unaffordable. And we know it! But what will politicians do when the majority of the population benefits from the system? After all politicians are only in the business of getting elected! Another question is whether we need to condemn our system. I don't think so! The Scandinavian countries show us the way. They have a well elaborated and generous well fare system, one of the best in Europe. Still in almost every way, they present the best numbers. They have the best IT-enable environment in the world (far better than the US), they have the highest degree of employment (for ex. the highest employment for 55+ is in Sweden with almost 70 %), they have budget surpluses, the best educational system, ... make your choice (also amongst the champs in high tax burden). Your next question: then why not adapt the Scandinavian model? The rest of Europe is inert. The general mentality materialized in the unions and in all kind of interest groups, prevents reforms. The Netherlands succeeded in pushing through reforms but at a high cost (although some reason can be found in the increased divergence of labor cost per hour with other European countries - + 15 % over 5 years – so it's not always that simple to explain). More important is that Germany and France do not succeed in realizing the necessary reforms. The problem with Germany is not only politics but mainly the “Mitbestimmung” mentality (in general when a German reads of hears this, he disapproves, or one more proof of their rigid mentality). Mitbestimmung paralyses German corporate life. “Mitbestimmung” means the mutual decisions taken by the boards in which the unions are represented. The influence of the unions is so big that their views prevail. They have the power because, first they represent the largest group (democracy), secondly they have a huge influence in parliament and thirdly in corporate life nothing happens without their approval. This isn't bad “an sich” but the unions strive for a status quo. They don't vote in the interest of the company but in their own interest as a group. (PS the system is complicated: for example when one voter representing the employers abstains, the vote goes to the group representing the employees) By their attitude the unions are loosing members and the more members they loose, the more they try to prove they are necessary. In fact all they do is export jobs, without realizing it. IMO the once vastly praised German “Grundligkeit” turned against them. They stick to it in a world where “souplesse” and “speed” are necessary. AND if Germany doesn't move then Europe won't either. A couple of years ago I had a nice personal experience with the German rigid way of making decision but this rant is getting too long. I'll just name a few other issues on Europe. - Europeans are worried about the consequences of opening the borders for our Eastern friends. With the difference in wealth it's like opening flood-gates without levelling the water on both sides. - The nomenklatura is still ruling Central Europe. The ex-communists seem to be the best capitalists. No wonder they had no one else to rule the country and run the businesses. This won't change quickly. It will be their sons who go to Eton and continue to rule the governmental and corporate environment. - The demographic evolution in Europe will test our pension system. As they say in Germany: it will be the Turks who will pay the pensions of the Germanic population. - Making a decision in Europe becomes ever more difficult. You can notice this clearly in the way some countries start negotiating issues amongst each other first. Germany, France and the UK frequently meet alone to discuss difficult matters and take a joint stance. For the moment I see three groups. - The more the government and corporate life talks about corporate governance, the less I see of it (but this is true for the US too). Their junk-talk irritates me! Perhaps we'd better read Kant and his Kategorischer Imperativ again where he writes that ones attitude should be such that it could serve as a model for our legislation. Aren't we reversing this? The inertia and burdens discourage many entrepreneur and one can easily imagine that the general mentality of the parasites isn't exactly a stimulus for the corporate environment. Is it a miracle that I at an age of 47, just like many others of my generation, are feeling tired and start selling their businesses? For those who still doubt about the euro. The euro will not disappear. There is NO way back because the abolishment is equal to a systemic collapse. Hopes My hopes lay with the ECB. Trichet and Issing won't lower interest rates. Our CB's are perfectly aware of our present and future problems and they will challenge the politicians as long as necessary. They will force them into reforms. If not then as we say in Flemish: “Zijn we vogels voor de kat”. Finally the core issue of our “too low speed” lies deeply rooted in our societies. These are the cause, the rest are symptoms. For Mish No lowering of interest in sight IMO. I worry about the credit spread too. The credit spread is too low. This is not about inflation but about the risk premium investors need to be willing to invest. I think we reached the bottom. Veg.

To: CalculatedRisk who wrote (2602)	3/21/2004 10:44:07 AM
From: mishedlo	Respond to of 116555

financialsense.com Just imagine that America is a business called America Inc and has now been called in to see a very worried bank manager as they want to review the deteriorating state of the accounts. We will imagine that GDP is the turnover of the business, receipts are the profits, expenditures is the overhead. The deficit/surplus is the annual profit or loss and the national debt is the bank overdraft. Now when we look at the following figures, they look much simpler to understand but still very worrying. All figures below are Billions of dollars. ... It seems to us, America Inc, that your profits are in decline or at best now static. It also seems that your overhead is rising dramatically, which is leading to a VERY LARGE OVERDRAFT. We are not happy or comfortable with this very large overdraft. We are concerned as to how in the near future you intend to finance the interest payments on this overdraft from present profits and also how you intend to stop this overdraft from growing further. Finally, and this is a delicate question as far as the bank is concerned, considering your overdraft is now 400% of your annual profits and rising (an extraordinary ratio), just how do you intend to pay it all back? We like you, America Inc, you have been a good customer of the bank. You will pay your overdraft back one day won't you America Inc? Please answer the question, America Inc." SILENCE.

To: CalculatedRisk who wrote (2602)	3/21/2004 10:46:33 AM
From: mishedlo	Read Replies (1) \| Respond to of 116555

China's Boom Impacts Commodity Markets U.S. Debt & Bankruptcy Rates Hit Records Great collection of articles Read some! financialsense.com

To: CalculatedRisk who wrote (2602)	3/21/2004 10:57:08 AM
From: Wyätt Gwyön	Read Replies (1) \| Respond to of 116555

Japan does sterilize a considerable amount of purchases through its Foreign Exchange Special Account. unsterilized and indirect purchases through window guidance, based on crackpot notions like those of Paul Krugman, have created an economic disaster of Japan's fiscal condition. the govt runs huge deficits which flow into public works pork. this creates large yen deposits for recipients of govt largesse. the deposits can then be used to fund forex purchases. Japan adopted this crackpot govt debt approach when their previous approach to forex funding--the 1980s stock and real estate bubble--fell apart.

To: CalculatedRisk who wrote (2602)	3/21/2004 11:45:16 AM
From: Wyätt Gwyön	Read Replies (1) \| Respond to of 116555

without borrowing ... they just print more money. They have several mechanisms to put this money into circulation. The BOJ is printing Yen, buying dollars and then using the dollars to buy US treasuries. From the article I linked, I think this is unsterilized (if it was sterilized, the BOJ would be doing other transactions to reduce the money supply by an equivalent amount). If it was sterilized, they would be borrowing Yen by issuing notes to buy the dollars and increasing their outstanding debt. The evidence suggests this is unsterilized (essentially FREE money!) i believe they are using the Foreign Exchange Special Account to fund the purchases, and that they are sterilized. apparently purchases made with repo agreements. according to Nikkei, the agreement reached between MOF and BOJ last year established a framework whereby US Treasurys, to be held by FESA, would be sold under repurchase agreement in order to procure funding for currency intervention. this was the famous extension with an upper limit of 10 trillion yen, or nearly $100 billion, for the period from Dec 26 2003 until March 31, 2004. nikkei.co.jp as of Feb 29 2004, BOJ reports that its balance of purchases with resale agreement from FESA was 6.1489 trillion yen (61% of the limit). boj.or.jp that would leave about 3.9 trillion yen more for the month of March. so perhaps one interpretation of the recent noise out of MOF and BOJ is that they have used up the entire 10 trillion yen. we should know by around the second week of April, when BOJ updates these figures. background on FESA from the MOF: mof.go.jp sorry, the above links are not in English.

To: CalculatedRisk who wrote (2602)	3/21/2004 3:42:53 PM
From: mishedlo	Read Replies (1) \| Respond to of 116555

The case for Flation. safehaven.com

To: CalculatedRisk who wrote (2602)	3/21/2004 4:17:20 PM
From: NOW	Read Replies (1) \| Respond to of 116555

"The real purpose for that intervention is nothing less than keeping the world's equity markets intact by flooding it with liquidity via the purchase of all the dollars raised in this process under the management of the NY Federal Reserve Bank. I do not believe the BOJ can simply walk away from intervention so my feeling is there will be some technically-timed intervention by the BOJ in the dollar/yen equation. Nonetheless, the use of this dangerous “Made in Japan” Bernanke Electronic Money Printing Press has run its course. The damage has been done. It will take generations to set this right. A deceleration in the use of this Japanese monetary experiment at the request of the Federal Reserve now places the world's equity and bond markets in potential jeopardy, setting up the probability of Stagflation and the inclusion of inflation into the weak dollar equation " Jim Sinclair