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

To: Crimson Ghost who wrote (4593)	4/18/2004 9:52:11 PM
From: mishedlo	Respond to of 116555

NZ Outlook www1.asbbank.co.nz

To: Crimson Ghost who wrote (4593)	4/18/2004 11:38:50 PM
From: mishedlo	Respond to of 116555

Good article by Fleck (I see calcualtedRisk beat me too it..) As for the implications of the CPI report, last Wednesday's sell-off in fixed income has convinced a lot of people that the Fed is about to tighten. I'm not sure the Fed will tighten, though as I noted a few days ago in my daily column, the market could tighten for the Fed. To me, the outcome of the Fed's policies, the insanity within the real-estate market and the speculation in the stock market mean that we are probably headed for a bust in both markets. However, I suppose that the economy could somehow manage to hang on for a while, with inflation picking up as well. I believe that the best-case outcome for our economy is stagflation. Not that you'll see inflation in the government numbers, but I think that a muddling along of economic activity and more inflation would be the best that I could foresee from the circumstances that we have. The more likely, uglier scenario would be that the economy simply runs out of gas now that the stimulus is behind us. As the stock market comes under pressure and the refinancing game ends, that will further weigh on the economy. If by some miracle the economy does do better than I expect, I would think that inflation would become very heated and interest rates rise pretty dramatically, since even this Fed would have to respond. The refi game and government stimulus have been the only glue holding the economy together. If last Wednesday's move in the bond market has shut the door on (mortgage) refi activity once and for all, as I believe it has, then the Fed is basically trapped. It is my view that we have reached the inflection point -- where it's game over for stocks, real estate and the economy. That doesn't mean everything will stop on a dime, but we may look back at this period in time and say that it was an inflection point. Lastly, to punctuate my claims about the prospective train wreck I've been warning about, in Thursday's Financial Times, Felix Rohatyn, the financier and former chairman of New York's Municipal Assistance Corp., penned an article titled "America: Like New York in the 1970s but worse." It reads, I should note, like many columns I have written: Indebtedness spinning out of control, fueled by an unchecked increase in the deficit. An accounting system that indiscriminately mixes expenses with capital assets, ignores contingent liabilities, and makes Enron look conservative. A social structure sharply divided between "haves" and "have nots." An administration locked into denial on the assumption that "the markets will always be there for us." A political system paralyzed as public finances careen toward catastrophe. That was New York City in the early 1970s; it could be America tomorrow. America's out-of-control federal budget deficit, rapidly growing domestic and foreign debt, and off-the-books Social Security and Medicare liabilities look eerily similar to the fiscal situation that faced New York nearly 30 years ago. There is more. Please read on. moneycentral.msn.com ========================================================= IMO - Fleck does not realize it but he just outlined the deflation scenatio and liquidity trap