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

To: mishedlo who wrote (7750)	6/9/2004 9:56:30 PM
From: yard_man	Respond to of 116555

rear-view mirror stuff, IMO ... rear-view mirror we can have deflation in financial assets and a falling clownbuck -- wait and see.

To: mishedlo who wrote (7750)	6/9/2004 11:01:37 PM
From: gregor_us	Read Replies (2) \| Respond to of 116555

I've Thought About Russell's Dollar Theory For Weeks ...now, discussed it among friends, read counter-arguments, forgotten about it, and have woken up thinking about it. I always thought it was a cool idea. I just don't think it's a sustainable idea. Yes, like Russell I have posted and asserted a zillion times that behind the Curtain lies a terrible deflation, just waiting to be revealed. Like Russell, I've thought higher interest rates would invoke the deflation, or maybe inflation would evoke the deflation. Like Russell, I wait for the inflation to be invoked, enacted. Like Russell, I agree the Fed's entire campaign since 2001 has been a fight against Deflation--and that fight continues. The problem I have with his very cool The Aggregate Debt and Carry Trade is a Synthetic Short on the Dollar Theory--Which will Cause the Dollar to Soar When the World Rushes to Cover, is that there are too many dollars in the world. There are plenty, plenty of dollars. Yes, I agree that a deflationary spiral is going to contract the money supply. Hell, look at Japan. They've been fighting a strenghtening Yen for years. Still are. Yes I agree with Russell's idea, in the sense it could play out for a little while. We may see stair-stepping like we've seen already: The dollar weakens, which is inflationary, which accellerates and emboldens the carry trade, until some scramble to cover because of changes in the global macro outlook-then the dollar strengthens, which is deflationary--which causes the Fed to pump in liquidity--which starts the process all over again. But it's good to recall that the Fed is in a corner. Well, the dollar is in a corner, too. Right when you think the Fed is going to win, they haven't. Right when you think the dollar is going to rally further, it doesn't. And it won't. The only way Russell's Theory comes fully to pass, such that the process begins with no way to stop it, would be if the Fed ends it's inflationary policy, this gut-level response they've had for years now to crises and deflationary-threats. We think they can't keep doing it? They can. Japan is the model here. Right when you think the country cannot stomach another boondoggle, gargantuan cement project, right when you think the Ministry of the Fed couldn't possibly monetize more debt--they will steam right ahead. This is my long-winded way of saying something simple: If there is ever a real chance of Russell's theory coming to pass, with the Deflation Monster roaring in the form of a soaring dollar--the needed dollars will be printed by the Fed. And I still think the world is already stuffed with dollars anyway....

To: mishedlo who wrote (7750)	6/11/2004 9:44:57 AM
From: russwinter	Respond to of 116555

<there is not enough liquidity in the system.> The June 1 issue of Contrary Investor entitled "Cadillac Desert" went into this. It's too long and detailed to just post here, but I'll paraphrase. Essentially, there isn't enough liquidity in the system to juggle all the inflated assets and bubbles out there. Even worse (or better depending on your perspective), the real economy now has tremendous needs for the liquidity that is available. So there is stiff competition between REAL economic activity and investment demand for funds in PAPER financial markets. CI says, "the changing course of liquidity streams has the power to lay waste to once fertile investment classes."