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

To: Perspective who wrote (8524)	6/30/2004 3:21:55 PM
From: mishedlo	Read Replies (1) \| Respond to of 116555

From Plunger on the FOOL..... I thought K-Fall was the disinflationary time when assets go up because of the naturally reducing interest rates. 1980 to 2000. So we are still early in winter just here. This is the season when assets stop going up because of disinflation and reducing interest rates, but stocks now go down because of reducing profits. That is ... that is what they want to do. But Fed's reflation efforts have obviously distorted things. However the tendency now is for stocks to fall. Thus the Fed won't get far raising rates and bonds are still firmly in a bull market. IMO. It's not till K-spring that commodities are the big buy, and that's 10 years away. Plunger.

To: Perspective who wrote (8524)	6/30/2004 10:23:56 PM
From: mishedlo	Read Replies (1) \| Respond to of 116555

Good ol HAL msnbc.msn.com The Pentagon has already awarded Halliburton, the controversial military contractor, deals worth up to $18 billion for their work in Iraq. But now former Halliburton insiders have come forward with new allegations of massive waste of taxpayer money. Marie deYoung, a former Army Chaplain working for Halliburton, was so upset by attacks on the company, she e-mailed the CEO in December with a strategy on how to fight the "political slurs." But today, after five months inside Halliburton's operation in Kuwait, deYoung has radically changed her opinion. "It's just a gravy train," she said. DeYoung audited accounts for Halliburton's subsidiary KBR. She claims there was no effort to hold down costs because all costs were passed on directly to taxpayers. She repeatedly complained to superiors of waste and fraud. The company's response, according to deYoung was: "We can be as dumb and stupid as we want in the first year of a war, nobody's going to care." DeYoung produced documents detailing alleged waste even on routine services: $50,000 a month for soda, at $45 a case; $1 million a month to clean clothes—or $100 for each 15 pound bag of laundry.

To: Perspective who wrote (8524)	6/30/2004 11:57:47 PM
From: mishedlo	Read Replies (4) \| Respond to of 116555

It is clear that we have left the disinflationary Fall season. What seems to be in question is whether we are still in deflationary Winter, or whether monetary policy will be successful in short-circuiting the season and bringing an early reflationary Spring. FWIW I do not think cycles can be short circuited. However there are lots of complications in those two sentences that need to be addressed. 1) Define "WE". You say it is clear WE have left disinflationary Fall. "WE", as in the US, Japan, Europe, or China? 2) Greeenspan has been warned by what I will call "the lessons of Japan" to TRY and avoid the Japan deflation trap. To what extent has this caused unforseen (but temporary) consequences? 3) If the consequences of Greenspans actions are not temporary and we avoid the deflationary bust, then you are suggesting 3a: It's different this time and 3b: Greenspan "won" his gambit to avoid K-Winter. Given the debt overloads, the trend towards cost reduction and outsourcing that is nowhere near complete, lack of pent up demand, and falling wages due to an excess pool of cheap labor and rising productivity, I find it nearly impossible to believe that after the biggest boom in history a deflationary bust in the US can be avoided. 4) The China factor. China is the ascendant power IMO. There is NO doubt in my mind that the US WILL hand over the economic torch to China at some point. When is anyone's guess but it sure will not be the next few years. That said, it is completely possible IMO that China is on a completely different schedule than the rest of the world (by more than 1/4 cycle). Consider the implications of this, especially for commodities: What if China is indeed in the Spring (genuinely) just as the US is headed into Winter and as Japan is deep deep into winter and possibly ready to head out? That can cause all sorts of cross currents that would be hard to read would it not? Combine that with point #2 and things can really get messy. OK Let's see if we can pinpoint where we are and discusss the interrelationships. A) Japan. Clearly Deep in K-Winter but will need help to get out from China as well as own internal demand. B) Europe. Demographically bad off but not as bad as Japan. Probably into Winter already ahead of the US. No real pent up demand, but a far better savings rate as compared to the US at some point down the road. C) China. Is it possible that China is in Spring? I think so, but it is a fragile one. Unlike the US, there is no doubt pent up demand in China for things like houses cars etc. However, they are too too dependent on US consumers, just as Japan is too dependent on both the US consumer and China consumer. At some point this will turn and it will turn far before the US turns IMO. I believe that to be the case for a number of factors: C1) China is becomming more capitalistic and market driven every year perhaps as the US is waning, C2) more pent up demand C3) China will become a "market economy" reasonably soon and will float the Renmimbi when it has good reason to do so C4) Right or wrong, when I think ascendent I just think Spring. D) Did the US avoid K-Winter? I think Greenspan delayed it not prevented it. Thus we are probably just heading into it. (See the problems and cross currents with China and commodities?). On the basis of pent up demand and ascendency, I see China coming out of Winter or entering Spring first (if they are not in very early false Spring right now). Looking at commodities from a US only perspective: do we need more steel, wood, and copper for more walmarts, Targets, Pizza Huts, Wendies, Home Depots, and cars, OR did we blatantly over expand in Autumn in a stupid attempt to defeat winter? Is there any pent up demand for cars? Is there any pentup demand for housing? What happens to US demand for commodities after overbuilding and over-expanding in Autumn? Once again we have the China cross current: China is more than willing to take our jobs and produce what we need to fill stores in the US that we do not need, with goods people do not need and can not afford because thay have too much debt. The debt bubble, credit bubble, and housing bubbles have yet to be popped so how the H can we just avoing winter and go into Spring? Note that China has some of these same bubbles but it is because of the USA piggyback affect. Given a Chinese move to a market economy they are in a better position to stimulate genuine internal demand far sooner than the US IMO. What happens to US demand for goods if Housing slows. No... make that WHEN housing slows. Far far too many jobs and expansion has been occurring because of the housing boom (more stores going up all over the place as mentioned above). Housing prices themselves do not even have to fall to feel the pain. Tens of thousands of housing and retail shop construction jobs will gop up in smoke WHEN the housing buildup slows. That slowdown is 100% guaranteed. The trend toward outsourcing has not finished either. It has barely hit accounting type jobs for instance. ------------------------------ Where does that leave us? US - very late Autumn but looking like a false Spring Japan - Very deep in Winter looking for a turn to Spring China - Very very early in Spring or very deep in Winter heading into a false Spring (on behalf of and for the US) Europe - Solidly in Winter (perhaps 20% in) I believe that explains the commodity boom quite nicely. I believe that explains the bond market whipsaws nicely If one looks at the S&P, Nikkei, and Europe it explains the stock markets quite nicely and Japan's property bust precisely. Greenspans attempt to defeat K-Winter explains the "false spring" and the blowoff in housing. Debt levels are just too frigging high in the US to avoid K-Winter here. Commodities are going to have brutal cross currents for a while with the US and Europe heading into winter, and China and Japan looking for Spring. Finally, We also have peak oil, terrorism, etc etc to deal with. Mish