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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: ild who wrote (16475)	7/13/2004 11:34:16 AM
From: ild	Read Replies (3) \| Respond to of 110194

Date: Tue Jul 13 2004 10:25 trotsky (July insider buy/sell ratio) ID#377387: Copyright © 2002 trotsky/Kitco Inc. All rights reserved note: this is an all time record high in monthly net insider selling. quite a contrast to the bullish equanimity that pervades what passes for analysis on Wall Street these days. Date: Tue Jul 13 2004 10:49 trotsky (the trade deficit) ID#377387: Copyright © 2002 trotsky/Kitco Inc. All rights reserved apologists usually argue that the huge US trade deficit is a sign of the US economy's 'relative strength' compared to its trading partners, but this is of course nonsense. what it is a sign of is the hyper-active US credit machinery. ultimately, the trade deficit is a COST to domestic producers ( it is probably not too difficult to wrap one's mind around the concept of more funds flowing out than flowing in representing a cost of sorts ) . Americans consume on credit, which the foreigners selling the goods extend to them - it's the ultimate in vendor-financing pyramid schemes. one also often hears the argument advanced that since the current account deficit has its balance sheet counterpart in the capital account, that the deficit somehow is representative of foreign investors urge to invest in the US. well, they don't have much choice for one thing ( what do you do with that flood of dollars? unless they're recycled into US securities, you're apt to crash the dollar and thereby stop the merry-go-round that everybody loves so much ) , and as far as direct investment goes ( i.e. investment into capital goods like plants and equipment ) , that is at a mutli-decade low right now, which is to say that the US is NOT viewed as a great destination for productive investment. the flows are entirely financial in nature - i.e. the foreigners selling their surplus goods to the US are buying US securities ( mostly debt, but also some equities ) with the proceeds. it seems pretty obvious to me that this is the kind of situation practically begging for a meltdown down the road. compare this to e.g. the investment flows into China: the bulk of flows into China is indeed destined toward productive direct investment. to get the money back OUT, you'd have to sell the factory, the land, the machinery - not something that can be done overnight. by contrast, US t-notes and bonds as well as equities can be sold en masse in a milli-second. these days it's a matter of a mouse-click. in short, the current account/capital account situation of the US is the equivalent of being in the middle of a vast frozen lake, on VERY thin ice. Date: Tue Jul 13 2004 11:00 trotsky (Stuart@'87) ID#377387: Copyright © 2002 trotsky/Kitco Inc. All rights reserved indeed, it proved unsustainable. by late 1990, the US trade account had moved back into balance from the '87 record high deficit. it took a stock market crash, a recession, and the S&L collapse to get there. since the deficit back then was a much SMALLER percentage of GDP than today's deficit, it will be interesting to see what it will take this time. Date: Tue Jul 13 2004 11:17 trotsky (HK@'return of the rentier') ID#377387: Copyright © 2002 trotsky/Kitco Inc. All rights reserved i don't exactly need to be convinced that Keynes was totally wrong...as for the rest, the reforms suggested would for the most part be positives for the long term structural development of the economy. but when ( when, not if - it will happen, IN SPITE of government machinations to the contrary ) the private savings rate in the US finally rises, it will be accompanied by a series of recessions and the return of deflation. this is not bad - it's in fact necessary. the economy's realignment toward a more sustainable structure will be felt as an economic bust, as various non-wealth generating activities , or malinvestments, are bound to be liquidated. it will be a good thing, but both politicians and the Fed can be expected to fight it tooth and nail ( i.e. work AGAINST a rising savings rate ) , which will unnecessarily drag out the economic downturn and delay the recovery. in short, the proposed reforms to encourage savings are highly unlikely to be implemented. governments rather go with Keynes - he's the chief apologist for fiscal and monetary profligacy.