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

To: dpl who wrote (12022)	9/21/2004 4:43:28 PM
From: mishedlo	Respond to of 116555

Is that Calvin or President Bush? ucomics.com

To: dpl who wrote (12022)	9/21/2004 4:56:15 PM
From: mishedlo	Respond to of 116555

Heinz on K-Cycles Date: Tue Sep 21 2004 14:55 trotsky (frustrated) ID#377387: Copyright © 2002 trotsky/Kitco Inc. All rights reserved the key to understanding the situation is in realizing that in the modern fiat money era, such cycles have lenghtend, and their amplitude has declined. for instance, in the previous K-winter, the initial stock market drop was almost 90% off the highs. the Nasdaq managed only 80% this time. also, aggregate price deflation was in the high single digits for two years in the early 30's, a feat unlikely to be repeated nowadays. it is more likely that we will eventually see very mild price deflation, but it should persist for a longer period. essentially, interventionist policy making lessens the short term impact of the K-cycle recessions, but lengthens the overall season. note that a stagnant or declining money supply coupled with declining velocity does not mean that SOME prices can't rise. if you assume an ideal world with a completely stagnant money supply, prices of goods and services in the aggregate would decline persistently over time. but there would still be sectors where e.g. a sudden supply shortage ( such as has recently happened in crude oil ) forces certain prices higher. however, all other prices, or at least SOME other prices would have to decline to compensate if the money supply stays fixed. that's why i argue that in a deflationary era, rising commodity prices are unlikely to percolate through the price structure of the entire economy. i do however agree that at least in part, the commodity price rises we have seen are due to central banks misguidedly overstimulating the money supply to 'fight deflation'. in the global context one must also consider how the mercantilist policies of the Asian export nations play a part - their export earnings bring a flood of dollars onshore which contribute to local money supply expansion , such as has happened in China ( which has seen a huge credit boom over the past few years ) . Date: Tue Sep 21 2004 14:31 trotsky (frustrated, 13:50) ID#377387: Copyright © 2002 trotsky/Kitco Inc. All rights reserved i am so convinced by two major reasons: 1. the K-cycle - clearly all indications are that the K winter season has begun, and it's a deflationary period. 2. the huge levels of private sector debt, much of which is unproductive, i.e. debt incurred for consumption purposes. inflation requires a continued expansion of this debt mountain, and i don't believe that's possible. even though the central bank has lots of potential options in a fiat system to 'force' inflation, its traditional modus operandi can not be brought to bear on consumers and businesses that refuse to borrow more. this is what has happened in Japan - the CB has been flooding the money markets with liquidity, and freed up bank reserves and bought up all sorts of financial assets ( stocks and bonds ) . while that has indeed allowed for modest money supply growth, money velocity as well as bank loans outstanding have been persistently declining, and price deflation has gripped many sectors of the economy. iow, not even 'unconventional' measures by the BoJ were able to stem the K-winter tide. in the stagflationary 70's, labor had pricing power, businesses had pricing power, and the debt mountain was still very small compared to today's, so an inflationary policy by the CB was all that was needed to lead to further debt expansion and the famed 'wage-price spiral'. all of these factors have completely reversed. Date: Tue Sep 21 2004 13:22 trotsky (frustrated, 13:02) ID#377387: absolutely. the mortgage credit bubble is faltering, and that pressures money supply growth rates. Date: Tue Sep 21 2004 12:39 trotsky (strat 9:37) ID#377387: Copyright © 2002 trotsky/Kitco Inc. All rights reserved "The biggest thing the dollar has going for it.. ...is higher interest rates." interest rates across the maturity spectrum, except the FF rate and and the t-bill yield, are at a new 6 month low.

To: dpl who wrote (12022)	9/21/2004 5:03:08 PM
From: mishedlo	Respond to of 116555

Heinz on Abbey Conehead and Treasuries Date: Tue Sep 21 2004 15:46 trotsky (Abby Joseph Cohen) ID#377387: Copyright © 2002 trotsky/Kitco Inc. All rights reserved "we believe the stock market is not properly pricing in the good news that has already occurred" she really said that just now. and that's GS's, 'chief stock market strategist'? if i'm not mistaken, the stock market discounts the future, and rarely what 'has already occurred'. it's little wonder that those following her 'top recommendations' in late '00 got a 90% haircut - she must have made those recommendations with her eyes firmly fixed on 'what has already occurred' as well. Date: Tue Sep 21 2004 15:21 trotsky (Aurum@phony LT rates) ID#377387: Copyright © 2002 trotsky/Kitco Inc. All rights reserved i don't think so. history has shown that even when all the central banks act in concert to force a specific outcome ( a great example is the 'fixed exchange rates' and 'gold at $35 to $42' schemes that came apart in the 70's ) , they can't stem the tide of the market. this is to say, they can for a limited amount of time, but never in the long term. some schemes work longer than others, but one only has to look at how the Pound fell out of the ERM in the early 90's to realize that with capital flowing more freely than in the 70's, such schemes should actually come apart faster nowadays than back then. this is not to say that the recycling of dollars by the Aisan nations isn't a factor in bond pricing - it clearly is. but if private sector market participants were convinced that the CBs act in desperation to keep rates artifically low, they'd all take advantage and sell their bonds to them at the artificially high price ( just as they bought gold at its artificially low price in the late 60's/early 70's ) - which would destroy the scheme very fast. however, looking at the Fed's flow of funds reports and the leverage amassed by many major bond traders, there seems to be no rush to the exits - on the contrary. note also that futures speculators recently ( not anymore, but at the recent lows in the bond market a few weeks back ) held a record net SHORT position in bonds and notes, i.e. took action forcing the market lower, in expectation of even lower prices down the road. the fact that they haven't succeeded implies that there is strong underlying demand for bonds from several quarters, not just the Asian CBs. btw., i believe that eventually this CB demand will be replaced by even more domestic demand for bonds - as ageing boomers hunt for income.

To: dpl who wrote (12022)	9/21/2004 5:50:54 PM
From: mishedlo	Respond to of 116555

Mish and Russ debate the Recession and Refis Message 20551299

To: dpl who wrote (12022)	9/22/2004 12:41:37 AM
From: mishedlo	Respond to of 116555

Treasurys close mixed on uncertain future Fed moves (Repeating for technical reasons) CHICAGO (AFX) -- U.S. Treasurys closed with benchmark prices ahead and shorter maturities slightly lower after the Federal Reserve nudged up borrowing costs, as expected, and left open how it will proceed in the future "I don't think further rate hikes are baked into the cake at the moment," said D.A. Davidson analyst Maryann Hurley The Fed does want to raise rates further, but the direction of the nation's economy will likely dictate Fed movement in the coming months, Hurley said The benchmark 10-year note ended 8/32 higher, at 101 24/32. Its yield fell to 4.04 percent from 4.06 percent at Monday's finish Treasurys had traded modestly lower across the board before the Fed's widely anticipated 25 basis point hike, its third such move this year, with the market on edge awaiting the wording of the Fed statement While raising its target lending rate another 25 basis points, from 1.5 percent to 1.75 percent, Federal Reserve Chairman Alan Greenspan and his colleagues said U.S. monetary policy remains accommodative. "With underlying inflation expected to be relatively low, the FOMC believes that policy accommodation can be removed at a pace that is likely to be measured," the statement said. Reading the Fed Economists said this was a signal that the Fed wants to raise rates further if economic conditions do not change significantly "I think the Fed left its options open, in the previous statement it said inflation had been elevated, and this statement said inflation and inflation expectations have eased, leaving open the option to not do anything in future months," said Hurley "Further action by the Fed is totally dependent on what the economy does," the analyst added "We would characterize the language as half-way between the June and August views," said Ian Sheperdson of High Frequency Economics. "The statement leaves room for inaction in November if the data fail to thrive," Sheperdson said. The Federal Open Markets Committee "believes the upside and downside risks for both sustainable growth and price stability are roughly equal," said Sung Won Sohn, an economist with Wells Fargo "How rapidly the FOMC moves will depend on the economy and inflation," Sohn said A more definitive forecast was made by GKST Economics, where analysts predicted an increase in inflationary pressures in the months ahead. "This combined with strong economic output and an improving labor market will force the Fed to continue hiking rates by 25 basis points at each meeting for the foreseeable future," said Brian Wesbury, chief economist at the Chicago bond shop "Our forecast continues to expect the fed funds rate to be 2.25 percent by year-end," Wesbury concluded The Fed's moves to "normalize" rates go against the grain of the market's recent price action, prompting some market observers of the bullish price action to view the Fed as "misguided," said Kenneth Logan, a Thomson Financial analyst. "There is disagreement outside the Fed with how rates move from here," Peter McTeague, head of U.S. government bond strategy for Greenwich Capital Markets, said ahead of the Fed move Tuesday. "I think they are done for 2004 after today," said McTeague, pointing to the 1999-2000 analog of three hikes the first year, and three hikes the next. But, "there is near zero chance in my view that they communicate that today," McTeague added. Federal funds futures at the Chicago Board of Trade were pricing in slightly higher odds of rate hikes than before the announcement, but were still predicting three rate hikes in the next six meetings The FOMC meets twice more before the end of the year, on Nov. 10 and Dec. 14. Early on, the bond market showed little reaction to a report that revealed a gain in U.S. housing starts last month, but a decline in building permits. The 2-year note dropped 3/32 to 99 26/32, sending its yield up to 2.47 percent from 2.43 percent at the prior close. The 5-year issue declined 5/32 to 101 14/32, with its yield rising to 3.28 percent from 3.27 percent Conversely, the 30-year bond gained 17/32 to 108 01/32, with its yield dropping to 4.83 percent from 4.87 percent at Monday's close fxstreet.com

To: dpl who wrote (12022)	9/22/2004 1:33:23 AM
From: mishedlo	Respond to of 116555

U.S. oil clings near $47 on expected supply drop Wednesday, September 22, 2004 4:22:08 AM reuters.com By Tanya Pang SINGAPORE, Sept 22 (Reuters) - U.S. oil prices hovered near $47 a barrel on Wednesday, awaiting data that was expected to show a big drop in fuel stocks in the United States due to weather-related disruptions to output and shipments. Heating oil futures remained strong, not far below record levels and dealers said concerns were growing that stocks of heating fuels in Japan, the United States and Europe could prove inadequate for the upcoming northern hemisphere winter. U.S. light crude <CLc1> rose to a peak at $47.04 a barrel, just $2.36 off the all-time high at $49.40 struck on Aug. 20. At 0403 GMT, crude had eased to $46.94, up 18 cents on the day. U.S. heating oil futures <HOc1> were at $1.3070 a gallon, a rise of 0.41 cents and just below the all-time peak at $1.3100 on Feb. 28, 2003. "Heating oil is very strong, it's leading the way. There's definitely some nervousness growing that the products, the middle distillates, won't be there for winter," said John Brady, an energy broker at ABN AMRO in New York. Industry analysts are expecting U.S. crude inventories to drop by a hefty 5.5 million barrels for the week to Sept. 17 when the government Energy Information Administration (EIA) releases its weekly oil report at 1430 GMT on Wednesday. All oil stocks are expected to fall after Hurricane Ivan delayed imports into the world's biggest consumer and disrupted crude production in the Gulf of Mexico and refinery operations on the U.S. Gulf Coast. The fall in crude tanks, if proved accurate, would be the eighth in as many weeks and would take stocks to a deficit of more than 8 million barrels versus the same 2003 period. A Reuters poll of 11 analysts also predicted that distillate inventories, which include heating oil, would decline by 1.1 million barrels and gasoline tanks would slide by 1.9 million barrels. HEATING FUEL SUPPLIES TIGHT "We are very worried by heating oil supplies in Japan, the United States and Europe. We're already at $47 for U.S. crude before winter, another attack on the record at $49.40 is possible over the next few months," said Tetsu Emori, chief commodities strategist at Mitsui Bussan Futures in Tokyo. Japanese kerosene stocks, used for heating in winter, languish almost 30 percent below year-ago levels, while European middle distillate inventories at the end of August were 3 percent, or 11 million barrels, below a year ago, data from the Euroilstock Foundation showed on Tuesday. Shipping sources have also indicated that oil products shipments from Venezuela's Amuay-Cardon refining complex have slowed due to output problems. Venezuela, the world's No. 5 oil exporter, is a top supplier into the United States. Oil prices rose earlier this week after Russia's top exporter, YUKOS <YUKO.MM><YUKO.RTS>, suspended crude sales of about 1 million tonnes (7.33 million barrels) for the rest of the year to China, the second-biggest oil consumer, due to its financial problems with Russian tax authorities. China's imports of crude oil have jumped about 40 percent this year to fuel its surging economy, which industry analysts say is partly behind run up in oil prices since the end of 2003, when U.S. crude stood at about $32.50 a barrel. Supply worries are also underpinned by continued violence in Iraq and attacks on its oil infrastructure, as well as rising tensions between Iran and the United Nations over Tehran's nuclear ambitions. Iraq and Iran are both OPEC producers. The Organisation of the Petroleum Exporting Countries is pumping close to 30 million barrels per day (bpd), levels not seen since the late 1970s, in an effort to cool oil prices. Global crude production is close to its limits with only top exporter, Saudi Arabia, with any significant spare capacity of about 1 million bpd.