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

To: mishedlo who wrote (13133)	10/8/2004 9:13:32 PM
From: Wyätt Gwyön	Respond to of 116555

OK name a currency that is better. maybe terms like "better" or "worse" are a little too normative. how about: name a currency that requires LESS LIFE SUPPORT FROM FOREIGN CBs. in that case, you can take your pick--America is in a class by itself. no doubt about the demographic problems of Euroland and Japan (not to mention those of the US), but i don't think today's market trades off of demographic problems that aren't on the front burner in the near future. rather, the currencies trade off of currency flows, which we know are highly manipulated in favor of the USD. the Asian CBs have their "finger in the dike", trying to stem USD erosion. if anything should cause them to cave, i think it's bye bye USD. you are right that the smaller currencies like NZD and AUD are off the radar in macro terms (although not for us lil' guys :), so it would seem that JPY and EUR are prime targets in the event of a serious releveling of USD. For someone to sell US$ where do you want the money to go? as you know the economic world has come to increasingly revolve around financial "products", as can be seen in the huge weighting of finance cos (both earnings and capitalization) in the SPX. it is easy to forget how radically different this situation is from any previous point in history, when physical goods were the mainstay. even at $50 crude, total annual global consumption of 80 million bpd is only $4 billion a day. not so different scale-wise from the US's daily current account deficit of $2 billion or so. and utterly dwarfed by daily currency movements of more than $1 trillion, not to mention the global derivatives mountain which is now greater than $100 trillion. i don't know the numbers on daily average gold consumption, but surely they are dwarfed even more, probably a couple orders of magnitude. so if there is more to this movement in higher energy than geopolitical turmoil and "rogue traders" or whatever--if in fact the rising spot prices (not to mention the record forward contract prices) are communicating a permanent production peak/plateau--then energy at least will start to become more than a carbuncle on the behind of the global industrial beast. e.g., if oil goes to $100, then the same 80MMbpd consumption increases by $4 billion/day. where does this extra money come from? how about the $2-2.5 billion a day USD-life-support fund for starters? and of course energy is embedded in just about any physical manufacturered product and many services, so this becomes like a vacuum sucking the pith out of "global financial flows". so, in response to your question, "where does the money go?" i think it goes into these physical things. here are no hiding places and for someone living in the US, if stocks do as most of us expect, a 4% return on treasuries is going to look dam good compared to holding RIMM, CSCO, INTC or whatever other garbage people are buying as a former shareholder in Waste Management i resemble that remark -g-. of course there's a lot of garbage out there, but that is just more financial tripe that the world amuses itself before it has to deal with physical realities--and price competition for them. as for a mighty 4% annual yield, i am willing to take my chances in energy equities and futures against that type of yield. Worldwide interest rates are headed to zero. i just don't see how that will even begin to help the world's situation in trying to ration scarce physical resources--in the US at least, it will just encourage more profligate consumption and asset bubbles. but it will be great for energy, so i'm all for it -g-.