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To: mishedlo who wrote (22103)	11/20/2004 2:50:17 AM
From: Cogito Ergo Sum	Respond to of 110194

Mish is the oil price itself really deflationary or is it the lack of pricing power of US wage earners ? Seems to me that's the difference with the 70's no spiral of wages and prices... so ultimately oil is deflationary just as in the cure for high anything is high anything... K.

To: mishedlo who wrote (22103)	11/20/2004 10:07:39 AM
From: russwinter	Respond to of 110194

<A very few of us (Heinz and myself) and a couple others think oil is deflationary - in THIS environment.> Largely depends on the monetary response to it. The evidence is clear they are monetizing higher energy (and other) prices, and that translates to more inflation, which will fuel even higher oil (and other) prices. They are on the Train Wreck path pure and simple. Now if you got to $70 oil, and they (not just the US, but the inflationary symbiotic rogue gallery of the US, China, and Japan) stopped the printing presses, then we might eventually (but not immediately)get an abatement of the strong inflationary hurricane that is building. But, no evidence whatsoever of that yet, just the facts. financialsense.com financialsense.com

To: mishedlo who wrote (22103)	11/20/2004 12:01:56 PM
From: RealMuLan	Respond to of 110194

You made a good point in example of Japan. But one thing is different now, which is the demand from China and India. And this factor is historically unprecedented, so it is hard to predict the result. But I am afraid Japan's case will not be repeated due to this new factor. Although now the domestic demand still on the weak side in China, due to the large base of population, it is still very strong in terms of absolute number. There are 100 million middle class people now in China and will increase at an annual rate of 2-3%, that is 26-39 million a year, a pretty big number, I think. >>You expect prices of HDTVs to go up or fall from here. Cell phones? Cars? << HDTV price will fall a little simply because HDTVs now is a high margin product (compared to regular tv). The demand will have to pick up after the analog TV is out (another 2 some years?), and then the supply will be up. The margin will has to go down (the higher energy and raw material price will be offset by lower margin). But I would not call this price falling as deflation. At least not in a traditional sense of deflation (too much money/credit chasing not enough goods). It is only the high margin product changing into a reasonable margin. Even if the supply of money stays the same, the price of HDTVs will still be down somewhat. In cell phones case, lower-quality ones seem already have an oversupply, thus the price is down. But the price for high-end cell phones is still pretty high in China. In terms of cars, the price falling in China only changed the profit margin of manufactures from 4-5 times higher (in China vs. market in developed countries) to a normal profit margin. No, I would not call it as deflation at all. Even in that 4-5 years of officially branded deflation in China (bet. 1999-2002?), car price in China had never gone down due to the Chinese gov. policy protection (wonder why GM and VW were so happy?)and high tariff. So the falling price is highly due. Housing price might fall in China, but I do not consider it deflationary. The fall is highly due because the reason of the increasing price is not due to real demand high, but due to speculation. There are quite a number of people in Chinese cities who own 5-10 apartments. One should not consider this type of speculation as a real demand. >> How much overcapacity will there be in China if US consumers give up the ghost? What will that do to prices if we do? Will prices go up or down?<< According to Huang YiPing from Citi Group, in 2003, the imports from China accounted for 10% of the total US imports, equaled to 1.4% of the US GDP and 2% of total US consumer expenses. On China's side, the exports to the US accounts for about 20% of the total exports. So if this 20% becomes, say 15%, will it affect China? By some degree, but I don't think it will have disaster effect. Especially if one considers a large amount of those 20% exports are imports from Taiwan, S. Korea, HK, Japan... So the effect of slow down in the US will be shared by plenty of partners<g>