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

To: russwinter who wrote (26117)	2/9/2005 10:03:05 AM
From: stevenallen	Respond to of 110194

Pharaoh's Dream AHEAD OF THE TAPE By JUSTIN LAHART February 9, 2005; Page C1 Back in the old days, signs of impending famine would be seen as a cause to lay in enough grain to fill the storehouses up to their rafters. But in modern days, good times are what prompt companies to load up their cupboards. Inventory building is a normal part of any recovery. As companies see the economy picking up, they begin to stock up. By doing this, they avoid not having enough on hand to meet demand. The current economic expansion hasn't been all that different from ones past. As with hiring, companies were slow to raise their inventory levels coming out of the recession -- but they raised them nonetheless. Total business inventories are 12% above their 2002 low point, according to the Commerce Department. What's different is the way the ratio of inventories to sales dropped even as inventories rose. The implication: Companies have never been so focused on running leanly. The general direction of inventory-to-sales ratios since the 1980s has been downward. New technologies and just-in-time business practices allowed companies to better manage inventory, letting them respond more easily to changing conditions. At the same time, the decline in inflation took away what was once a powerful incentive to keep a lot of inventory on hand: The sooner companies bought goods, the less they'd have to pay. Still, inventory-to-sales ratios usually bounce higher in an upturn. But the total business inventory-to-sales ratio, at 1.31, stands just a hair above its record low. For wholesalers, the ratio is lower, at 1.15 in November, up from a low of 1.12 last April. Given the strength of demand, the December wholesale ratio, which gets reported this morning, probably fell. Jose Rasco, an economist at Merrill Lynch, believes that inventory- to-sales ratios will continue to decline in the coming year as companies, in an effort to maintain profit margins, continue to look for ways to streamline operations. The advent of radio frequency identification, or RFID, tags -- which allow companies to more easily track their inventory -- could help kick inventory-to-sales ratios down another notch. While there has been plenty of buzz about RFID, Bob Cornick, who heads up the RFID program at Zebra Technologies (the company makes devices for encoding RFID chips), thinks the tags haven't begun to push down inventory-to-sales ratios yet. But with Wal-Mart's implementation of its RFID program last month, that could change soon.

To: russwinter who wrote (26117)	2/9/2005 10:24:42 AM
From: SOROS	Read Replies (1) \| Respond to of 110194

Bush's proposed cutting deficit is such a joke. Hard to believe they got a dollar bounce based on such obvious impossible figures -- no spending on Iraq in 2006, no costs for privatizing social security, ZERO spending increases on EVERYTHING except military and homeland security. This, along with Greenspan's coordinated doublespeak (have to read everything he says twice just to decipher it) should be glaring red flags. Why smart money is not moving to gold with abandon, I don't get. I remain, SOROS

To: russwinter who wrote (26117)	2/9/2005 11:45:25 AM
From: SeaViewer	Read Replies (2) \| Respond to of 110194

Fed repo is very low. They did nothing today.

To: russwinter who wrote (26117)	2/9/2005 12:29:04 PM
From: Crimson Ghost	Respond to of 110194

Brad Setser and I have written a new paper: "Will the Bretton Woods 2 Regime Unravel Soon? The Risk of Hard Landing in 2005-2006". The paper can be found online at: stern.nyu.edu The paper presents a number of original contributions and controversial ideas: - We critique the view that the new US-Asian dollar-standard regime of semi-fixed rates, dubbed as the so callled "Bretton Woods 2" regime, is stable and durable. - We argue that such regime - where large US twin deficits require persistent and massive foreign financing and forex intervention - is highly fragile and unstable because of a number of its structural vulnerabilities. - We discuss a number of triggers that are likely to lead to the unraveling and collapse of this regime in 2005 or, at the latest, in 2006. We also discuss a number of mitigating factors that may delay, but not prevent, its early demise. - Essentially, there is a fundamental contradiction between the large and growing US financing needs for its twin current account and fiscal deficits and the shrinking willingness over time of the rest of the world - both central banks and private investors - to provide such massive and growing financing. - We argue that the likely collapse of this regime in the next couple of years would result in a Hard Landing scenario: the dollar would sharply fall, US long term interest rates would sharply increase, the price of most risky assets - equities, housing, high yield debt, emerging market sovereign debt - would significantly fall, and a sharp US and global economic slowdown - if not outright recession - may ensue. The probability of such hard landing is increasing. - Chances of an orderly global rebalancing rest on three elements: 1. a significant fiscal adjustment in the US that requires - at the very least - a reversal of unsustainable tax cuts (as spending controls will not be sufficient) and giving up a budget-busting social security privatization; 2. a revaluation of the Chinese and other Asian currencies; 3. policies leading to higher growth in Europe and Japan. - Since the current US fiscal goals - tax cuts and social security privatization - effectively clash with the attainment of meaningful fiscal deficit reduction while the US current account is still worsening given low US private and public savings and the lack of currency adjustment in large parts of Asia, the risks of a hard landing outcome are increasing. The paper has been written for a SF Fed and UC Berkeley conference last week in San Francisco where the Bretton Woods 2 hypothesis was debated (http://www.frbsf.org/economics/conferences/0502/index.html). John Berry (leading Fed Watcher and Bloomberg columinist) cites today our work and concerns about the US imbalances and the threats to their financing in his column interpreting last week's Greenspan speech on the current account: bloomberg.com Andy Mukherjee - another Bloomberg columnist - cites our views that the current international imbalances are very unstable in his latest column: bloomberg.com For more discussion of our views on the US dollar, the global external imbalances and the risk of hard landing, see my Global Macro Web site and my blog and Brad's blog: stern.nyu.edu roubiniglobal.com roubiniglobal.com Among other issues, Brad's blog provides commentary on Greenspan's speech and the other issues addressed in our paper while my blog comments on US fiscal policy, China's incentives to pull the plug on the US and Argentina's recent debt restructuring prospects. Best, Nouriel Roubini ===================== Nouriel Roubini's Global Macroeconomic and Financial Policy Site: stern.nyu.edu Nouriel Roubini's Global Economics Blog: roubiniglobal.com This message was sent to the Global Macro announcement list. To unsubscribe, visit stern.nyu.edu =====================