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

To: orkrious who wrote (27891)	3/5/2005 4:08:49 PM
From: Tommaso	Read Replies (2) \| Respond to of 110194

>>>here's a situation which mish would describe as deflation. but since the money supply isn't falling, it's not. <<< I am waiting for the weekly publication of the Federal reserve to download on my slow dialup connection so that I can check what's happened most recently, but as I recall the one thing that seems to show some restraint on the part of anyone is the money supply figures, which may not be ideal but which do not presage immediate inflation disaster. research.stlouisfed.org At the same time, however, one might argue that since M2 has stayed close to a 10% per year growth rate for the last four years, there is a lot of pent-up monetary inflation, with the CPI having stayed closer to 3% per year over that period. Also, real interest rates have been negative for the last 2-3 years. research.stlouisfed.org research.stlouisfed.org The Monetary Aggregates chart here suggest an even greater accumulation of money, or liquidity, that could express itself as inflation: research.stlouisfed.org I think that Mish and I agree on a lot of things. My guess, however, is that added into all the other kinds of economic disruption and hardship in the United States will be a 25% or worse loss of purchasing power of the dollar in terms of food and necessary commodities. I really cannot imagine what is going to happen when several million people find themselves looking at negative equity in their real estate and facing mortgage payments that rise monthly with adjustments to the interest rate.

To: orkrious who wrote (27891)	3/5/2005 4:10:59 PM
From: Wyätt Gwyön	Read Replies (1) \| Respond to of 110194

Lifetime is going to destroy Franklin, and it's all because of cheap, overabundant capital. i'm not sure if it's "overabundant capital" which is the culprit in your example. after all, Franklin is offering to reduce your fee by almost 50%, and presumably they do not think they will be losing money on you at that price. this suggests that they had unsustainably high margins and were thus vulnerable to poaching. $59 a month does not strike me as an unprofitable fee for a health club. they have sprouted up around here like mushrooms, and i think many are like $20 or less. the key factor i would look for, in terms of cheap and overabundant funds turning into malinvestment as opposed to a savvy operator attacking a competitor's excessive margins, is a discontinuity of profitability. in your example, i would think Lifetime is profitable, albeit at lower margins--hence, there is profit continuity in the "high-end health club" niche of Detroit, and the addition of that capacity is not deflationary malinvestment. by contrast, in the telecom bubble, excess fiber optic capacity was added in such bulk that there was no profitability prospect for capacity additions. the result was that not only were the old-line businesses (long distance) made unprofitable, but the new ones were also unprofitable from the get-go. what remained was a deflationary mountain of excess capacity that we are still trying to work off.