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

To: mishedlo who wrote (27990)	3/7/2005 11:32:55 AM
From: mishedlo	Read Replies (1) \| Respond to of 110194

Key points as to why deflation is coming 1)Unless the commodity-led inflation triggers a wage-price spiral, the inflation is not sustainable. Globalization has created a global platform in the supply of goods and, increasingly, in services. There is still a massive labor surplus in either unskilled or educated labor in the global labor market. Any push for higher wages in developed economies would push global companies to shift more production to low-cost economies like China or India. 2)The enhanced risk appetite, however, has decreased the cost of capital for businesses and economies that were starved of capital, and they have taken advantage of the cheaper capital to increase investment. This force continues to push up the prices of natural resources. The resulting inflation further increases risk appetite in the global financial system. As financial investors pile in, commodity prices rise substantially above what real demand would imply. This dynamic is leading to a big commodity bubble. 3)The End Is Debt Deflation 4)The major central banks may try to ease aggressively to fight the unwinding spiral. However, it would be too late to revive money demand. Most speculators who are driving demand for money today would have been cut down already. Message 21110309

To: mishedlo who wrote (27990)	3/7/2005 12:11:32 PM
From: John Vosilla	Read Replies (1) \| Respond to of 110194

The ONLY thing keeping spending up right now is rising asset prices and a booming construction industry (housing). No doubt that is huge when you look at depressed places like Toledo and Albany that have no new construction or home appreciation. A telling sign of what happens without appreciation even in a booming market is Ft Worth where one county has as many foreclosures as the whole state of Florida. I think much of what you mentioned is offset by strong cash positions on the corporate side, productivity gains and easier monetary policy. It would be nice to compare the debt crammed down during the S&L bust and telecom meltdown relative to GDP and then do a projection of debt cleansing relative to GDP by a 40% decrease in home prices in the coastal bubble markets.