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

To: Fiscally Conservative who wrote (38282)	8/9/2005 9:36:46 PM
From: bond_bubble	Respond to of 110194

The ONLY thing you are missing in your argument is - there are going to be NO bank defaults!!! Let's say, lot of corporations start defaulting - do you think - their suppliers will give them raw materials as CREDIT!!! No way!!! Do you think the supplier's supplier will give raw materials to the supplier based on credit!! NO way!! Everyone will become sceptical and most of them will be demanding CASH - Bank wont be giving credits to corporations - so will the suppliers!!! That is what makes defaults so different from what you have experienced so far i.e what you have NOT experienced so far. Under, this cash situation obviously demand will fall SIGNIFICANTLY!!! Instead of buying 1000 tons using credit, if I buy 100 tons using CASH - You see the demand falling 10 times and the overcapacity is exposed!!!!

To: Fiscally Conservative who wrote (38282)	8/10/2005 12:17:28 AM
From: mishedlo	Read Replies (1) \| Respond to of 110194

Good evening mishedlo, Your points here are well taken by me. It is an interest for me to contemplate just where we are heading. " I have explained many times how the US$ can drop and prices drop and the answer is simple: overcapacity in conjunction with demand dropping faster than the US$ drops." Overcapacity should be a short term situation,imo,if that is what is witnessed eventually. The by product of over capacity is a shrinkage on the manufacturing supply side and then the eventual drain on much needed cash flow thereby creating a greater hardship on debt payments(especially on a rising tide in the Fed Funds Rate). How all this effects the $ I am still in the dark. I believe the Dollar is constantly manipulated by forces outside our domestic borders. Todays markets,in an ever increasing global landscape,are greatly influenced by the currencys they interact with. Buffet is no fool,but I have to wonder exactly just where he is placing he bets now. Where I hang my hat I see inflation and it is just beginning. This is just my opinion and appreciate all rebuttals. Thank you for a sensible discussion as I am damn tired of hearing that 1) I do not understand what a falling dollar means 2) I am naive And 3)I am damn tired of being blatantly misquoted in general No doubt my repeating the above will short term stall the discussion but it will also prevent me from from repeatedly having to respond to total nonsense as well as blatant misreprentations of my position Now... In a sense you are correct Overcapacity is temporary The question is how temporary Look at how the FED fighted (prevented a bunch of zombie companies from going under by extending them a lifeline of cheap money) Look at the airlines where we are going to see rolling cascades of bankruptcies as zombie companies are brought back on line, no capacity was reduced, and now some airlines (telcos as well) have cheaper costs as a result of bankruptcies which will force all of the other airlines into bankruptcy as well. Was any capacity removed as a result of UAL or WCOM going under? How about Kmart? Anyone? Anywhere? The problem is that the FED is fighting normal liquidation of malinvestment. That fighting has created an enormous over capacity in home building on top of restored overcapacity in GM, telcos, airlines, semis, and god knows what else. Thus overcapacity is NOT a "short term situation" as you suggest. Furthermore it is compounded by China that needs to keep a hugely growing population employed regardless of cost. As for manipulation.... Forget about it. If manipulation worked, Japan would not gone into deflation for 18 years while going from a surplus nation to one having a national debt of 150-250% of GDP while prices were falling all the way. So.... Your thesis is incorrect as to this being a "short term thing". Mish