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

To: ild who wrote (48192)	12/26/2005 11:19:54 PM
From: bond_bubble	Read Replies (1) \| Respond to of 110194

In 1930s, no govts were measuring PPI. Only CPI was measured and obviously, the CPI would not have captured the raw material prices and the plant input costs (like oil/energy)!! But we know Ford was closing plants and so was many industries. The simple reason is that: they did NOT have enough demand!! Why was there no demand? Obviously, we know demand increases with falling prices. Maybe, the car prices did not fall enough in proportion to the other essentials like CPI. [on another note, during depression, the consumers standard of living falls - for example, the volume of oil consumed falls - so the weightage of oil in CPI should fall - and most likely, the CPI does not capture this fall in the consumption in daily lives of people - just as todays increase in oil consumption like driving SUVs is not captured by increasing the weightage of oil for daily consumption. In other words, real life CPI must be falling much faster than the published CPI in 1929!!]. Why does the car price not fall as fast as CPI? This is because the cost of doing business does NOT fall that fast for the following reasons: 1) Wages do not fall proportionate to CPI. The salaries are sticky!! 2) The building/fixed cost (for the factory) would have been high because of frenzy during boom. And the interest on the building/fixed cost could have been locked. It does not fall with deflation!! The credit risk for the businesses goes up because of the defaults!! Only govts can probably get cheap loans. The replacement cost of the factory would be higher than the perceived value of these built factories [In 2003, the replacement cost of fibres in the telco world is higher than the cost of buying the existing fibres in the ground - And hence no new fibres/fixed investments can be done!]. Thus the cost of carrying the existing plant will be higher than buying it from someone else going bankrupt! And you wont be able to buy that bankrupt factory as there is no extra demand!! 3) Contracts would have been signed by suppliers for longer term - causing the input prices to be sticky! For these reasons, PPI stays high enough causing business to run losses and hence high unemployment. Thus printing more money for govt projects - like building up military - causes raw material prices to stay high - and causing the industry to sell less and hence high unemployment. The Fed at this time is assuming that, keeping this PPI high and making it even higher can prevent CPI from falling!! If the raw material/input costs are high, how can companies reduce the cost of the output (CPI)? The essence of deflation is then that: higher PPI does at some point (overcoming the productivity etc) causes CPI to go up. This causes demand to fall. Since there is no more new productivity (or new technology) - the PPI stays high while demand falls!! Falling demand reduces CPI!! One final note: Today, nobody is talking about one very important aspect of Productivity in USA. What is that important component of productivity? Additional money circulating in US causing inflation is subtracted - but the money that has been created and send abroad is added as productivity!! In other words, as long as FCBs buy US Dollars, productivity is enhanced by that amount!! When they stop buying USD, the productivity falls by that amount!! And if they give it back to US (like buying asset in US), the productivity falls!!!!!! I read this in an article while ago. Can anyone verify if the FCB held USD is added as producitivity miracle. This is done because dollar is produced without causing inflation!!

To: ild who wrote (48192)	12/26/2005 11:44:28 PM
From: bond_bubble	Read Replies (1) \| Respond to of 110194

The hot potatoes will be passed around and it will cause USD to fall further against commodities!! If USD falls, the demand in US will fall. As all the US demand will be directed towards oil and away from Asian goods. If FCBs depreciate their currency as well, then, the inflation flares in Asian countries as well - causing Asian demand to fall. However, FCBs will need to prop up local demand if US demand falls (if there is no net demand fall - employment should be fine)!! At this time, they are suppressing local demand by not allowing prices to fall. Instead they are spending all their citizens saving and more (by printing) in frivolous projects/capacity expansions. For example, China has 30% local demand and 30% export demand. If 30% export demand falls to 15%, then they need to increase the local demand to 45%!! Which means they have to lower the PPI/CPI, so that local demand is pushed up. This they can do, if they stop printing and instead spend USD. This will cause yuan to appreciate. If yuan appreciates 40% against USD, then all their import prices falls that much!! I believe that, once the recession hits, everyone will be trying to appreciate their currency to import at a lower price. In other words, interest rates will be rising every where. And turmoil begins when US trade deficit starts adjusting!! But that does not mean you will be safe buying Yuan. You might lose it in bank closures!! I believe the only decent option is to buy physical gold - not for appreciation but wealth preservation!! Riskier opportunities will be shorting long term bonds (there could be a turmoil short term), shorting stocks (internet and financial). I dont think gold stocks will do well.

To: ild who wrote (48192)	12/27/2005 1:11:59 PM
From: ild	Respond to of 110194

Date: Tue Dec 27 2005 13:07 trotsky (@yield curve) ID#248269: Copyright © 2002 trotsky/Kitco Inc. All rights reserved "But many policy makers, including Fed Chairman Alan Greenspan, have challenged the view that inversion signals economic trouble, pointing out that the shape of the curve is less predictive than it once was." this assessment is based on a statistic containing a sample size of ZERO. the last time the yield curve inverted was in early 2000 - a recession promptly followed, and was much more severe than official statistics let on ( the Nasdaq told a more convincing story, by falling by 80% during the recession ) . Greenspan et al. are just hoping and praying when they assert that the yield curve's predictive powers have all of a sudden deserted it. they have no evidence whatsoever to buttress their claims. furthermore it is well known that the one department in which Greenspan is really coming last in class is economic forecasting...few economists have a more consistently wrong forecasting record as it were. he's the perfect contrary indicator. it began back in early '73, when he asserted on the eve of the worst bear market since 1930 that "there is every reason to remain strongly bullish ( about the economy's and the stock market's prospects ) ". let's just say the yield curve's forecasting record has beat Greenspan's every time.