Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : Mish's Global Economic Trend Analysis -- Ignore unavailable to you. Want to Upgrade?

To: mishedlo who wrote (46976)	2/20/2006 8:08:54 PM
From: regli	Respond to of 116555

We should all chip in to give him a hand in a time of need.

To: mishedlo who wrote (46976)	2/20/2006 8:42:20 PM
From: ild	Respond to of 116555

Mish, make sure you read this opinion: Asia/Pacific: The Hot and Cold End Andy Xie (Hong Kong) morganstanley.com The Bubble May Burst in 2006 The liquidity foundation is based on the cross-border mixing of deflationary and inflationary forces in the right amount. Financial markets have played a decisive role in maintaining this world of ‘not too hot, not too cold’ by pushing up the currencies of the economies that have high inflation and down the currencies of the economies that have low inflation, and ignore current account balances. The logical ending of this world is when: (1) the currency market shifts its attention from the carry trade to the current account, which would exacerbate inflation in the economies that have big current account deficits; and (2) excess demand from the economies with current account deficits overwhelms the deflationary force in China and Japan to trigger global inflation. Neither is within sight yet, I believe. But, a third scenario is emerging. The deflationary force from China is no longer effective in keeping inflation down in high-inflation economies. The transmission mechanism between China’s cheap labor and overcapacity and the consuming economies is trade. In the past five years, industries that compete against China have been moving to China. China’s FDI in manufacturing dropped by 14% in 1H05 from the year before. All indications are that factory relocation to China has peaked. When China’s exports are small, its deflationary impact is huge as it was a price setter for producers elsewhere. As factories that compete against China have moved to China, when China cuts prices, it no longer has the same effect. This would suggest that inflation would surprise on the upside among the consumption-led economies. Australia is a case in point. As its housing market has peaked, its GDP has also slowed considerably. But, its inflation is picking up. It may be headed towards stagflation, especially if its currency drops when the commodity bubble bursts. The global economy in 2006 may be characterized by inflation in some economies and deflation in others (or part hot, part cold). Because the interplay between the two is less effective than before, the high inflation economies may have to tighten despite slowing GDP. Because the deflation economies remain sources of liquidity and sustain speculation in the high inflation economies, their central banks in the hot economies have to tighten more than otherwise to contain inflation.