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

To: Perspective who wrote (57368)	4/3/2006 11:01:04 PM
From: regli	Read Replies (6) \| Respond to of 110194

Here is my personal looking glass. I expect another but much more desperate reflationary effort at the end of this cycle of rate increases. How successful it will be, I don't know but I am looking for the Fed to pull out all the stops. What is fascinating me is that we are in a highly inflationary period with deep underlying deflationary undertones. IMO these undertones are not just the expected busting of the credit bubble but I expect the effects to be compounded by a worldwide significantly expanding qualified labor pool at about the same time as we see reflections of an every faster trend to automate and robotize. The current economic phase has benefited from an added phenomenon, the sectors where most jobs were created are highly labor inefficient sectors, i.e. very little automation has taken place in housing, retail and in fact even health care. I expect job growth to slow dramatically if not reverse as these sectors shed jobs and other growth sectors are much more labor efficient. Deflationary forces will assert themselves with a vengeance once the credit bubble bursts. What makes this period particularly interesting is that I expect continued demand for resources in the face of a slowing economy particularly because of resource competition from India and China. I subscribe to some of bond_bubble's theories in that I also expect the PPI to increase while the CPI declines. Resulting pressures on profits should lead to significant deflationary concerns in relatively short order (late 2006, early 2007?). Soon thereafter, I expect the Fed to reduce interest rates quickly and I wouldn’t be surprised to see an instance of more than a full percentage point. All the good wishes and pointers provided to the Japanese during the past 15 years will be tried and I expect some of them to work in the short run at a high cost of inflation. I therefore am not of the opinion that we will see a quick deflationary period similar to the great depression but a steady period of decline with deflationary and inflationary fits and starts all at great harm to the dollar. I am not looking for deflation in prices but expect deflation of purchasing power particularly in the developed world.