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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 (62680)	6/4/2006 4:22:46 PM
From: mishedlo	Respond to of 110194

Point of Maximum Risk globaleconomicanalysis.blogspot.com Mish

To: ild who wrote (62680)	6/4/2006 11:07:06 PM
From: mishedlo	Respond to of 110194

Don Coxe We remain of the view that the primary threat to the global economy comes from deflation, not inflation. The combination of freer trade, tech-driven productivity gains and deteriorating demography across the industrial world argues for sustained deflationary risks on a scale not seen in a century. The next recession—whenever it comes—will drive long-term interest rates to levels not seen since the Depression. The inflationary pressures now being experienced have alarmed central bankers, and they will not ratify the commodity prices increases that have been driven by robust demand at a time producers are having difficulty maintaining current production levels, let alone growing supplies at the rates seen in previous postwar economic cycles. The next recession will unleash commodity producer consolidation at record levels. Companies that, for antitrust reasons, cannot merge with other companies, will buy in their own shares. This is the first commodity boom in which the stock market chose to remain largely on the sidelines. The mining and oil companies' absolute and relative p/es have declined: in the past bull markets, their absolute and relative p/es increased. Stock prices have failed to keep up with the companies' earnings gains. What about the old saw that you buy these stocks when their p/es are infinite and sell them when they're single-digit? That rule applied to cycles in which commodity inflation was part of a generalized increase in inflation, and the commodity companies' balance sheets deteriorated because of big debt buildups to finance overall industry capacity expansions, which tended to come on stream after commodity prices had peaked. This time, such new capacity as has been coming on stream has barely been able to keep up with declines from existing mines and oil wells. billcara.com