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

To: mishedlo who wrote (69839)	9/17/2006 12:26:25 PM
From: russwinter	Read Replies (2) \| Respond to of 110194

To answer your question, I have blogged numerous times on actual price increases in China. Another source of info from China, my friend a Chinese born businesswoman, tells me price increases and tighter terms are now par for the course. Don't think there is any mystery about this now. Perhaps others who follow business there can chime in? There is more than just commodity price pass through here, there's an attempt to account for negative externality costs of pollution.

To: mishedlo who wrote (69839)	9/17/2006 12:50:28 PM
From: bond_bubble	Read Replies (1) \| Respond to of 110194

Mish, You are only looking at spot prices and jumping to conclusion. When the spot prices ($CRB) was higher, the prices did not rise immediately. Why? Because, manufacturers have futures contract similar to Option ARMs. When the futures contract expire (similar to optionArm expiration), rates kick in higher and at that time you will see the price increases!! Just like OptionArm borrowers EXPECT higher interest rate payment AFTER the expiration of the option period, manufacturers do too. Eventhough SPOT interest rates (10 year yield) are falling (like $CRB is falling), that does NOT mean OptionArm resets will be at lower price. The simple reason is that, even though 10 year yield is falling, it is still way higher than the 2004 low!! Similarly, eventhough CRB is falling, it is still higher than 2005 prices and if the manufacturers have to rollover the contracts, it will have to be at higher prices!!! If you are not inclined to give high weightage to the OptionArm - $CRB similarity, go and look at your early 2005 post on steel prices. At that time, steel prices were temporarily falling and you were predicting steel will fall like crazy in future as well. Unfortunately, it still continues to rise!! I also understand, you are not expecting the home owners to pay less interest inspite of 10 year yield fall. Russ import price article said import prices have gone up significantly higher. I'm not sure, why that is not an clearcut evidence for you. Again, I would like to reiterate, what is going to happen is 1929 scenario i.e credit deflation. The path to that credit deflation is higher and higher inflation. And that leads to job losses. And that is why Fed increases interest rates to prevent job losses - inspite of credit deflation. Remember, Fed increased interest rates inspite of bank closures in 1931!! Even Mises says, ONLY if govt chooses to prevent hyperinflation, you get deflation!! Otherwise, you only get hyperinflation!! And once deflation sets in, assets and credit growth falls. That does not mean all prices fall AND that is the reason why spending by govt does not help (instead makes it worse) cure deflation. I earlier referred to Grant's article that said oil prices soared 71% in 1933-34, right in the middle of credit deflation (even though it was not peak oil in 1930s). If oil prices soar like that now when the credit deflates, more and more corn, land are going to be dedicated to ethanol (right or wrong is a separate issue) and that could necessarily spike food prices, unless govt quickly reduces the spenders of "ethanol". This reduction is further credit deflation (i.e try to eliminate high paying govt jobs, govt jobs, and HIKE the interest rate). Not all prices have to fall is the important take away (this is your assumption as well at this time). For example, meat prices can RISE and still restaurant prices can FALL!! This could imply wages/benefits for the employees fall, or rents fall, or electricity prices fall, or profits fall i.e MEAT prices need NOT take all the adjustments in restaurant price fall is the important take away message and in fact, meat prices can even RISE!! This could be because, the producers of corn might prefer selling corn to ethanol manufacturers than sell it to cow feed producers. Hence cow feeds will cost more if one needs to raise cow [If cow feeds are not used, cows weigh less and hence meat prices rises!!] and hence meat price will cost high. All the adjustments can take in other areas. This is what happens increasingly as the credit inflation is allowed to grow more and more and for long time!! Bigger and longer the credit bubble, more and more likely, meat prices rise and restaurant prices fall!! That is what makes the deflation more and more worse!

To: mishedlo who wrote (69839)	9/18/2006 5:38:18 PM
From: Wyätt Gwyön	Read Replies (3) \| Respond to of 110194

Have you looked at the $CRB lately? mish, lately you have been harping on the fall in the CRB as more "evidence" of deflation. this is pretty funny given that previously, you used the sharp RISE in the CRB as evidence of deflation. so i guess the CRB is proof of deflation whether it is rising or falling. here's an example from 2 1/2 yrs ago, of how you interpreted the RISE in the CRB as deflationary: Message 19759497 CRB is up what 75%? Are finished goods prices up at all? That is the surest defination of overcapacity, oversupply, and underdemand that you could possibly find. to a man with a hammer, everything's a nail! mish, you can't have it both ways. as my great grandma used to say: Shiat or get off the pot.