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

To: Mike Johnston who wrote (72653)	12/22/2007 7:44:52 AM
From: Chispas	Read Replies (1) \| Respond to of 116555

Someone should ask Peter Schiff : "Why didn't your theory work for Japan in 1990 ?" (I'd love to hear his explanation, and why he's not already covered the ongoing crisis in Japan.....)

To: Mike Johnston who wrote (72653)	12/22/2007 8:49:48 AM
From: westpacific	Read Replies (2) \| Respond to of 116555

Remember - hyperinflations can happen in a matter of just days! What I see is the first, declining asset prices (deflation) while we have inflation in consumer goods (inflation). Simply because there will be more and more dollars chasing fewer goods (products that cannot be created out of thin air, like fiat money) and deflation of asset prices as the consumer stops the buying binge (70% of GDP) leading to a decline of profits for many publicly traded firms. The key will be finding the stories not effected by this decline in spending........such as healthcare for example or defense related, perhaps energy (depending on oil and/or Nat Gas. price.) You have to search out and buy assets with clean balance sheets and business models that will continue to draw revenue via government spending. Even overseas investments that are more reliant on local markets to drive revenue. However, if this banking monster is even bigger then we think and the FED opens the printing press or this derivative monster implodes, we are DOA. If you are sitting in cash and a hyperinflation occurs, they happened in a matter of 3 days in Brazil, you will be wiped out. You must have your money protected at all times in some way, which means invested. Can you say tricky waters ahead! This means cash sitting in sweep accounts or in money market funds is history if this occurs. You must hold cash in another source at all times - ETFs may prove the answer. No doubt we are heading for some very scary times, indeed. While I do not see a hyperinflation in the US, it cannot be ruled out - once they take hold, the FED cannot stop it. China had a net negative number for 2007, as far as, net purchases of US Treasuries! I find this trend showing that the last buyer of Treasuries will have to be the FED itself. West

To: Mike Johnston who wrote (72653)	12/22/2007 9:25:27 AM
From: Crimson Ghost	Read Replies (1) \| Respond to of 116555

Hyperinflation is not likely in the US but deflation is even less likely IMHO despite the probability of a recession before long. I vote for stagflation.

To: Mike Johnston who wrote (72653)	12/22/2007 12:04:33 PM
From: mishedlo	Read Replies (4) \| Respond to of 116555

I would debate Schiff 7 days a week and twice on sunday. He does not understand the difference between money and credit and he fails to understand the reasons why the Fed will not do what he suggests and furthermore why it would not work even if the Fed attempted what he suggested. Mish

To: Mike Johnston who wrote (72653)	12/22/2007 2:02:21 PM
From: pogohere	Read Replies (1) \| Respond to of 116555

The problem I have with the article, which is worth reading, is how US consumers whose incomes are falling and who have no savings, and no money or credit will buy any goods. If the buying power is lacking I don't see how prices can remain stable. If we are living on credit and there's a credit crash, there will surely be deflation and falling prices which most of us won't be able to take advantage of because we have neither credit nor money.

To: Mike Johnston who wrote (72653)	12/22/2007 3:07:14 PM
From: sixty2nds	Read Replies (1) \| Respond to of 116555

The problem I have with Shiff's article - Shiff assumes "the result will be far fewer products available for Americans to consume" I've got to ask - When is the last time anybody read about production capacity being strained, let alone used up?? ......"Many mistakenly believe that when the U.S. economy falls into recession, reduced domestic demand will lead to falling consumer prices. However, what is often overlooked is the fact that as the dollar loses value, the rising relative values of foreign currencies will increase consumer demand abroad. As fewer foreign-made products are imported and more domestic-made products are exported, the result will be far fewer products available for Americans to consume. So even if the domestic money supply were to contract, the supply of goods for sale would contract even faster. Shrinking supply will be a major factor in pushing consumer prices higher in America."......

To: Mike Johnston who wrote (72653)	12/23/2007 5:14:30 PM
From: mishedlo	Read Replies (1) \| Respond to of 116555

I will "beautifully" destroy his arguments Monday. Mish

To: Mike Johnston who wrote (72653)	12/26/2007 7:58:14 AM
From: Sr K	Respond to of 116555

Op-Ed Contributor Frozen Rates, Falling Prices nytimes.com from nytimes.com By PETER SCHIFF Published: December 26, 2007 Darien, Conn. THE Bush administration’s mortgage rescue plan will worsen, not alleviate, the problems in the housing market. We are suffering from a home value crisis, not simply a credit crisis. If home prices were still rising, defaults would be low, investment returns would be high, borrowers would still be cashing out equity, and lenders would be showering credit on home buyers. Falling prices reverse this dynamic. A recent study by the Federal Reserve Bank of Boston found that most foreclosures result from falling home prices, not from the resetting of mortgage rates. And if rates are frozen for some subprime mortgages, standards for most new loans will become increasingly strict. Lenders will have to factor in the added risk of having their contracts rewritten when borrowers default. Higher down payments, mortgage rates and required credit scores — along with lower loan-to-income ratios and perhaps the death of adjustable-rate loans altogether — will further push down home prices. Whether or not their payment levels are frozen, borrowers with loans that are greater than the values of their homes will have few incentives to keep paying their mortgages or to maintain their properties. Why spend more on a home in which they have no equity and which they may lose to foreclosure anyway? Having put nothing down or having extracted equity in previous refinances, most subprime borrowers will lose nothing financially from foreclosure. In some cases the low teaser rates allowed them to pay less than what they might otherwise have paid in rent. The real losses are borne by the lenders. Proponents suggest that a rate freeze will buttress home prices by keeping foreclosed homes off the market. But that is a stay of execution, not a pardon. Most homes temporarily saved from foreclosure will continue to depreciate as new buyers fail to qualify for loans. Lenders will be on the hook for even more losses than if the foreclosures had taken place sooner. Everyone seems to agree that a return to traditional lending standards is a good idea, but no one seems willing to accept a return to rational prices as a consequence. While the bubble was inflating, self-serving explanations were offered for why traditional formulas of home valuation no longer applied. As it turns out, the laws are still in effect. These traditional measures, like the relationship between home prices, rents and income, indicate that prices need to fall at least 30 percent more nationally. The sooner this balance is achieved, the sooner lenders will again commit capital. Peter Schiff is the president of a Connecticut-based brokerage company and the author of “Crash Proof: How to Profit From the Coming Economic Collapse.”