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  • the commodities squeeze, chinese exports and the cold war "solution"

    some loosely connected thoughts of my own:

    cmi versus retail sales: commodities squeeze the consumer

    I first became aware of the consumer metrics index [cmi] through the blog http://dshort.com/
    The cmi is a coincident measure of purchases of discretionary items. it can be found at http://www.consumerindexes.com/
    According to the cmi website, "The Consumer Leading Indicators track consumer interest in major discretionary purchases. These typically include such items as automobiles, housing, vacations, durable household goods and investments. Not included would be expenditures that are more or less automatic, relatively minor and/or non-discretionary, such as groceries, fuel or utilities."

    The cmi index has in the past been a leading indicator of both gdp and the s&p. Basically, it quickly shows what is happening in the economy, while gdp measures and the stock market lag somewhat. Lately, however, there has developed a discrepancy between retail sales data and the cmi. The cmi shows continued deterioration, although the rate of deterioration has slowed of late. Meanwhile, retail sales appear to be growing.

    Since the cmi measures discretionary purchases and is still deteriorating, non-discretionary spending must account for any growth in retail sales as well as compensating for losses in discretionary spending. I would point out in particular, gas station sales [mostly gasoline] account for about 10% of retail sales. As of Sept '10, gasoline store adjusted sales were up 10% yoy.

    "Food and beverage stores" account for about 15% of retail sales; food store sales are up only about 2% yoy. Otoh, there have been recent announcements of food price rises to come, as food processors are no longer willing to absorb the recent significant rises in their input commodity prices. Soon we can expect food store sales to reflect rising food prices.

    As the price of necessities grows, those necessities absorb an increasing share of income, and squeeze out possible discretionary spending. If the rising trend of commodity prices continues, we can expect further disparities between cmi and retail sales.

    Everything we need is getting more expensive. Prices are only dropping on illiquid assets like real estate, and discretionary consumption goods.


    gdp and imports

    GDP = private consumption + gross investment + government spending + (exports − imports)


    The consumption reflected in gdp can remain constant even if discretionary purchases wither, and even if the quantities of necessities consumed do not increase. If the price of necessities increases, the same quantity of e.g. gasoline and food will generate higher nominal consumption. Consumption can remain unchanged [nominally] but include ONLY necessities if those necessities get expensive enough.


    In this scenario, however, the composition of our imports is changed. We will no longer be importing dvd players and flat screens; we will only be importing oil and industrial meterials. we are a food exporter, so net-net, we have no food imports.

    Thus, the big economic number, the GDP, can continue to look ok, and retail sales numbers can hold up and even rise, as the standard of living declines.


    Now add into your thinking the continuing housing debacle and its effect on the economy, and the emerging "hourglass economy." I had never heard that term before a few weeks ago, when I heard it used on the radio twice, in separate stories, in an hour.

    The first google hit on "hourglass economy," from jrank.org
    The UK and USA are said to have an ‘hourglass economy’, with a large and expanding group at the top who have high skills and enjoy high incomes and a large and expanding group at the bottom who have low skills and low pay. The middle levels, composed traditionally of skilled or semi-skilled manual workers in good paying jobs, however, are declining, giving the occupational and income profile of the economy its distinctive shape. [See Brazilianization.]


    I like that "see Brazilianization" part.


    Anyway, in fact the top part of the hourglass is not so very large, the bottom part is huge and growing, as the middle shrinks. Income inequality is as great as it's been for the last 80 years. Those in the bottom section spend the greater proportion of their incomes on necessities. [We must include housing costs here, including energy costs for heating and cooling.] Walmart reports an increasing number of "midnight shoppers." They mill around waiting for midnight at the end of the month, so that their transfer payments, food stamps, etc, get credited to their accounts and they can check out with their carts full of necessities for the new month. Toward the end of the month they buy in small quantities, stretching what's left, until they can't afford to buy at all, and they wait for midnight once again.


    chinese exports to "developed" nations


    If the american standard of living is declining as the rising cost of necessities displaces the ability to purchase discretionary goods, the american market for chinese exports is shrinking. For certainly those exports include, for the most part, discretionary goods. Some chinese-sourced clothing may be viewed as non-discretionary, but broadly speaking the chinese export market in America is disappearing.


    As long as this market still has some life in it, however, the Chinese will do what they can to exploit it. Only after they have drained it dry will they lose their incentive to keep the yuan tied to the dollar. If they have no export income from the U.S., of course, then they will have no new dollar income to recycle into bonds. But they will also lose any incentive to roll over the treasuries they already own, when they mature. [I suspect the fed will step in as buyer of first and last resort, via qe4 or 5.]


    It seems plausible to me that the same processes described here for the U.S. will be occurring in similar fashion in other oecd, i.e. "developed", economies, such as the e.u. And similarly, the Chinese will continue to support their export industries by suppressing their currency until they have fully exploited what demand there is.


    I was interested to note that in spite of some recent appreciation of the yuan against the dollar, the yuan is down overall in trade weighted terms. But it is hard to sort out trade in intermediate goods versus exports to final consumers. This makes interpreting the "trade weighted" numbers difficult.


    The recent flap over rare earths points to another ongoing development: China is moving up the value chain. Recently it restricted exports of rare earth metals, offering instead to export value-added components which incorporated those materials. Thus it is promoting the evolution of its own industrial base.



    chinese trade with emerging market partners; stepping away from the dollar


    China has been establishing bilateral trade agreements which codify the notion of direct exchange in their native currencies between China and its trade partners. Thus, for example, it may conduct trade with Brazil denominated in Brazilian reals or in Chinese yuan, without the necessity of going through the dollar as an intermediary. In this arrangement, the central banks of these countries may start to accumulate reserves of the other's currency. These may be minimal amounts required for transactional purposes, but over time they may grow beyond that, especially if the bilateral trade is not balanced. Then one of the those countries will start to accumulate the currency of the other, and some means of recycling these balances will be developed.


    China, too, has arranged for barter deals with African countries, in which it builds roads, bridges, highways, in return for mineral rights, i.e. mining, or food. It is hard to value these deals in understanding the composition of Chinese trade, but anyway you look at it, this is another step away from the dollar.

    And of course it is using its dollar trove to directly purchase commodities in vast quantities, converting paper dollars into industrial supplies.


    the political-economic problem for china


    How can the Chinese keep their population occupied and relatively content? As the oecd nations impoverish themselves, paying interest on their debts and spending more and more for oil and food, chinese export markets contract. They can export more basic goods to developing and emerging partners, and make changes to encourage domestic consumption, but at the same time they want to move up the technology ladder.

    Let's add a demographic factor. A 2009 paper by Wei Xing Zhu et al, concludes:

    In 2005 males under the age of 20 exceeded females by more than 32 million in China, and more than 1.1 million excess births of boys occurred. China will see very high and steadily worsening sex ratios in the reproductive age group over the next two decades.


    What do they do with all those excess males?


    the political-economic problem for the U.S.


    Our political system is highly dysfunctional, and more and more captured by big money interests. Both democrats and republicans are ever more dependent of the contributions of organizations and individuals representing industrial- and finance-based wealth. This prevents any policy which might effect significant change in the structure of the economy. But the economy is bogged down by excessive debt and ever more dependent on injections of liquidity to keep staggering forward at all. The political impasse prevents fiscal measures from being agreed upon. This puts pressure on the monetary authorities to keep printing more money. This cannot be stable, and - unless some other process intervenes - will lead to crisis in some form, perhaps the destruction of the dollar, perhaps a sudden stop of the economy. But until the economic problems get as big as the political problems, there will be no action.


    the "solution"


    The Brazilian president-elect remarked before the recent G-20 meeting in Korea, that “The last time there was a series of competitive devaluations. . . it ended in world war two.” The "solution" for both the U.S. and China is a war, preferably of the cold variety. With respect to China, what better way to push high-tech development and simultaneously occupy millions of unattached male 20 year olds? With respect to the U.S., since monetary policy really can't do the job of reviving the economy, how else will we have fiscal stimulus? When it comes to military spending in the face of a serious threat from a real international competitor, the republicans and democrats will join hands and fund whatever is requested.


    Many people don't recall that the interstate highway system was initially justified and funded as a defense initiative. from wikipedia:

    The Interstate Highway System had been lobbied for by major U.S. automobile manufacturers and championed by President Dwight D. Eisenhower, who was influenced by his experiences as a young Army officer crossing the country in the 1919 Army Convoy on the Lincoln Highway, the first road across America...

    Eisenhower gained an appreciation of the German Autobahn network as a necessary component of a national defense system while he was serving asSupreme Commander of the Allied forces in Europe during World War II.[9] He recognized that the proposed system would also provide key ground transport routes for military supplies and troop deployments in case of an emergency or foreign invasion.....

    The Interstate Highway System was authorized by the Federal-Aid Highway Act of 1956[11] – popularly known as the National Interstate and Defense Highways Act of 1956 – on June 29.


    Note that it was lobbied for by the auto industry, but justified as a necessity for defense. Recall, too, the technology spin offs of military development over the last half of the 20th century, the huge educational funding generated in response to sputnik, and DARPA's role in fostering the development of the internet.


    Finally, the economy is said to be suffering from insufficient demand. A new cold war will involve spending huge sums of money on things we hope never to use. What a terrific source of demand!

  • #2
    Re: the commodities squeeze, chinese exports and the cold war "solution"

    Originally posted by jk View Post
    Finally, the economy is said to be suffering from insufficient demand. A new cold war will involve spending huge sums of money on things we hope never to use. What a terrific source of demand!

    Cold war? Germany, Italy and France are having a good time exporting branded fashion and automobiles to China. So, the US and Israel versus the rest of the world?

    Sure, Israel will be the beneficiary, better than going alone versus Iran and finally having the name changed to Palestine in 20 years time. However, an unlikely scenario at least in the short to medium term.

    Comment


    • #3
      Re: the commodities squeeze, chinese exports and the cold war "solution"

      Originally posted by jk
      But until the economic problems get as big as the political problems, there will be no action.
      There was political action in late 2008 with TARP. I anticipate there will be political action again, when the big money interests controlling the U.S. Congress want political action. I trust that the Lords Mighty Blankfein and Dimon will be more pleased with the action, whatever it is, than you or I.

      Originally posted by jk
      A new cold war
      Most likely. Perhaps colder regarding China, but hotter regarding Iran, Pakistan, Syria and/or Yemen.

      I just hope no politician in a power suit stands before the cameras, waving a piece of paper, announcing "Peace in Our Time." That would not bode well.
      Most folks are good; a few aren't.

      Comment


      • #4
        Re: the commodities squeeze, chinese exports and the cold war "solution"

        Originally posted by ThePythonicCow View Post
        There was political action in late 2008 with TARP. I anticipate there will be political action again, when the big money interests controlling the U.S. Congress want political action. I trust that the Lords Mighty Blankfein and Dimon will be more pleased with the action, whatever it is, than you or I.
        indeed. i meant political action that changes the system, not action that attempts to maintain it. that will not happen til the economic problems get much worse and even more obvious.

        Originally posted by cow re cold war
        Most likely. Perhaps colder regarding China, but hotter regarding Iran, Pakistan, Syria and/or Yemen.

        I just hope no politician in a power suit stands before the cameras, waving a piece of paper, announcing "Peace in Our Time." That would not bode well.
        a cold war would permit peripheral proxy wars. iran now sends oil to china, iirc, and is both a russian and chinese client, with russian sa missiles and chinese silkworms. i think there will be a lot of maneuvering about securing/defending oil supply routes. this is why the chinese are finally beginning to develop a blue water navy.

        Comment


        • #5
          Re: the commodities squeeze, chinese exports and the cold war "solution"

          JK, excellent post. You should consider creating your own financial blog or at least your own section here on itulip as Finster has!

          jim

          Comment


          • #6
            Re: the commodities squeeze, chinese exports and the cold war "solution"

            Originally posted by jiimbergin View Post
            JK, excellent post. You should consider creating your own financial blog or at least your own section here on itulip as Finster has!

            jim
            i don't think i have anything special to say often enough to warrant a space of my own. i'm content putting the occasional piece here, in "guest commentaries." but thanks for the praise.

            i don't think the military build up will start next week, btw, or even next year. but long term i think it quite likely. this analysis is the same process that led me to buy gold at $380, long before i discovered itulip. i decided that the only "solution" to the unfunded entitlement and excess debt problem was a long bout of inflation. and i figured that eventually other investors would come to the same conclusion, and would buy gold. in this instance, i think the only "solution" to china's political-economic, demographic and geopolitical situation, and the u.s.' political stalemate and economic need for [specifically] FISCAL stimulus, is a new cold war. i've purchased small, 0.5%, positions in each of 2 defense/aerospace etf's, to dip my toe in the water and encourage myself to follow the sector. i expect to add more positions over time. i do this not with any joy, just as it gives me no joy to think that gold has a long way to go on the upside. these are symptoms of a disturbed and progressively more pathological global political economy.
            Last edited by jk; 11-15-10, 10:07 AM.

            Comment


            • #7
              Re: the commodities squeeze, chinese exports and the cold war "solution"

              Originally posted by jk View Post
              i don't think i have anything special to say often enough to warrant a space of my own. i'm content putting the occasional piece here, in "guest commentaries." but thanks for the praise.
              agreed, great post. always with the clear thinking!

              Comment


              • #8
                Re: the commodities squeeze, chinese exports and the cold war "solution"

                I've been wondering about the CMI for some time now. It has really fallen off the cliff, and GDP should have reflected this by now.

                From the BEA.
                PCE price index -- The price index for PCE increased 0.1 percent in September, compared with an increase of 0.2 percent in August. The PCE price index, excluding food and energy, increased less than 0.1 percent, compared with an increase of 0.1 percent.
                http://www.bea.gov/newsreleases/nati...ewsrelease.htm

                Isn't the CMI and internet based index? I'm beginning to have great doubts about it's accuracy.

                Comment


                • #9
                  Re: the commodities squeeze, chinese exports and the cold war "solution"

                  Originally posted by we_are_toast View Post
                  I've been wondering about the CMI for some time now. It has really fallen off the cliff, and GDP should have reflected this by now.
                  CMI and GDP are measuring different things. Perhaps they will decouple. I suppose that GDP includes inflated financial concoctions that might go their separate way (up) from the prices us serfs pay (sometimes down.)
                  Most folks are good; a few aren't.

                  Comment


                  • #10
                    Re: the commodities squeeze, chinese exports and the cold war "solution"

                    GDP using a chain deflator - it is this which has been distorting the results.

                    CMI in comparison is a straight index.

                    Comment


                    • #11
                      Re: the commodities squeeze, chinese exports and the cold war "solution"

                      if commodity prices are up and commodities are squeezing out discretionary purchases, the cmi will decline while retail sales and gdp will not. that was one of the points i was trying to make.

                      Comment


                      • #12
                        Re: the commodities squeeze, chinese exports and the cold war "solution"

                        Originally posted by jk View Post
                        i don't think i have anything special to say often enough to warrant a space of my own. i'm content putting the occasional piece here, in "guest commentaries." but thanks for the praise.

                        i don't think the military build up will start next week, btw, or even next year. but long term i think it quite likely. this analysis is the same process that led me to buy gold at $380, long before i discovered itulip. i decided that the only "solution" to the unfunded entitlement and excess debt problem was a long bout of inflation. and i figured that eventually other investors would come to the same conclusion, and would buy gold. in this instance, i think the only "solution" to china's political-economic, demographic and geopolitical situation, and the u.s.' political stalemate and economic need for [specifically] FISCAL stimulus, is a new cold war. i've purchased small, 0.5%, positions in each of 2 defense/aerospace etf's, to dip my toe in the water and encourage myself to follow the sector. i expect to add more positions over time. i do this not with any joy, just as it gives me no joy to think that gold has a long way to go on the upside. these are symptoms of a disturbed and progressively more pathological global political economy.
                        Possibly I overlooked something above with regard to your thinking about the problem of debt in the public and private sectors of the economy here and in other countries as well. I quoted your remarks above because you did acknowledge the existence of the debt problem.

                        From reading about this stuff, it appears that after financial crises typically there follows periods of deleveraging.

                        McKinsey Global Institute noted in a Jan 2010 report I came upon from somewhere: "We find 45 episodes of deleveraging since the Great Depression in which the ratio of total debt relative to GDP declined, and 32 of them followed a financial crisis. These include some instances in which the deleveraging occurred only in the public sector; others in which the private sector deleveraged; and some in which both the public and private sectors deleveraged simultaneously. The historic episodes of deleveraging fit into one of four archetypes: 1) austerity (or "belt-tightening"), in which credit growth lags behind GDP growth for many years; 2) massive defaults; 3) high inflation; or 4) growing out of debt through very rapid real GDP growth caused by a war effort, a "peace dividend" following war, or an oil boom."

                        It seems to me that so the US has not seriously engaged in the Austerity choice, but perhaps with the newly elected Congress that route will be actively pursued. Personally I doubt it.

                        I can't estimate what has been the quantitative effect of Defaults on debts so far, but it seems there is a lot of commotion to continue indebtedness vs. writing off debts or reducing debts.

                        High inflation seems to be jk's choice of what will happen, but the question I have is: what if it doesn't happen? Can anyone say unequivocally that "high inflation" will occur in the US, specifically, in the next five, 10, or even 15 or 20 years? Surely anyone can say it will happen, but no one can see the future. Some bright people can imagine the future, and some will be correct and some wrong.

                        I don't know where war fits into resolving the current financial morass.

                        One of the bigger "deflationists" of which I am aware has been Gary Shilling. From things jk has communicated to me I think he believes Shilling is a long-term "stopped clock" with regard to his deflation concerns--though jk likely would state it somewhat differently.

                        Last week John Mauldin put out an Outside the Box message that was a review of Shilling's soon to be or perhaps already published book "The Age of Deleveraging: Investment strategies for a decade of slow growth and deflation." I don't recall that Mauldin made any comment supporting the theses put forth in the book, but maybe he did.

                        Since Mauldin's note, Paul Farrell has written a fairly in depth survey of the book.

                        http://www.marketwatch.com/story/10-...ade-2010-11-16 I put this link in here so anyone interested can read at least what Farrell thought worth writing.

                        Then Friday, David Rosenberg in his mostly daily pdf commentary wrote: "Folks, if you have not yet seen it, you must have a look at the masterpiece just published by Gary Shilling titled "The Age of Deleveraging: Investment Strategies for a Decade of Slow Growth and Deflation". I highly recommend this book and not just because I agree with everything Gary had to say about the future. It is truly a map of how to navigate the portfolio in these turbulent times."


                        Now Rosenberg is about the only person I know who might be as smart or even smarter than jk, and when Rosenberg writes something I comprehend and think may be important I pay attention. Rosenberg's strong recommendation took me by surprise. It read to me so strongly that I considered if Rosenberg could have a financial interest in the book, though I cannot imagine that to be the case.


                        Rosenberg and apparently Shilling do not see the the only outcome to the financial crisis as being inflation, at least not in the near term as well as I can discern.


                        If inflation is the best or only answer for resolution to the US's debt problems, it makes we wonder why after three years are we not further along with resolution?


                        This notion of intentional creation of inflation as the best, easiest, most palatable answer to get through deleveraging reminds me of the old comment, "what if you gave a party and no one came!"


                        What if you--the FOMC--want to create inflation and it doesn't work?


                        What if the final answer to the over indebtedness of the private sector in personal and mortgage debt turns out to be defaults vs. liquidation of the debts via inflation?


                        Even with hyperinflation, that would not allow one to pay off a debt if one had no job and no income.
                        Last edited by Jim Nickerson; 11-20-10, 11:51 PM.
                        Jim 69 y/o

                        "...Texans...the lowest form of white man there is." Robert Duvall, as Al Sieber, in "Geronimo." (see "Location" for examples.)

                        Dedicated to the idea that all people deserve a chance for a healthy productive life. B&M Gates Fdn.

                        Good judgement comes from experience; experience comes from bad judgement. Unknown.

                        Comment


                        • #13
                          Re: the commodities squeeze, chinese exports and the cold war "solution"

                          hey jim, i think you can have both processes simultaneously.

                          here's something i wrote a long time ago:


                          Here is a little essay I wrote 7 years ago, with an addendum added 9-17-10. I found re-reading it provided a little perspective on where we are now.

                          5/03
                          Flation: causes and consequences

                          The financial markets are in turmoil, stuggling to predict the future of flation. Will we have de-flation? Or in-flation? I suggest that we have plain old flation viewed on a macro level, and dys-flation on a micro level.

                          Costs as measured by the cpi or ppi are essentially steady, although commodity indices are up. The lack of price movement across the economy in general I’m going to call plain old flation. One might think that such steadiness bespeaks tranquility in the economy but, looking more closely, that is not at all the case.

                          Instead we see areas of falling prices, especially in manufactured goods: cars, televisions, cell phones, computers, cameras, sneakers, clothes, anything that can be imported or competes with something imported from low wage but relatively high productivity countries, most notably China. Thus manufacturing jobs keep disappearing in the Unitied States. Overcapacity remaining from the ‘90’s tech build out exacerbates this problem. Also, jobs delivering services which can be delivered electronically by phone, fax, or modem – help desks, customer services for credit card companies, banks and airlines, etc – are also being exported, most commonly to the large, relatively well-educated, English speaking and low-paid population of India. These are the areas of American deflation.

                          Locally delivered services, on the other hand, cannot be imported. Housing, medical care, education and tuition, state and local government services, are all local products, and their prices are rising steadily. These are our sources of local inflation.

                          Think of water bubbling out of springs in some areas and being sucked down drains in others. This is the balancing act of the American economy.

                          Now price movements in general have never moved in lock-step, but I believe that the extremes that we are witnessing between the different areas of the economy represent a dangerous dysregulation of the economy and its price signalling function. This problem is only in part post-bubble stress disorder because of overinvestment in technology and mal-investment in financial services. Changes in world trade, globalization, would have pushed in this direction in any event, but the bubble made it worse. I suggest we call the current price situation dys-flation: widely disparate changes in the general price level in different sectors of the economy.

                          Where do we go from here? I’ve seen described essentially 3 prototypical scenarios – the Japanese, the Argentine, and a muddle through. The Japanese scenario predicts deflation – likely triggered by debt deflation as the rates of credit card and mortgage delinquincies continue to rise from current high levels, and major corporate bankruptcies continue to turn billions of dollars in corporate bonds into waste paper. The Argentine scenario focuses on Fed Governor Bernanke’s now (in)famous “printing press” speech, in which he took a blood oath to print any amount of money, and buy any number of assets, to prevent the Japanese scenario. Now the Fed is not about to start buying government long bonds to support the mortgage market, for example, without provocation. So the Argentine scenario I think presupposes that we swing close to the Japanese scenario, perhaps via a crisis (how about Fannie Mae as the next LTCM?) scaring the Fed to start buying bonds, futures, indicies, and so on to pump up the financial markets and pump bucks into the economy. These dollars will go somewhere, and in general liquidity chases the rising asset. It’s hard to predict what that might be in this scenario but one imagines safety being a prime consideration, leading to Treasuries and hard assets – real estate, perhaps, and gold. Thus we can have falling interest rates and rising gold prices. The muddle-through scenario says that the bubbling springs and sucking drains will remain in rough balance, allowing a gradual write down of redundant assets, a deleveraging from the enormous debt that has been accumulated by individuals and corporations (the U.S. government increases its debt levels again as the private sector reduces its debt), and adjustments in the composition of our economy to provide for different kinds of jobs for people who would formerly have worked producing now-imported goods and services.

                          What assets win in each of these scenarios? Japanese scenario: government bonds do well as the Fed keeps firing its few remaining bullets. Of course the dollar may drift down, but not too fast because a.) it’s the reserve currency and other central banks won’t let it go down too fast (witness recent Japanese intervention to hold down the value of the yen), b.) its competitors are so unattactive (except gold, perhaps). Argentine- gold, hard assets, currencies. Muddle through- not equities, at least not most U.S. equities because profits will remain under great pressure and p-e’s will contract as investors become progressively discouraged, one by one. Defense and security will continue to be growth industries. Foreign equities might have some interest in the longer run. In the muddle-through scenario bond prices must eventually stop going up, meaning that mortgage rates must eventually stop going down. Note that “According to FNMA, equity cash-outs from home values amounted to a staggering $130-140 billion. This amount equaled more than half of the increase in consumer spending in 2002.” This demand will have to be replaced by increased government spending, renewed corporate investment, and/or rising consumer incomes. My guess: government spending.



                          9/10

                          The above was written a little over 7 years ago. As the French say, plus ca change, plus c’est le meme chose.

                          Now we have falling prices centered in leveraged assets, especially real estate. Unemployment is high and capacity utilization slack.

                          On the other hand, manufactured goods are reflecting price rises in their commodity inputs and rising 3rd world labor costs. Energy prices remain firm at historically high levels [during the worst global recession in 70 years!], while agricultural prices are rising. Although nominal equity prices seem steady, p-e’s have been dropping as predicted above. Also, of course, equity prices are dropping when viewed in real – i.e. inflation-adjusted – terms.

                          How do I summarize these contradictory price changes? flation. Or, better, dysflation.

                          We indeed swung close to a Japanese scenario, and we are in the midst of transitioning to an Argentine one. Fannie did indeed blow up, along with Freddie, and the Fed did indeed buy a lot of paper to support the banks and the markets. And as stated above, it is indeed posssible to have a rising gold price coupled with dropping interest rates.

                          Comment


                          • #14
                            Re: the commodities squeeze, chinese exports and the cold war "solution"

                            ps shilling has been recommending tbonds for - literally- decades. and he's been right. but he never said you could have a rising gold price along with falling interest rates.

                            Comment


                            • #15
                              Re: the commodities squeeze, chinese exports and the cold war "solution"

                              Originally posted by Jim Nickerson
                              Now Rosenberg is about the only person I know who might be as smart or even smarter than jk, and when Rosenberg writes something I comprehend and think may be important I pay attention. Rosenberg's strong recommendation took me by surprise. It read to me so strongly that I considered if Rosenberg could have a financial interest in the book, though I cannot imagine that to be the case.
                              Jim,

                              I would just caution you against confirmation bias.

                              You've posted a number of times on the theme of deflation; similarly Rosenberg has historically been a deflationist.

                              Thus you are trusting the word of someone who shares your world view, espousing another who also shares it.

                              Not to say that your collective opinions are wrong - they are/have been certainly right in certain aspects.

                              But until I see a credible end game by Rosenberg/Schilling as opposed to a constant drum banging on deflation, I do not consider them to be reliable for the future.

                              It is this difference in which iTulip shines.

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