Andy Xie: New Bubble Threatens a V-Shaped Rebound

[ThePythonicCow]

Re: Andy Xie: New Bubble Threatens a V-Shaped Rebound

Here is a contrary view as I take it to Xie's perspective, from an emailed report via John Mauldin dated 8/17/09. There probably is a web link somewhere, but I ain't going looking for it.

cobben posted a snippet of this same GaveKal article on the thread GaveKal: "a deflationary boom of epic proportions".

The comments on that thread were not particularly kind to GaveKal.

[ThePythonicCow]

Re: Andy Xie: New Bubble Threatens a V-Shaped Rebound

i think this is a very interesting, worthwhile article. however, it is a bit of a slog, so i've reproduced it below, highlighting what i think is especially important. btw, it is entirely consistent with itulip's analysis and projections.

Andy Xie: New Bubble Threatens a V-Shaped Rebound

Thanks for posting this, jk. Each time I read Andy Xie, I become more convinced that he is one of the sharpest knives in our drawer at present.

[pianodoctor]

Re: Andy Xie: New Bubble Threatens a V-Shaped Rebound

See this comment from FRED, posted in the select section.

Thanks ASH. I literally don't have enough time to read all the comments in all the threads, so it was helpful for you to give me that link. I also decided to seek out all FRED comments in that thread and also found this: "Time will tell if we got the China bubble top correct. Even so we are loathe to short it with conviction because 1) so many others also believe it's a bubble, and 2) the Chinese government can interfere in markets with no operational nor philosophical limitations."

So between that and your link it answers my question pretty well. Uncertainty when to short China, but pretty good certainty the S&P can be shorted, with a fall coming before end 2009.

Shorts n' gold, shorts n' gold. Gotta get me some shorts n' gold.......

[WildspitzE]

Re: Andy Xie: New Bubble Threatens a V-Shaped Rebound

agree that xie's analysis is not identical. i only said "entirely consistent." i think itulip's analysis has been that eventually the fed would raise interest rates, but - as xie says -would stay behind the curve for the most part. see some of the early kapoom charts for that. i think xie's double dip is not caused by the fed raising. i read him as saying the second dip is from the artificial stimulus wearing off, then oil prices go up anyway, then the fed must make a showpiece raise to demonstrate its anti-inflation stance. but i think these delicate issues of timing are 2o to the overall analysis.

I understood what you meant with the general comparison, I just wanted to point out what Fred and EJ have been repeating, which is specific to the [lag in] Fed raising rates vis-a-vis unemployment. My understanding of Xie's comments is that he thinks that unemployment would continue to deteriorate and yet the Fed would raise rates (perhaps as early as the 4th quarter)

Also, I remember reading Fred say something about inflation expectations that would not jive with:

"Another possibility is that expectations alone would be sufficient to bring about general inflation."

I could be wrong with my recollection, metalman can correct me.

All that said, some of my paraphrased take aways are that Xie believes that the:
> Stimulus created a global financial asset bubble.
> Markets dip as people realize that a dip will come in 2010 (huh? my interpretation is that he means the stimulus dries up too) and as people expect that the Fed will raise rates (hence my question, i wonder how much does he think that the Fed's rate hike would affect the dip -- and in reinforcing inflation expectations too).
> Fed overreaction to oil prices (if posturing doesn't work) would cause a deep recession.
> Oil is reflective of the financial asset bubble.
> Oil will continue to go up (I'm not clear what his views are re: oil during the second dip. Also, would be interested to hear what his thoughts are on a second round of stimulus, knowing that the first one will be enough for tons of inflation in the long-term).

Like I said, the article is great but a little tedious in delivery IMO, and so the timing and causality - along with some details - are a bit lost. I like his pieces, that is why I keep on posting them.

[touchring]

Re: Andy Xie: New Bubble Threatens a V-Shaped Rebound

i don't buy this, i think oil is a bubble and pretcher will be spot on.

[iyamwutiam]

Re: Andy Xie: New Bubble Threatens a V-Shaped Rebound

If you buy the dollar hegemony argument-then I would suspect that there will be a ANOTHER concerted effort to increase and sustain the price of oil for a decade or so -until the public gets used to the high price.

Were it not for the primacy of the US dollar in te oil trade -the US would have been forced to declare insolvency. However huge dollar reserves by over 120 nations on earth for the transcational purposes of attaining oil -has allowed the US to virtually print any amount of money -as long as oil remains the peg.

So if the world becomes awash in dollars -the only solution to 'mop' up excess dollars that would return to US shores and ignite a conflagaration like the Weimar Republic days - is to have the world subsidize our continuing debt by haning to hold o n to more dollars.

So a target price of 200-350 a barrel will be needed -down the road.

[jk]

Re: Andy Xie: New Bubble Threatens a V-Shaped Rebound

If you buy the dollar hegemony argument-then I would suspect that there will be a ANOTHER concerted effort to increase and sustain the price of oil for a decade or so -until the public gets used to the high price.

Were it not for the primacy of the US dollar in te oil trade -the US would have been forced to declare insolvency. However huge dollar reserves by over 120 nations on earth for the transcational purposes of attaining oil -has allowed the US to virtually print any amount of money -as long as oil remains the peg.

So if the world becomes awash in dollars -the only solution to 'mop' up excess dollars that would return to US shores and ignite a conflagaration like the Weimar Republic days - is to have the world subsidize our continuing debt by haning to hold o n to more dollars.

So a target price of 200-350 a barrel will be needed -down the road.

i've had a somewhat similar thought. the chinese took over as the biggest purchasers of u.s. debt from the japanese, because the value of u.s. imports from china grew so large. with u.s. discretionary spending down so much, we aren't buying nearly as much from china, so china couldn't buy as many new dollar assets even if it wanted to- which it doesn't. however, oil prices have remained sticky even as inventories have swelled to capacity. [this partly reflects financial movement into oil as a store of value.] supply has become increasingly constrained, as well documented in grg55's thread on supply destruction, and as reflected in some writings at gregor.us, which i have posted. mexican production, in particular, is down and imports of energy from mexico are likely to halt entirely by 2011 [according to gregor]. ANY SMALL IMPROVEMENTS IN u.s. and global GDP WILL BE ACCOMPANIED BY INCREASED ENERGY CONSUMPTION, which will quickly hit a ceiling of constrained oil production, causing a spike in energy prices. this will constrain global growth except to the degree we are able to move to other energy sources and/or improve the "productivity" [efficiency] of our oil consumption.

in the meantime, however, money flows to middle eastern oil producers will grow enormously. the maintenance of "friendly" governments in that region is key, because as long as oil is priced in dollars we will rely on these governments to recycle their dollar incomes into tbonds [mostly via their investment vehicles domiciled in london].

in this scenario, high oil prices will support high u.s. deficits. the risk is in maintaining friendly middle eastern governments. because if the oil producers move away from the dollar, we have the problem of funding our deficits- both domestic and trade, funding our oil import purchases in particular, and - even more dangerous- destroying the willingness of current dollar asset holders to continue holding.

[WildspitzE]

Re: Andy Xie: New Bubble Threatens a V-Shaped Rebound

If you buy the dollar hegemony argument-then I would suspect that there will be a ANOTHER concerted effort to increase and sustain the price of oil for a decade or so -until the public gets used to the high price.

Were it not for the primacy of the US dollar in te oil trade -the US would have been forced to declare insolvency. However huge dollar reserves by over 120 nations on earth for the transcational purposes of attaining oil -has allowed the US to virtually print any amount of money -as long as oil remains the peg.

So if the world becomes awash in dollars -the only solution to 'mop' up excess dollars that would return to US shores and ignite a conflagaration like the Weimar Republic days - is to have the world subsidize our continuing debt by haning to hold o n to more dollars.

So a target price of 200-350 a barrel will be needed -down the road.

Absolutely.

[touchring]

Re: Andy Xie: New Bubble Threatens a V-Shaped Rebound

If you buy the dollar hegemony argument-then I would suspect that there will be a ANOTHER concerted effort to increase and sustain the price of oil for a decade or so -until the public gets used to the high price.

Were it not for the primacy of the US dollar in te oil trade -the US would have been forced to declare insolvency. However huge dollar reserves by over 120 nations on earth for the transcational purposes of attaining oil -has allowed the US to virtually print any amount of money -as long as oil remains the peg.

So if the world becomes awash in dollars -the only solution to 'mop' up excess dollars that would return to US shores and ignite a conflagaration like the Weimar Republic days - is to have the world subsidize our continuing debt by haning to hold o n to more dollars.

So a target price of 200-350 a barrel will be needed -down the road.

for all we know, in 15 years, china and Japan will be running electric cars. The US will be the only major country still importing oil from the middle east.