The truth about globalization is that it not only robbed the US economy of its manufacturing capability and its high paying manufacturing jobs, it is causing inflation in fuel and metals prices.
"On the other hand, not all aspects of globalization and trade reduce inflation. For example, globalization has been associated with strong growth in some large emerging-market economies, notably China and India, and this growth likely has contributed to recent increases in the prices of energy and other commodities. During 2003-05, for example, China alone accounted for nearly one-third of the growth in both global real gross domestic product (GDP) and oil consumption.
It is difficult to assess the exact extent to which increased demand by developing countries has contributed to the run-ups in commodity prices in recent years, as these prices are also affected by supply conditions and other factors. However, one study estimated that, if the share of world trade and world GDP enjoyed by non-industrial countries had remained at its 2000 levels, then by 2005 real oil prices would have been as much as 40 percent lower, and real metals prices 10 percent lower, than they actually were (Pain, Koske, and Sollie, 2006).
Accordingly, in the past several years, the effect of growth in developing economies on commodity prices has been a source of upward pressure on inflation in the United States and other industrial economies.
When the offsetting effects of globalization on the prices of manufactured imports and on energy and commodity prices are considered together, there seems to be little basis for concluding that globalization overall has significantly reduced inflation in the United States in recent years; indeed, the opposite may be true. Chairman Ben S. Bernanke, March 2, 2007
Thursday, March 29, 2007
Saturday, March 24, 2007
The PBS story
Nightly News on PBS has a story about condominium developers who have sued and obtained judgment from people who had contracted to buy 18 months ago. The price of the condos has fallen by 20% and the potential buyers simply wanted to walk away from their deals, losing only their deposits. The courts in Florida have sided with the developers and awarded judgments for the full original price.
I can not imagine why these people did not understand that they were always responsible for the full price.
I can not imagine why these people did not understand that they were always responsible for the full price.
Read John Mauldin's letter 3-23-07
Here is the linkhttp://www.2000wave.com/article.asp?id=mwo032307 , and this is portion that shocked me:
Now That's Cheap! I can hear you say, "It can't happen, John. Who would sell a home for less than 50% of what it cost?" So, let's go to the second story, courtesy of Dennis Gartman (see more on him below). Instead of my telling the story, since he's the far better storyteller, let's see what he has to say under a closing headline of "Now That's Cheap": "Knowing when something has gotten cheap is an art reserved to either the very wisest among us, or the very lucky, or at times the very stupid. It is not an art we are given to, although clearly we have some acquaintance with the latter. But sometimes even we can know when something has gotten cheap.... even very so, and it would appear that housing in Detroit, Michigan has gotten very, very cheap. Allow us to explain. "We were sent an article yesterday from Yahoo! News detailing the levels to which housing prices in Detroit have fallen, and they have fallen very far indeed. Apparently last week, a Texas auction firm was commissioned to sell off a number of homes there. The prices were unbelievably cheap, with 'house after house [selling] for less than the $29,000 that it costs to buy the average new car.' The auctioneer became so exercised that he enjoined the audience with the simple statement that 'Folks, the ground underneath the house goes with it. You do know that, right?' Several houses that went by the boards sold for less than $10,000... some even for less than $7,000. As one participant said, 'You cannot even buy a good used car for that!' "He's right. One gentleman, who a year ago thought he was buying a series of 'bargains' when he paid $70,000 for a number of houses, only to watch as houses of the same relative value in the same neighborhood sold over the weekend for half that. The gentleman in question apparently was not prepared to average down. "Sadly, these 'bargains' are not only in seedy, run-down depressed portion of the city. We read where a house in Bloomfield Hills, an area of the city we've been to several times in the past two years and is really very, very nice indeed, which had been listed for $525,000 sold for $130,000! Five years ago, at $525,000 the house was a bargain; at $130,000 it is even 'bargain-er.' However, when nice, tidy, small houses begin to sell for less than the price of a nice, tidy, used car, either cars are expensive or houses are inexpensive... or both. Now, how do we do the arb?"
Although this is only anecdotal it portends serious consequences. When I was a youngster in the 1930s depression I recall that my parents who lived in a high rise apartment house in the Bronx were afraid to spend $1500 for a foreclosed house that had been built in the 1920s at a cost of over $120,000. They were afraid not just of the comparitive cost of ownership vs cost of renting, they were afraid that the depression was a permanent condition and that the events in Europe were a precursor of war.
Now That's Cheap! I can hear you say, "It can't happen, John. Who would sell a home for less than 50% of what it cost?" So, let's go to the second story, courtesy of Dennis Gartman (see more on him below). Instead of my telling the story, since he's the far better storyteller, let's see what he has to say under a closing headline of "Now That's Cheap": "Knowing when something has gotten cheap is an art reserved to either the very wisest among us, or the very lucky, or at times the very stupid. It is not an art we are given to, although clearly we have some acquaintance with the latter. But sometimes even we can know when something has gotten cheap.... even very so, and it would appear that housing in Detroit, Michigan has gotten very, very cheap. Allow us to explain. "We were sent an article yesterday from Yahoo! News detailing the levels to which housing prices in Detroit have fallen, and they have fallen very far indeed. Apparently last week, a Texas auction firm was commissioned to sell off a number of homes there. The prices were unbelievably cheap, with 'house after house [selling] for less than the $29,000 that it costs to buy the average new car.' The auctioneer became so exercised that he enjoined the audience with the simple statement that 'Folks, the ground underneath the house goes with it. You do know that, right?' Several houses that went by the boards sold for less than $10,000... some even for less than $7,000. As one participant said, 'You cannot even buy a good used car for that!' "He's right. One gentleman, who a year ago thought he was buying a series of 'bargains' when he paid $70,000 for a number of houses, only to watch as houses of the same relative value in the same neighborhood sold over the weekend for half that. The gentleman in question apparently was not prepared to average down. "Sadly, these 'bargains' are not only in seedy, run-down depressed portion of the city. We read where a house in Bloomfield Hills, an area of the city we've been to several times in the past two years and is really very, very nice indeed, which had been listed for $525,000 sold for $130,000! Five years ago, at $525,000 the house was a bargain; at $130,000 it is even 'bargain-er.' However, when nice, tidy, small houses begin to sell for less than the price of a nice, tidy, used car, either cars are expensive or houses are inexpensive... or both. Now, how do we do the arb?"
Although this is only anecdotal it portends serious consequences. When I was a youngster in the 1930s depression I recall that my parents who lived in a high rise apartment house in the Bronx were afraid to spend $1500 for a foreclosed house that had been built in the 1920s at a cost of over $120,000. They were afraid not just of the comparitive cost of ownership vs cost of renting, they were afraid that the depression was a permanent condition and that the events in Europe were a precursor of war.
Friday, March 23, 2007
Hyperinflation in the US, Not now.
The way some people, even some very smart and sophisticated people, talk about the government printing money to support the economy, one should be afraid of imminent hyperinflation. I'm not because it isn't true. The US economy is presently supported by an overabundance of credit not actual money. As long as the abundant availability of credit continues the US government doesn't have to supply (print) an overabundance of money. It doesn't even have to collect sufficient taxes to support ever increasing and more expensive governmental functions because like the consumer the government is also supported by an overabundance of credit.
I would not be at all shocked if the US government does not back all this debt with its full faith and credit since it has not assumed a legal obigation for a lot of it, e.g., Fanny Mae and Freddie Mac debt, and no one can expect it to assume state and municipal governmental debt even though much of that debt is related to Federal governmental mandates or requirements.
I would not be at all shocked if the US government does not back all this debt with its full faith and credit since it has not assumed a legal obigation for a lot of it, e.g., Fanny Mae and Freddie Mac debt, and no one can expect it to assume state and municipal governmental debt even though much of that debt is related to Federal governmental mandates or requirements.
Trading in a bear market
Trading in a bear market is difficult and hardly worthwhile. It is difficult because because accumulation zones are often not trustworthy, so that buying in an accumulation zone is more risky than it should be. For example, if one had bought AMD in the accumulation zone that occurred in the mid 20s, one would have a substantial loss. I did not.
It is hardly worthwhile to buy an equity in the accumulation zone, because the added risk requires that the amount of the "bet" be so small that if a loss occurs it will not hurt much. However, the gain that might be made is so small in relation to the total portfolio that is is not worth the risk. So, why bother to make such trades in a bear market.
Of course, there is always the double inverse ETFs. But there is a lot of risk here too. The first is that the wall streeters have access to so much credit that they probably could force the averages to new highs on a whim. The second is that the derivatives in the reverse ETFs have never been really tested for counterparty solvency if the indexes really do fall by say 25%.
It is hardly worthwhile to buy an equity in the accumulation zone, because the added risk requires that the amount of the "bet" be so small that if a loss occurs it will not hurt much. However, the gain that might be made is so small in relation to the total portfolio that is is not worth the risk. So, why bother to make such trades in a bear market.
Of course, there is always the double inverse ETFs. But there is a lot of risk here too. The first is that the wall streeters have access to so much credit that they probably could force the averages to new highs on a whim. The second is that the derivatives in the reverse ETFs have never been really tested for counterparty solvency if the indexes really do fall by say 25%.
Wednesday, March 21, 2007
Happy Fed Day 3-21-07
Look at that coordinated, fast, strong and simultaneous buying of the big banks on release of the Fed's meeting statement, e.g. LEH 71.94 at 2:14PM tp 75.15 at 3:01PM.
Sunday, March 18, 2007
Inverse ETFs
I investigated the inverse ETFs because there is a very good chance that the US stock markets will drop dramatically in the near future. Wall street invites us to profit from the drop by investing in 200% inverse ETFs. But I have long ago learned that wall street is a master of deception. The QID which twice inversely tracks the Nasdaq QQQQs has the following statement in its description: "The Fund employs leveraged investment techniques to achieve its investment objective, which may expose the Fund to potentially dramatic changes (losses) in the value of its portfolio holdings ." This is a black box product using derivatives. The profile of the SDS which twice inversely tracks the S&P 500 states that it uses derivatives. Therefore, I have decided to not use these products. Who needs unanticipated dramatic losses.
I am content to make money the conservative way by waiting for good stocks to enter their accumulation zones, accumulating them there and selling when they are in their distibution zones.
I am content to make money the conservative way by waiting for good stocks to enter their accumulation zones, accumulating them there and selling when they are in their distibution zones.
Friday, March 16, 2007
It is common knowledge that the economy is floundering, that builders and their suppliers are struggling, that mortgage lenders are sinking, and that perhaps as many as 2,000,000 homes will be foreclosed. The most important question is what will the US government do. Will it try to pump up the economy with more debt? Will it save the mortgage bankers by using Fanny and Freddie to buy a $trillion of their defaulted mortgages? Or, will it preserve domestic tranquility by aborting the foreclosures?
I believe that the government cannot avert an economic slowdown. It cannot prevent a recession. And, it probably will cause a depression because our elected representatives will do what they always do, i.e., the bidding of the lobbyists.
I believe that the government cannot avert an economic slowdown. It cannot prevent a recession. And, it probably will cause a depression because our elected representatives will do what they always do, i.e., the bidding of the lobbyists.
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