By: jaymarcel
27/10/2009
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Hi jades sorry I'm a bit behind as I've been away & now trying to play catch up on these forums, but I agree with your comment to Menta on the 16/10 at 7.30pm about reading others books & articles as they are almost always bias towards their investments (I'm a good example with my property rants even though I claim to be unbias, keen sells his property then talks of property crashes).
Getting out there & using (hard to find) unbias data is the way to go.
One thing I do agree on with Menta is I think gold is close to its peak for now & as the recovery arrives it will start to fall.
I've forgotten who replied to my inflation question but thanks anyway, I thought house prices also were included in inflation calculations.
That appears to be the biggest problem with our system, prices of everything goes up so inflation goes up so our wages go up so prices go up. |
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By: lasty49
27/10/2009
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Menta,
Here lies your problem..
China has $2.3 Trllion in reserves much of those are in US dollars..
If their stimulus dries up do you honestly think they will leave that money in a foreign bank account whilst they see their own country crumble? |
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By: ang101000
27/10/2009
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Menta,
'The real risk is that once the Chinese stimulus dries up'; Yes, agree with your view: that is an 'enormous' risk and it is a risk in every developed country not just the developing world.
Thank God, there is also India, which is even more resource poor than China.
That is not to say that I agree with the type of economy Australia has. It infuriates me! This society places the highest financial reward on digging up and shipping commodities to Asia. There are more intelligent way to make money than to rely on selling the dirt from under your feet.
Oh well, perhaps I'm regretting of spending time learning useless subjects instead of becoming a miner (: |
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By: mentawaisurf
26/10/2009
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Ang, your faith in China's economic revival of Australia's fortunes reminds me of the same misplaced faith in Ja pan's booming economy during the late 1980s. Likewise, back then it was Ja pan's insatiable appetite for our resources and their booming economy that would ensure our economy prospered and their seemingly unlimited investment would keep our asset bubbles inflated. I remember here on the Gold Coast the growing anti-Ja panese sentiment blaming their huge investment for pushing up real estate prices at the expense of the locals. Only a few years later these same locals were buying properties back from the Ja panese at half and even a fifth of the price that they sold them for. But I digress...
China's stronger GDP figures largely shows a speculative bubble has kicked off in Chinese assets thanks to expanded bank lending and the huge government stimulus. What's more, it will takes years for an economy as large as China's to shift from an export driven model to a domestic consumption model. They still remain highly dependent on US consumer spending for sustainable economic growth.
The real risk is that once the Chinese stimulus dries up, so too will demand for Australian resources. Also, China will see a major correction in the stock market (up over 100% this year) and in real estate. The unprecedented liquidity boom in China will have to give way to an asset bust. For Australia it means the recovery from the March lows is imperiled by the reality that recent Chinese resource demand has been largely artificial.
China's New 'Great Wall' Built on Easy Money, Speculation and Toxic Debt;
http://finance.yahoo.com/tech-ticker/article/29100 0/China%27s-New-%27Great-Wall%27-Built-on-Easy-Mon ey-Speculation-and-Toxic-Debt?tickers=FXI,FXP,RTP, PGJ,XPP,TAO,EEM&sec=topStories&pos=9&asset=&ccode= |
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By: ang101000
25/10/2009
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continued
At its core, despite embracing many aspects of the market, China runs a top-down, command-and-control economy, and its success so far in skating through the recession relatively cleanly may encourage other developing countries to adopt its brand of capitalism.
A few years ago, the notion that China could drive global growth, would have seemed absurd. After all, China's economy was dependent on manufacturing, which was in turn dependent on demand from the U.S., the world's undisputed economic locomotive. But that engine remains sidetracked. The IMF predicts the U.S. economy will contract 2.6% this year. American home prices continue to fall in some cities, while the unemployment rate has soared to 9.5%, the highest since 1983. The U.S.'s much ballyhooed stimulus plan has so far yielded little measurable benefit, save putting some spark back in stock markets. The absence of real signs of recovery has Washington discussing the possibility of yet another round of stimulus spending, despite a ballooning federal budget deficit.
The speed and relative success so far of China's stimulus stands in stark contrast with that of the U.S. According to a recent study by the World Bank, Beijing's government spending will generate more than 80% of the country's overall economic growth this year. This is partly because China was already in the midst of a nationwide infrastructure program when the recession hit. Emergency spending measures simply added to existing schemes already under way. In other words, the projects really were shovel ready, and the money hit the streets quickly, and in large dollops. Outlays on new railway construction, for example, were $41 billion last year. They will be $88 billion this year. Says one senior FORTUNE 500 executive: 'In the U.S., NIMBY [not in my backyard] is still the order of the day, whereas in China it's more like IMBY. They build where they want, when they want. And they move fast.' |
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By: ang101000
25/10/2009
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Menta,
Your analysis is very sound and true for USA, not Australia. It is true: the US consumer market is still the largest in the world, and as such, global economic recovery is dependent on the return of the US consumer spending and confidence.
However, Australia's economic growth is more reliant on its mineral resources and intellectual resources/services (exp education) exports to China and Korea than on the trade (mostly imports) with USA.
The U.S. has a $14 trillion economy; China's is $4.4 trillion. The U.S. accounted for nearly 21% of total global GDP last year; China just 6.4%. Chinese consumption, in other words, is growing; but is still insufficient to lift the world's advanced economies out of recession. Consumer spending drives less than 40% of China's GDP; in the U.S. before the bust, the consumer accounted for almost 70%.
China had a slump in exports late last year, but on the back of a $586 billion government stimulus program (about 13% of GDP, spread over two years), China has snapped back. The economy will expand 8% or more this year. Numbers alone do not capture the sense that the balance of global economic power is shifting eastward.
Nations that depend on producing commodities, such as Australia and Brazil, have benefited immensely from the Chinese demand. Overall, the International Monetary Fund (IMF) forecasts that in the three years from 2008 to 2010, China will, astonishingly, account for almost three-quarters of the world's economic growth.
In recent months, Beijing has started to throw its weight around. China seeks (and will almost certainly soon get) greater voting rights in the IMF. In June, China bought up to $50 billion in bonds issued by the IMF to boost the fund's capacity to deal with the global financial crisis.
Beijing never signed the Washington Consensus (1990) on global economic policy, which called for free trade, privatization, light regulation, prudent fiscal policies and free capital flows. |
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By: jadeshangrila
25/10/2009
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| Menta, the 1970's oil crisis, caused inflation and stunted economic growth for years. Those were the time where the Arabs stoped export of crude oil to the West because of the Arab- Isreal war. Those were the years where many inner city houses were turn into blocks of units and everyone wanted to live near the city because of expensive petrol. I hope I am wrong this time, but if there was another oil crisis, where supply cannot meet demand than we can have prolong expensive petrol again and people will be forced to live closer to cities. Inner city houses with large blocks suddenly sound a lot more attractive as medium term investments, waiting for it's time to be converted to blocks of units.. |
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By: lasty49
25/10/2009
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Menta
how many banks in the US ?
You will find there are over 8000 banks in the US.
So the alarmist again grabbed a headline.
Anyway I'm getting a gut feel that this rally has found a temporary top.
I'm not in the bear camp just yet but I'm starting to sense that the bull has run out of puff chasing the red rag. |
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By: mentawaisurf
24/10/2009
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This trend could be the trigger for the next more severe phase of the GFC. That of a banking system collapse which will be further exacerbated as commercial real estate loans default (and the trillion-dollar CMBS market falls globally) coupled with the next wave of mortgage defaults which could shatter the already cracked US housing market (ARM's and Option-A mortgages which reset from late 2009 and don't peak until 2011). The banking collapses in the US continue to gain momentum - regardless of what the US government, regulators or central bank try to do.
Regulators shut down 106 banks so far this year with hundreds more expected. This compares with 25 bank failures last year and three in 2007. The financial crisis just took a breath before gathering pace again.
As the economy has soured - with unemployment rising, home prices tumbling and loan defaults soaring - bank failures have cascaded and sapped billions out of the deposit insurance fund. Losses on home mortgages continue to rise while delinquencies on commercial real estate loans remain a hot spot of potential trouble. If the recession deepens, defaults on the high-risk loans will spike. Many regional banks hold large numbers of them.
The number of banks on the FDIC's list of problem institutions leaped to 416 from 252 in the first quarter.
US Bank failures h it 106 for the year; many more are weak and could be shuttered
http://finance.yahoo.com/news/US-bank-failures-hit -106-for-apf-2725707666.html?x=0&sec=topStories&po s=main&asset=&ccode= |
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By: jadeshangrila
23/10/2009
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| Menta, the next GFC will be due to shortage of crude oil and not debt deflation. If it was debt deflation crude has a endless limitless supply, it will be cheap like 10USD a barrel. A good summary about peak oil can be found on Wilkepedia. Crude oil is at 81 USD today and heading up. We have sold half the non energy related stocks. |
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By: mentawaisurf
23/10/2009
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| Extreme positive sentiment readings on stocks, commodities, oil and gold, coupled with extreme negative sentiment on the USD, signals that the world is betting on an inflationary expansion. Given markets are a paradox, especially when everyone is on the same side of the trade, we should in fact be preparing for a deflationary contraction. |
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By: ang101000
23/10/2009
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Menta,
Goldmans profitability (in theory) should be a very positive sign that 'unprecedented bailouts, government guarantees and stimulus and central bank monetary expansion' is working.
Given that the G20 governments jointly decided to 'save' the banks with taxpayers money ( without asking taxpayers) I hope, all financial institutions are now in a position to fulfill their social responsibility and contribute their proportional (increased) share to the gov tax revenues_ commensurate with their 'excellent earnings' results. |
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By: jadeshangrila
22/10/2009
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| Oil up above 80 USD a barrel it is giving me the shivers. I have lighten up on non energy stocks. Best to move to safer waters safe when oil goes up. |
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By: lasty49
22/10/2009
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Thats going to be disappointing for all those restaurants and services in the Wall St area.
Of course bonuses are envied by many but its amazing how many feed off them. |
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By: mentawaisurf
22/10/2009
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Al, regarding GS - hubris will be their downfall. As I posted previously on the Greed is Bad blog;
What has Wall Street learnt from the GFC? Not much apparently. Goldman Sachs just reported a $3.19 billion net profit which no doubt was celebrated by all at GS because it means a return to the fat bonuses that they've grown accustomed to over the last decade or more of incentive fuelled risk taking. But the result was due to strong trading profits on the back of borrowing from the Fed at near 0% and leveraging into a major bear-market rally. Little revenue was actually made from sustainable investment banking services. Such a rapid return to highly leveraged market speculation, which is precisely what attributed to the initial GFC, is what will lead to the next even more damaging GFC.
Meanwhile, despite unprecedented bailouts, government guarantees and stimulus and central bank monetary expansion, banks bad and doubtful debts continue to rise, foreclosures are still at record levels while CRE loan write-downs and pending defaults are yet to be addressed. Yet Wall Street celebrates as Main Street suffers. Such disconnect is simply unsustainable. Wall Street will plunge into Fall Street - yet again. Only this time they won't benefit from such a rapid taxpayer rescue. |
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By: ang101000
22/10/2009
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Hi Al,
Agree, very honest and very well written, thanks. Please see my reply on the same for Billy from this morning on Keens prediction. Hope you don't despair.
AJ |
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By: almurrie1@y7mail.com
21/10/2009
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Menta
where does Goldman Sachs and the like fit in the picture?
10 billion debt PAID BACK to Us govt. since the start of the year, leaving 3 billion profit, half of which is going as bonuses to staff, av $550,000 EACH!!! How can you be worried about refinancing derivatives? They will just print more money and lend it to themselves. And don't say they are not printing money, when the US mint is putting out 18 million new notes a DAY, and goodness knows how many coins. They need to do this just to keep up with the new money being created electronically every day, so that there will be enough in circulation for the less than 10% of the total transactions that occur using legal tender.
I wouldn't worry about the future, there will be no collapse yet, but when the time is right we will just move on and leave that strange antique idea of money behind us. What strange beings we are to create something out of nothing and then covet it, because it represents power over others. BUT Only if we all let it!! I know in my heart that the only thing of true value is how we can help others, everything else is self serving egoism and will soon be redundant.
Al |
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By: mentawaisurf
21/10/2009
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That was of course meant to read -0.6% PPI.
U.S. producer prices drop 0.6% in September
Oct. 20, 2009
...Economists generally agreed that the report showed inflation is a non-issue.
"There is no evidence of inflation or of developing inflation pressures anywhere in this report," said Robert Brusca, chief economist at FAO Economics, in a note to clients.
http://www.market watch.com/story/us-wholes ale-inflation-down-06-in- september-2009-10-20
Australia may see a slight temporary rise in Q3 inflation due to the strong rally in commodity prices feeding into prices. But as deflation intensifies moving forward, the Inflation Genie is not only firmly back in her bottle, she'll then be tossed far out to sea. |
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By: akdoc1
21/10/2009
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True Australia is a giant quarry but so are some of the African countries that the J@panese and Chinese have been investing in. Oil however is different to other commodities effecting all sectors within a very short time frame; as oil prices rise instead of acting as a lubricant for economies high oil prices act as a giant brake the higher prices rise, the more economies slow down as all other prices are forced up. Oil is a short term necessity especial in winter to colder countries, other commodities become less important as more resources are poured into buying oil, imports drop.
J@pan is already cancelling a major dam project and lots of smaller ones, diverting funds into social welfare to try stimulating the local industries. They are increasing protectionism for farmers, both land and fish farming. To assume that our export resource are a secure form of income when they are dependant on other countries exports, like J@pans car industry which is flat on its back does not seem the best move to me.
J@pan has gone from being a country with trillions in their piggy bank to a borrowing nation within a year. Increased oil prices will hit J@pan that hard imports will be reduced again which means less demand for resources. We may be a big quarry but we need to sell what comes out of it. |
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By: mentawaisurf
21/10/2009
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| Even with the recent surge in commodity prices, and oil doubling from its low, wholesale prices in the US fell in September, leaving a larger-than-expected monthly drop in the producer price index (-.06%). Commodities have been rising right along with stocks in a major-degree bear market rally that now has everyone believing it just must continue. This is based on expectations for inflation, economic growth and a further weakening USD. It seems EVERYONE is now bearish on the USD, just like the herd were bearish on gold in 2001 when it was actually a great buying opportunity at only US$250/oz. Now gold is 4 times the price everyone wants to buy it! But gold is only a good investment during high or hyper-inflationary environments. That is the great fear of the herd. But in reality the global deflation is just taking a breather before intensifying. Then the fear of losses will see the herd stampede out of stocks and commodities and rush back into the 'relative' safe haven of the USD. As outlined previously, this key trend change is looming. |
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By: lasty49
21/10/2009
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Akdoc,
Commodities have become "new currencies".
Australia is a giant quarry. As commodity prices rise so will Australia's income.
Countries like J8pan who are importers of raw materials will find the going tough. |
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By: akdoc1
21/10/2009
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| Lasty, high oil prices were a major factor in triggering the econnomic slow down resulted in the last big collapse. Countries around the world are less able now to deal with increased oil prices than they were then reguardlesss of currency strengths. It is even going to bite us soon never mind them. |
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By: ang101000
20/10/2009
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Menta,
Are you expecting the US to 'export' its deflation to Aus?
It will not going to happen. Do a sensitivity analysis, it will prove my point. |
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By: ang101000
20/10/2009
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Inflation?/Deflation?
Why can't we just state the obvious; there is inflation (or at least an expectation of it) in Australia and there is deflation in US (I think, it is about -1.6/7/annualized?). (see IMF for all other countries, I don't see the need to list)
http://www.imf.org/external/pubs/ft/weo/2009/02/in dex.htm
Your inflation/deflation argument reminded of that famous Indian story of six blind men who came upon an elephant (which I am sure you all know but here it is):
The first man touched the elephant's leg and announced, 'The elephant is a pillar.' The second man touched the tail and disputed the first, saying, 'Oh, no, it is like a rope.' The third touched the trunk of the elephant and said, 'It is like a thick branch of a tree.' The fourth touched the elephant's ear and said, 'It is like a big hand fan.' The fifth blind man touched the belly of the elephant and declared, 'It is like a huge wall.' And the sixth man touched the tusk of the elephant and said, 'It is a solid pipe.'
According to Kashmir Shaivism, different philosophical approaches to life & universe are like the different interpretations of these six blind men. All these blind men are both right and wrong, with each giving a different piece of the puzzle of what an elephant really is. Each viewpoint is valuable to consider and contemplate, but you wouldn't want to limit your understanding of the elephant (or inflation/deflation) to any one definition or close the door to other possibilities.
Sorry, don't expect 'good' arguments from me this week. |
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By: lasty49
20/10/2009
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Menta,
With the rise in current commodity prices v US dollar this surely must have an inflationary affect in the US.
Other countries because of their currency strength havent shown that much of a concern as commodity prices have risen with their appreciating currencies.
Oil has double in value from $40/barrel to $80/barrel but not much real difference at the pump.
Its going to bite them real hard soon.
The only thing its saving them is the unemployment where people arent driving to work.
They are in for a shock.. |
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