Financial topics

[Higgenbotham]

Another article about structural GDP but with a nice graph and more detail.

http://www.marketoracle.co.uk/Article28046.html

[Higgenbotham]

But you are right, after the dollar fails the balance of trade needs to really balance out. So either the USA exports far more stuff to replace the paper money they used to export, or they import far less, or some combination. Part of this can be more people in the US working in manufacturing. Given how cheap people work in China and India, it is hard to imagine people in the US getting wages near what they have in the past.

The balance of trade needs to even out anyway and could do so on its own. I don't know if it was the article Old posted, but the LA Times ran an article a few days ago saying European manufacturers are projecting that it will be as cheap to manufacture in the US as it will be in China by 2015. If the big financiers have figured this out, they may be assuming that hyperinflation is largely off the table. Which might explain why a number of them, including Soros, dumped their gold last quarter. Paulson kept his gold as of the end of last quarter. I read that in a report this morning on the SEC filings, which I think are due 45 days after the end of the quarter.

What I'm really saying bottom line is that being in a position to revert back to a basic manufacturing economy reduces the chance of hyperinflation versus not having that avenue open. I think the market underestimated that in the recent precious metals spike. Also, if manufacturing becomes cost effective overall in the US by 2015, certain sectors will become cost effective before 2015.

[vincecate]

But you are right, after the dollar fails the balance of trade needs to really balance out. So either the USA exports far more stuff to replace the paper money they used to export, or they import far less, or some combination. Part of this can be more people in the US working in manufacturing. Given how cheap people work in China and India, it is hard to imagine people in the US getting wages near what they have in the past.

The balance of trade needs to even out anyway and could do so on its own.

As long as the Arabs and Chinese are willing to accept pieces of paper with pictures of dead men on them and send ships full of oil or other goods, then US trade does not need to balance. I think it has mostly not been balanced for the last 50 years. If the US had not gone crazy on the money printing it could have lasted longer. As it is, I think this will end in the next few years and trade will have to balance.

[OLD1953]

There are a number of reports out on China/US manufacturing costs now. I guess it's that hundredth monkey syndrome, suddenly everyone jumped on something I'd picked up on some time back, that China's costs were increasing much faster than the US costs, that raw material costs in Asia were up and the US was shipping raw materials to Asia that were being shipped back as finished goods, which only makes sense if shipping is free, etc. I've posted several times here that all signs were pointing to the US as the new industrial hub, and now the analysts have jumped on it suddenly. Makes me wonder what's in those private newsletters they make you pay for, if they are picking up on the trends earlier than they publish them in public fora.

http://www.pddnet.com/news-fabricators- ... 16-051911/

That all falls right into line with the idea of the US taking the German position in the last round of world changes, where Germany was first out of the Depression and was doing much better than any other country for years.

Vince, trade always balances in the sense that all parties to a deal get something they value equivalently to the goods exchanged. It looks to me like it balances over long periods of time as well, good outflows over long periods balance good inflows, but never on the short term. Looking at the charts of trade for any country makes me think they tend to zero over long periods if you use constant units and account for value added. Makes sense anyhow, you can't pump air out of a balloon forever without putting more in at some point, else it goes flat.

An indicator that things are changing in DC :

http://www.nytimes.com/2011/05/20/us/po ... ealth.html

Which is much more what I'd be expecting to hear during a crisis than "business as usual is great". It also signals that the politicians know the big drop can't be put off much longer, so the scapegoats are being prepared.

[Higgenbotham]

Now 100% short on the Osama news. My average entry is 5 S&P points under the current price (that means I'm under water on this trade).

I'm with you. Friday had order in @ 1362 which was filled at the run up at close. Felt pretty good until the Sunday night when the market spiked, and hadn't heard the news of OBL. When I found out what caused the spike, kept thinking of "buy the rumor, sell the fact".

This is quoted from the inflation/deflation thread. Seems like there's a reasonable chance we hit the top of the market. I've traded enough out of the market in the past two weeks to get my average entry from 1361 up close to the post Osama euphoria peak - 1373. Reading some of the trading forums the past couple days, it seems like retail short sellers are gone except for in and out traders. They are agonizing over 10 point swings and their emotions are swinging accordingly. Therefore, it seems like a relatively good time to stay short, get away from the screen, and see if the Osama high can hold. The LEI was released today and it was negative, and I've already noticed the ECRI WLI has been declining the past few weeks, even before the stock market started falling. Chartwise, there are good comparisons to 2007 that nobody so far as I know has commented on. Drawing a horizontal line across the July 2007 and February 2011 highs and comparing the action after those highs shows the similarity, as in October 31, 2007 could = May 18/19, 2011 among other things.

[vincecate]

Vince, trade always balances in the sense that all parties to a deal get something they value equivalently to the goods exchanged. It looks to me like it balances over long periods of time as well, good outflows over long periods balance good inflows, but never on the short term. Looking at the charts of trade for any country makes me think they tend to zero over long periods if you use constant units and account for value added. Makes sense anyhow, you can't pump air out of a balloon forever without putting more in at some point, else it goes flat.

For almost all countries this is true, over long periods trade should about balance. However, the country that prints the world reserve currency does not have to balance. So the US is different from all the other countries, as long as the dollar is the world reserve currency. This may not be much longer though as the US does not operate the dollar in interest of the world but only in the interest of the US. The more the US prints and sends out to the rest of the world the more real wealth the US gets. But at some point the rest of the world will realize this is not a good deal for them.

[Higgenbotham]

For almost all countries this is true, over long periods trade should about balance. However, the country that prints the world reserve currency does not have to balance. So the US is different from all the other countries, as long as the dollar is the world reserve currency. This may not be much longer though as the US does not operate the dollar in interest of the world but only in the interest of the US. The more the US prints and sends out to the rest of the world the more real wealth the US gets. But at some point the rest of the world will realize this is not a good deal for them.

You say the more the US prints the more real wealth it gets, but as I pointed out to my Congressman, well, here's what I told him...'There are big problems this self-reinforcing chain of events creates. As the above happens, more of these newly created dollars flow into the economies of our trade partners. Due to the threat that Bernanke's policies imply, our trade partners will not want to increase their reserves of dollars for various reasons. Instead, they will "do something" with the excess dollars. For example, they may buy another American company that has become uncompetitive due to these policies and move it to Asia or use the dollars to create a new company that targets a weak American competitor. This further weakens the American economy and creates the "need" for more "quantitative easing".'...It's not a good deal for the US either, just Wall Street.

[vincecate]

For almost all countries this is true, over long periods trade should about balance. However, the country that prints the world reserve currency does not have to balance. So the US is different from all the other countries, as long as the dollar is the world reserve currency. This may not be much longer though as the US does not operate the dollar in interest of the world but only in the interest of the US. The more the US prints and sends out to the rest of the world the more real wealth the US gets. But at some point the rest of the world will realize this is not a good deal for them.

You say the more the US prints the more real wealth it gets, but as I pointed out to my Congressman, well, here's what I told him...'There are big problems this self-reinforcing chain of events creates. As the above happens, more of these newly created dollars flow into the economies of our trade partners. Due to the threat that Bernanke's policies imply, our trade partners will not want to increase their reserves of dollars for various reasons. Instead, they will "do something" with the excess dollars. For example, they may buy another American company that has become uncompetitive due to these policies and move it to Asia or use the dollars to create a new company that targets a weak American competitor. This further weakens the American economy and creates the "need" for more "quantitative easing".'...It's not a good deal for the US either, just Wall Street.

I agree it is a bad policy and that when the world finally does something it will be very painful for the US. But today when Bernanke prints some money and loans it to the electric company at 2% over 10 years they can send it to Saudi Arabia and get some oil. It is almost as if the US is just printing pieces of paper and getting real stuff from the rest of the world. On net this printing money hurts the rest of the world more than the US, for now. The rest of the world is giving up real wealth and the US is giving up pieces of paper with pictures of dead men on them. At some point the rest of the world must do something though. Then the US will be in world of hurt.

Because the US could import things while just exporting pieces of paper, they don't have enough of their economy making stuff to trade with the rest of the world. When they need to trade to get oil the economy will have lots of dislocation. It will be painful.

It is the standard problem of government doing something that seems easiest for the short term and either not caring about the long term or not understanding the long term implications of their actions.

[OLD1953]

Just MHO, the next group to lead the USA will very likely come out of New York.

http://www.readersupportednews.org/off- ... all-street

We were brought in to talk about the new investigation of the banks that apparently is being launched by New York State Attorney General Eric Schneiderman, which looks like it might be the first for-real attempt at a prosecution of the systemic corruption that led to the financial crisis.

Schneiderman’s probe, news of which came out yesterday in this piece by Morgenson, reportedly targets the banks’ mortgage securitization process during the bubble years. Morgenson reported that Schneiderman is focused on at least three companies: Morgan Stanley, Bank of America, and old friend Goldman, Sachs.

*********
The current crop does not realize that it takes more than a lot of attack ads to win an office, it takes a certain amount of credibility, and very few of them have any of that commodity left. Schneiderman and his associates are building credibility in a huge way, and if the STATE manages to jail the people the FEDERAL prosecutors won't touch, then the state people are very likely to replace the federal ones in the not very distant future.

[gerald]

Just MHO, the next group to lead the USA will very likely come out of New York.

http://www.readersupportednews.org/off- ... all-street

We were brought in to talk about the new investigation of the banks that apparently is being launched by New York State Attorney General Eric Schneiderman, which looks like it might be the first for-real attempt at a prosecution of the systemic corruption that led to the financial crisis.

Schneiderman’s probe, news of which came out yesterday in this piece by Morgenson, reportedly targets the banks’ mortgage securitization process during the bubble years. Morgenson reported that Schneiderman is focused on at least three companies: Morgan Stanley, Bank of America, and old friend Goldman, Sachs.

*********
The current crop does not realize that it takes more than a lot of attack ads to win an office, it takes a certain amount of credibility, and very few of them have any of that commodity left. Schneiderman and his associates are building credibility in a huge way, and if the STATE manages to jail the people the FEDERAL prosecutors won't touch, then the state people are very likely to replace the federal ones in the not very distant future.

I hope you are right, there is a lot of resistance and apathy to over come.

************

On a different topic----- Unfunded government pensions seem to be a big problem for many governments, but of course that is not new. An interesting paper just released about Ancient Rome.

http://www.martinarmstrong.org/files/Wh ... 8-2011.pdf

How do you change or reduce unfunded government pensions without going through civil unrest?