Thursday, June 26, 2008

Inflation Not the problem

So it's likely that you're going to get a rapid decline in the U.S. current account  deficit over the next 6 to 12 months, which means the emerging economies' surpluses come down very sharply, so they don't have to intervene so much in their currencies — which means the growth in their money supplies collapses, which means the growth of liquidity in their economies collapses. Any analysis of what drives emerging market growth rates and emerging market equities and bond performance, shows that the printing of money by these emerging economies' central banks has been a huge factor in bolstering their economies. But that is going into reverse in the next 6 to 12 months, in a major way. The reserves will still grow, but at a much, much slower rate. That will produces a big sucking noise in terms of the impetus for emerging market growth, and actually put downward pressure on commodities. If you blow up the emerging market growth story, then you kick away the crutch for the secular bull market in commodities for a while.

I cannot tell you how many reports that I read that Asia can grow exponential from here!  The exponential growth came about from cheap credit and oil prices.  So where is Asia going to be in about ten years. Will it collapse because of the toxic use of coal to facilitate growth from the west, which came about from credit, which is akin to steroid use?  I mean how are you supposed to grow if your two biggest clients are headed for a major slowdown, which is over 50% of your business?  Do you think the collapse in their stock markets are telling us something??


Have you ever seen a body builder come off steroids, no matter how hard they work out or eat properly there mass will collapse anywhere from 30-50%.  That exactly what is going to happen to the OECD countries over the next ten years.  Simply because the steroid in this case was credit, and that credit has begun a systemic unwinding which was a movement of consumption to the present. That is gone today. It is delusional to think that as a company or country  it can do well when their major customers are retrenching. 



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