Inflation and Rates on the Rise
A drum we keep beating on, there is little slack in the economy. Combine this with the increased energy cost stagflation in the supply chain and the parabolic jump in commodities due to speculation and hedging and we have a formula for increases in interest rates far beyond what anyone is expecting.
Already long overdue corporate capital investments and disaster rebuilding (hurricanes and tsunami's) efforts are being impacted by the rampant inflation in the supply chain. Presented is some evidence validating our long held position. From a recent email sent by Sean Corrigan of Sage Capital to Bill Fleckenstein of The Contrarian Chronicles:
Royal Dutch Shell is struggling with enormous cost overruns at a number of large projects. Chemical producer Celanese is abandoning plans to build a new plant because construction costs have risen by "30% to 50% over 18 months." Shipbuilding yards have doubled lead times and "the list goes on":
"The inescapable conclusion is that this whole damn system is stretched tight from top to bottom -- all the past years of underinvestment are coming home to roost at once, and the situation is being exacerbated by the petrodollar boom. … We need more steel to build more equipment to dig more coal so we can feed new power stations, and use the extra energy to mine and refine more copper, which we need to wire new shipyards so we can launch more dredgers, so we can improve port facilities, so we can move more iron ore to the expanded railways, so we can make more steel. …
"Yet, there is a downside to all this. Namely, that because of our diseased financial system, half the new production is based on zero (negative?) real cost of capital in China, and half the demand is based on credit, not income (whether at the household or the government level) in the West. If and when the wheels come off all this (are they in short supply, too?!), it is going to be truly horrendous!"
To answer Sean's question: Yes, tires, too, are in short supply, as I learned at a recent board meeting. Tires for mining and heavy-construction vehicles appear to be sold out through 2007.
Already long overdue corporate capital investments and disaster rebuilding (hurricanes and tsunami's) efforts are being impacted by the rampant inflation in the supply chain. Presented is some evidence validating our long held position. From a recent email sent by Sean Corrigan of Sage Capital to Bill Fleckenstein of The Contrarian Chronicles:
Royal Dutch Shell is struggling with enormous cost overruns at a number of large projects. Chemical producer Celanese is abandoning plans to build a new plant because construction costs have risen by "30% to 50% over 18 months." Shipbuilding yards have doubled lead times and "the list goes on":
"The inescapable conclusion is that this whole damn system is stretched tight from top to bottom -- all the past years of underinvestment are coming home to roost at once, and the situation is being exacerbated by the petrodollar boom. … We need more steel to build more equipment to dig more coal so we can feed new power stations, and use the extra energy to mine and refine more copper, which we need to wire new shipyards so we can launch more dredgers, so we can improve port facilities, so we can move more iron ore to the expanded railways, so we can make more steel. …
"Yet, there is a downside to all this. Namely, that because of our diseased financial system, half the new production is based on zero (negative?) real cost of capital in China, and half the demand is based on credit, not income (whether at the household or the government level) in the West. If and when the wheels come off all this (are they in short supply, too?!), it is going to be truly horrendous!"
To answer Sean's question: Yes, tires, too, are in short supply, as I learned at a recent board meeting. Tires for mining and heavy-construction vehicles appear to be sold out through 2007.
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