A Malthusian Impasse & Global Contagion?
This weekend's offering, respectfully submitted for your perusal... the place is here, the time is now, and the journey into the shadows that we are about to watch, could be our journey...
There might be a global contagion on the way, but its not the widely feared pandemic of Avian flu.
We have hit a Malthusian Impasse with technological efficiency i.e. no further gains can be had with the existing technological base (no more blood can be squeezed from the stone).
Increased outsourcing and migration to labor at the margin can no longer mask the economic effect of hyperinflated energy and commodities price pass through.
A major breakthrough in technology, alternative energy, biotech or nanotechnology is necessary to economically usher us through until the next impasse.
Crude oil has risen 19 percent since the start of the year, having reached a record $75.35 a barrel in New York on April 21. Copper, silver, zinc, nickel and platinum closed at record highs this week, while gold prices are at the highest since 1980.
If you think these parabolic commodities price increases, (especially the increase in crude oil from $9 a barrel to $32 between 1998-2004, and the jump from $32 to current $72) are not going to cause further inflation beyond the 11.5% current real inflation rate, you are in need of serious professional medical attention.
I would not hold my breath waiting for the Fed to pause or stop raising. Because, when they do, the dollar will fall even further than it has so far during this years quiet exodus.
Since 2001, the dollar has gone from $0.85 = 1 Euro to $1.38 = 1 Euro, then last year back to $1.15 = 1 Euro, and now $1.28 = 1 Euro. The dollar has fallen for 25 trading days (5 weeks) to a one year low vs. Euro and six month low vs. Yen.
Since 2003 the dollar has been living off of a widening interest rate differential which with other central banks raising, should the Fed stop or drop, will disappear quickly. A continued dollar plunge would drastically increase the cost of imports.
BOJ is hinting on raising rates, PBOC, BOE & ECB already have. World wide including emerging markets, equities, currencies and bonds have all fallen recently on US interest rate fears. It's simple, we get a cold, they get the flu.
When the Fed stops, the dollar will drop another 20 to 30% from where it is now, and the stock market, along with every other asset class, will eventually go right along with it.
The stock market has historically dropped after each Fed tightening cycle, and the drop commences just after the Fed has officially stopped raising.
The dollar will plummet as current bond holders divest of their past dollar denominated bond holdings for what little they can, and reinvest in other currencies, commodities and gold.
The divestiture of older bonds will tank the bond market and cause interest rates to skyrocket far beyond what anyone currently expects. This will put the final dagger into the housing bubble and overvalued real estate will slowly deflate and take down the housing sector economy along with it.
The resulting economic malaise will be a global contagion as the demand spigot from America gets slowly choked off and the dominoes start to fall.
Do you really think that people in India, China etc. are going to mortgage their futures so they can buy Xbox's, PDA's and cell phones?? Homey don't think so, few there can afford it to start with.
If 05/11 was not, then we are nearing the last apex for equities. All asset classes have either hit near term peaks or will in the not so distant future. No asset class will be immune from this global contagion.
Equities and commodities in the near term, may rise a bit more, but there will be a parabolic blow off once the global economies cool and demand falls.
Like we have been saying all along in these pages, interest rates will go up farther than anyone expects. But our other mantra, don't go against the dollar, is getting iced, for the moment.
Just keep your eye on the 10 year yield, when it crosses 5.25, get ready for a runup to 6% and if that happens its, Good Night, Dick, Irene and Mrs. Calabash.
Of course, the central banks and their financial industry friends could; (through collusion, market manipulation and the printing press); manage to delay the whole contagion.
If China, Japan and others do back further away from the dollar and our bonds, whom will buy the older bonds at a large discount? We would become the secondary market, with a freshly printed batch of massively deflated dollars. Think about it.
This would spur another round of global hyperinflation. Only one problem, the systemic economic collapse or fall from those heights would be even worse.
Then again, Goldilock's could show up at the table, or a "breakthough" which hurdles us past the Malthusian Impasse could arrive. Do ya think? I wouldn't hold my breath.
We hope you've enjoyed the ride up, its been a nice dance, but it's time to pay the piper. The potential roller coaster ride down would not be pretty and there would be no safe havens.
Due to the very nature of the central bankers (public enemy #1) key weapon of mass destruction (inflation and debauchery), everyone would lose, even those is cash.
Ah yes, the best laid plans of mice and men, and central bankers. Small men in glasses who claim to want nothing more than economic balance and price stability.
The central banks, now, just a part of a smashed landscape, just a piece of the rubble, just a fragment of what man in his greed has deeded to himself?
FYI, Richard Benson has an excellent missive "Dollars on sale, 30% off" on the coming debauchery of the currency over at SafeHaven.com.
There might be a global contagion on the way, but its not the widely feared pandemic of Avian flu.
We have hit a Malthusian Impasse with technological efficiency i.e. no further gains can be had with the existing technological base (no more blood can be squeezed from the stone).
Increased outsourcing and migration to labor at the margin can no longer mask the economic effect of hyperinflated energy and commodities price pass through.
A major breakthrough in technology, alternative energy, biotech or nanotechnology is necessary to economically usher us through until the next impasse.
Crude oil has risen 19 percent since the start of the year, having reached a record $75.35 a barrel in New York on April 21. Copper, silver, zinc, nickel and platinum closed at record highs this week, while gold prices are at the highest since 1980.
If you think these parabolic commodities price increases, (especially the increase in crude oil from $9 a barrel to $32 between 1998-2004, and the jump from $32 to current $72) are not going to cause further inflation beyond the 11.5% current real inflation rate, you are in need of serious professional medical attention.
I would not hold my breath waiting for the Fed to pause or stop raising. Because, when they do, the dollar will fall even further than it has so far during this years quiet exodus.
Since 2001, the dollar has gone from $0.85 = 1 Euro to $1.38 = 1 Euro, then last year back to $1.15 = 1 Euro, and now $1.28 = 1 Euro. The dollar has fallen for 25 trading days (5 weeks) to a one year low vs. Euro and six month low vs. Yen.
Since 2003 the dollar has been living off of a widening interest rate differential which with other central banks raising, should the Fed stop or drop, will disappear quickly. A continued dollar plunge would drastically increase the cost of imports.
BOJ is hinting on raising rates, PBOC, BOE & ECB already have. World wide including emerging markets, equities, currencies and bonds have all fallen recently on US interest rate fears. It's simple, we get a cold, they get the flu.
When the Fed stops, the dollar will drop another 20 to 30% from where it is now, and the stock market, along with every other asset class, will eventually go right along with it.
The stock market has historically dropped after each Fed tightening cycle, and the drop commences just after the Fed has officially stopped raising.
The dollar will plummet as current bond holders divest of their past dollar denominated bond holdings for what little they can, and reinvest in other currencies, commodities and gold.
The divestiture of older bonds will tank the bond market and cause interest rates to skyrocket far beyond what anyone currently expects. This will put the final dagger into the housing bubble and overvalued real estate will slowly deflate and take down the housing sector economy along with it.
The resulting economic malaise will be a global contagion as the demand spigot from America gets slowly choked off and the dominoes start to fall.
Do you really think that people in India, China etc. are going to mortgage their futures so they can buy Xbox's, PDA's and cell phones?? Homey don't think so, few there can afford it to start with.
If 05/11 was not, then we are nearing the last apex for equities. All asset classes have either hit near term peaks or will in the not so distant future. No asset class will be immune from this global contagion.
Equities and commodities in the near term, may rise a bit more, but there will be a parabolic blow off once the global economies cool and demand falls.
Like we have been saying all along in these pages, interest rates will go up farther than anyone expects. But our other mantra, don't go against the dollar, is getting iced, for the moment.
Just keep your eye on the 10 year yield, when it crosses 5.25, get ready for a runup to 6% and if that happens its, Good Night, Dick, Irene and Mrs. Calabash.
Of course, the central banks and their financial industry friends could; (through collusion, market manipulation and the printing press); manage to delay the whole contagion.
If China, Japan and others do back further away from the dollar and our bonds, whom will buy the older bonds at a large discount? We would become the secondary market, with a freshly printed batch of massively deflated dollars. Think about it.
This would spur another round of global hyperinflation. Only one problem, the systemic economic collapse or fall from those heights would be even worse.
Then again, Goldilock's could show up at the table, or a "breakthough" which hurdles us past the Malthusian Impasse could arrive. Do ya think? I wouldn't hold my breath.
We hope you've enjoyed the ride up, its been a nice dance, but it's time to pay the piper. The potential roller coaster ride down would not be pretty and there would be no safe havens.
Due to the very nature of the central bankers (public enemy #1) key weapon of mass destruction (inflation and debauchery), everyone would lose, even those is cash.
Ah yes, the best laid plans of mice and men, and central bankers. Small men in glasses who claim to want nothing more than economic balance and price stability.
The central banks, now, just a part of a smashed landscape, just a piece of the rubble, just a fragment of what man in his greed has deeded to himself?
FYI, Richard Benson has an excellent missive "Dollars on sale, 30% off" on the coming debauchery of the currency over at SafeHaven.com.
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http://www.weedenco.com/welling/Downloads/2006/0804welling022106.pdf