2 Anecdotal Inputs and the Usual Inflation/Deflation Jive
Gary Tanashian
This morning I had two
interactions that I feel would be of interest to anyone trying, as I
am, to figure out the true nature of the macro economy and the
inflation/deflation dynamics embedded within it.
First, I received a call
from a machine tool broker. He was just checking in.
This sort of call usually leads to some conversation about the state
of the overall manufacturing sector. In response to my query
on the subject, he told me that he is very busy with liquidations
(primarily of smaller companies for reasons I explained in Dawn
of the Dead), but also that he is seeing very brisk business
on the demand side, mostly from larger companies. In his
words "Large manufacturers are buying capital
assets."
I then had a
conversation with the owner of L'ugs Always, a crafter of fine (I am
a customer) classic jewelry (lugs_always@yahoo.com),
who told me that most exhibitors at a large fair across many types
of crafts, were seeing "half the business" this year as
previous years. Can you think of many sectors more closely
tied in to the consumers' whims than crafts? I can't.
Where is the demand
coming from that was referenced by the machine broker, and how long
will be its shelf-life? As most people who follow the economy
know, the corporate sector (excluding those financial entities that
have levered up to the credit bubble to dangerous levels) has spent
the last two years cleaning up its balance sheets. The
consumer, arguably far less economically sophisticated on average
than the business sector, has treated the liquidity raining down
from the monetary heavens like a bonanza. But there are signs,
including our craft fair example noted above, that the consumer is
getting a bit antsy.
Perhaps he is backing
away from those under-performing assets in favor of that all-time
winner, HOUSING! Housing has been spun as a safe haven, but
ironically may be the sector most dangerously leveraged to pure
unadulterated inflation through low interest rates and absurdly
dangerous lending practice on a massive scale. The consumer is
seeking haven in a potential tinder box. As I write, this
headline from AP appears on my screen:
Stocks Turn Higher on
Record Housing Data.
Now there is a reason to
celebrate! If you are a speculator holding to distribute into
blow-off tops in real estate, commodities and the stock market that
is. The energy sectors are making new highs today. Gold
has NOT given an all clear signal no matter how hard goldbugs
wish. Gold, a monetary "commodity" is saying that
fiscal restraint is still in motion. The Fed is forced to
continue playing the good inflation fighting soldier in response to
what anyone who chooses to see will call multi-asset bubbles.
What does this mean...Anyone? Anyone? Beuller?
Anyone? You know what it means.
Investing, and capital
preservation for that matter are much more about what will be than
what is or has been. Yes indeed, we have current effects of
inflation everywhere we look. Housing, energy, healthcare,
education, raw commodities and stocks. Business is apparently
in a capital spending mode, but it will be important going forward
to decipher how much of this is related to tax credits and profits
gained through easy money, AKA inflation.
I have stated previously
my belief in a secular deflationary impulse (the ongoing march of
productivity and innovation which would diminish the NEED for new
money created out of thin air) which is periodically carpet bombed
with inflationary policy. In my opinion, we sit at one of
those junctures whereby everyone is shouting from the rooftops
"inflation blah blah blah!"....."deflation blah blah
blah!", but it is critical to one's economic health to get the
dynamics right. Which is the cart and which is the
horse?
I lean toward a
deflationary spook job in the near term as certain asset bubbles
begin to unwind, to be followed by another inflationary stick save
attempt later on. The wild card now as opposed to previous
cycles is the levels of debt, derivatives and speculation woven into
the mix. No matter what the stock market is doing, no matter
what capital spending businesses are doing, the facts cannot be
denied. The entire financial system is dangerously hopped up
on potentially lethal vehicles for speculation and asset
appreciation.
I invite you to try a
free copy of biiwii's initial subscription Letter.
It will progress and evolve over time with the goal of correctly
interpreting the confusing dynamics currently at play in the
macroeconomic environment.
Gary Tanashian
www.biiwii.com
gary@biiwii.com
25 July 2005
Disclaimer: biiwii.com does not recommend that any trading or investment positions be taken based on views expressed on this site. If you speculate or invest it is suggested that you consult a financial advisor qualified in your area of interest.
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