August 2009 FIRE Economy Depression update – Part I: Snowball in Summer - Eric Janszen

[bart]

Re: August 2009 FIRE Economy Depression update – Part I: Snowball in Summer - Eric Janszen

not alone. neg rates + falling dollar moves gold up... 2001 - 2008

The shorter term or daily chart show an example or two of how it can be a trading aid, in both directions, but its far from 100% workable alone... as are most tools.

[jk]

Re: August 2009 FIRE Economy Depression update – Part I: Snowball in Summer - Eric Janszen

CPI with corrections(black) looks to have broken upwards disproportionately, starting at 1995. I wonder if this is:
- a: Too many corrections applied. --or--
- b: A change in the relationship between the supply of money and inflation that we should discuss/investigate.

it is tautological to say this means a shift in velocity, but maybe that's where we need to look. the system has been swishing the money around faster.

on another matter:

The second argument that Ka-Poom Theory makes is that, eventually, without a specific time frame, the U.S. is on track to experience the same difficulties of any country with a large net external debt that cannot finance the monthly payments on that debt with either tax revenue or money borrowed from domestic or foreign sources. The U.S. is vulnerable to a balance of payments crisis.

because the discussion was mostly about inflation/deflation at the time fred put up his big post re-explaining kapoom theory, i think the above quote wasn't discussed. just a reminder to those learning about the current model here, the balance of payments crisis is associated with a mobilization of what i call "frozen" dollar assets CURRENTLY in the accounts of foreign holders. NO NEW MONEY IS REQUIRED. if enough foreign holders get antsy enough about the dollar, that's the game, it's over.

[jiimbergin]

Re: August 2009 FIRE Economy Depression update – Part I: Snowball in Summer - Eric Janszen

I'm sure EJ'd post is correct long term and inflation is coming but it's not here yet. I don't see it anywhere. Disinflation is rampant and nice is everywhere a new value. Let's enjoy the transition.

I also still see disinflation everywhere. We have a trip to Delaware in 2 weeks. I have a Staybridge Suite there for $49 a night using hotwire. I go there several times a year and hotwire always gives me either a Ramada or the Staybridge. The $49 rate is about 40% less than I have ever gotten. In October we are going to Florida. The same thing there. The rate at the same suite hotel we always stay in at The Villages is about half of the regular rate. The cruise we are taking in October has a balcony room for a 7 day cruise at $529. We are getting fantastic rates on fruits and vegtables and milk. Far better than we have seen in years.

That said, we are buying ahead and doing some work on the house expecting inflation to rear its ugly head soon:eek:

jim

[jiimbergin]

Re: August 2009 FIRE Economy Depression update – Part I: Snowball in Summer - Eric Janszen

Just like to express my gratitude to EJ for a very enlightening article again.
Thank you Fred, Bart, MM, Rdress et al. for a most riveting and educational of web conversations.

It may pee some people off to have to rehash the same arguments over and over again (understandably) but it is most enlightening for those of us relatively new to the Kapoom theory to see some of the theory discussed along with links to older articles from Itulip, in a detailed conversation like this, as it helps contextulize the theory with the hindsight of what has passed - again thank you.

I too want to thank all of you. I have been here since last fall, but this has been an extremely enlightening discussion for me also.

jim

[MarkL]

Re: August 2009 FIRE Economy Depression update – Part I: Snowball in Summer - Eric Janszen

I believe this is the basis for complaining about changes to BLS methodology. Using their original methodology (CPI + corrections), the correlation is preserved. Using their "improved" methodology, the correlation weakens. It means the new methodology systematically understates inflation.

But with CPI+corrections the correlation is not preserved. Up until 1995 CPI+corrections was below the M lines consistently. Suddenly in 1995 CPI w corrections (black) jumps compared to money.



It does looks like CPI without corrections (purple) is, comparatively, breaking to the downside, indicating the changed BLS methodology.

Prior to 1995 both CPIs stayed 1/2" to 1.5" below M2/M3. Suddenly in 1995 They BOTH break to the upside compared to M3. "With corrrections" continues to break to the upside...

CPI with corrections(black) looks to have broken upwards disproportionately, starting at 1995. I wonder if this is:
- a: Too many corrections applied. --or--
- b: A change in the relationship between the supply of money and inflation that we should discuss/investigate.

[santafe2]

Re: August 2009 FIRE Economy Depression update – Part I: Snowball in Summer - Eric Janszen

Off on vacation for 10 days and just now catching up with this excellent thread. Long before reading iTulip I was a convert to the idea that deflation was impossible in a world where printing money was a choice and all other items of human need, family, food, land, energy, etc. were limited. Currency is the sea in which all our requirements float. It is a sea of unlimited bounds and in that sea needs rise.

That said, I still see disinflation, (iTulip term), everywhere. In my industry, it's still rampant. We don't expect a bottom for six months. This isn't deflation it's just a stuff gets cheaper story and it drives out the less well funded or less adept at inventory management. But that's just our quirky little industry so I thought it might just be us.

But we just returned from vacation in Hawaii and there is definitely no upturn there. Flight...cheap, under $400 per round trip and the employees of the airline could not have been nicer. Really, I'm not making this up and I've been a frequent flyer for 20 years. Hotel...let me say, I made the reservation three months ago with Hilton because my long time associates at Marriott had not gotten the message that there was a price war going on. By the time I made some last minute stop over reservations in LA, the full service Marriott had dropped from $229 to $87 a night. Their staff had still not gotten the message about being nice but it was cheap.

Rentals from surf boards to cars were very reasonable and again, everyone was very accomodating and nice. This is our forth trip to Hawaii and overall it was the best. Maybe we've slowed down and learned to enjoy our time there. But there is also a change in aloha-land. Maybe it's people wanting to earn your trust and your business. It's a special place and I was quite moved that we were able to arrive at a time of balance when outsiders were providing an equal value to insiders.

There were no crowds at the beaches, it was open and fantastic for the kids. Everyone working at the resorts were, well, working.

And back to work...we've been growing some and hiring a few of our friends so we have to move. There's a glut of commercial space locally and again everyone is nice. Prices are down 30% we're trying to match our requirements to a local space.

I'm sure EJ'd post is correct long term and inflation is coming but it's not here yet. I don't see it anywhere. Disinflation is rampant and nice is everywhere a new value. Let's enjoy the transition.

[WildspitzE]

Re: August 2009 FIRE Economy Depression update – Part I: Snowball in Summer - Eric Janszen

Eight months of accelerating deflation in the PPI is overwhelming empiric evidence of deflation, not inflation. Why would producers raise consumer prices any time soon if their costs and dropping like a stone?

Producer prices are the result of a competitive bidding process between and by producers that ultimately believe that they can convert the inputs/goods into consumer goods. It is their expectation of future consumer demand (and what they will be able to charge consumers) that raises or lowers producer price. For many raw inputs it's basically the futures market, so it is useful to think about the futures market when thinking of how PPI works. Thus, I tend to look at PPI as a gauge of what specialized market participants think about the future of consumer prices. They can be wrong, even mislead. If a producer overpays for the input costs and doesn't manage to offload to consumers he loses money. Meaning, in aggregate, if producers over pay for inputs, it doesn't mean that they will manage to pass that along to consumers.

Given my statements above, I may be the only one who doesn't believe in cost-of-production theory of price. It's "empirical" evidence if you believe that CPI is a causality of PPI per cost-of-production theory of price. I don't. That said, when it comes to energy -- e.g. oil -- because of how it affects everything, the relationship is a little different... and why many of us look at oil (the input) as a proxy for consumer price inflation.

[Yaowarat]

Re: August 2009 FIRE Economy Depression update – Part I: Snowball in Summer - Eric Janszen

It was several months ago I first noticed Wal-Mart had reduced its 1 pound bag ( 16 OZ) of Jumbo shrimp to 14 OZ. Similarly for cereal. The prices did not fall proportionately.

[Diarmuid]

Re: August 2009 FIRE Economy Depression update – Part I: Snowball in Summer - Eric Janszen

Ka-Poom Theory makes two arguments. The first: with respect to the cycle of asset bubbles and crashes since iTulip was founded in 1998. It asserts that no self-reinforcing cycle of debt defaults, collapsing money supply, and falling prices will occur in the U.S. following any asset market crash as occurred in the U.S. from 1930 to 1934, whether the crash be in equities as in the 2000 to 2002 period or in mortgage and other credit markets in the 2007 to today.

Just like to express my gratitude to EJ for a very enlightening article again.
Thank you Fred, Bart, MM, Rdrees et al. for a most riveting and educational of web conversations.

It may pee some people off to have to rehash the same arguments over and over again (understandably) but it is most enlightening for those of us relatively new to the Kapoom theory to see some of the theory discussed along with links to older articles from Itulip, in a detailed conversation like this, as it helps contextulize the theory with the hindsight of what has passed - again thank you.

[jk]

Re: August 2009 FIRE Economy Depression update – Part I: Snowball in Summer - Eric Janszen

In reality, perhaps. But does the claim work in monetarist theory? :rolleyes:

sure, the auto worker's laid off, the banker's getting a big bonus. and the money supply is WAAAY up. [banker's work, that.]

[ThePythonicCow]

Re: August 2009 FIRE Economy Depression update – Part I: Snowball in Summer - Eric Janszen

ah... so inflation 'is not always and ever a monetary phenomenon'.

In reality, perhaps. But does the claim work in monetarist theory? :rolleyes:

[metalman]

Re: August 2009 FIRE Economy Depression update – Part I: Snowball in Summer - Eric Janszen

a similar thought to pythoniccow's: the production of cheap goods in china has ground to a halt, along with low skilled construction etc here in the u.s. the cheap labor is out of work. but it's not happening within corporations, where surely the more expensive [of the hoi polloi] are the ones laid off, but between industries. the mix of goods and services produced has shifted.

ah... so inflation 'is not always and ever a monetary phenomenon'.

now the usa is truly 3rd world...

wage inflation is political.

we are all learning.

[jk]

Re: August 2009 FIRE Economy Depression update – Part I: Snowball in Summer - Eric Janszen

as rdrees has decided to ignore your response, i'll jump in with a question...



what the hell is going on here? i see unit labor costs fall like a rock after the dot com cash... can't forget that! but they go up in this recession? why?

a similar thought to pythoniccow's: the production of cheap goods in china has ground to a halt, along with low skilled construction etc here in the u.s. the cheap labor is out of work. but it's not happening within corporations, where surely the more expensive [of the hoi polloi] are the ones laid off, but between industries. the mix of goods and services produced has shifted.

[MarkL]

Ka...a...Poom. Another wave?

if ej's prediction of 500-600 spx comes true, what do you think will trigger it? i.e. i think this question has already been discussed at length.

The last two times the stock market bottomed (Nov 20th, March 9th) the DXY peaked within a day or so. The first time it hit 87 and the second 90.

So a 500-600 spx as you suggest would likely again, cause a flight to the dollar. A crash like that also removes a lot of money from the world which is a deflationary force.

Second a 500-600 spx would certainly result in stock market crashes around the world also triggering a drive to the dollar. Some of this would be due to flight to safety. But some of it is because many of these assets are denominated in dollars!

I'm just worried about another round of demand destruction caused by the 60T-600T of CDS/CDRs in the world coming home to roost! It's a big world, there's lot's of inventory warehouses to move through, and the consumer is clearly DONE.

If this happens, we might see another year of disinflation before EJ's Poom kick's in.

lol... my name for this theory (pretend like you're about to sneeze) Ka...a... Poom! (with all respect to EJ!).

[ThePythonicCow]

Re: August 2009 FIRE Economy Depression update – Part I: Snowball in Summer - Eric Janszen

what the hell is going on here? i see unit labor costs fall like a rock after the dot com cash... can't forget that! but they go up in this recession? why?

Perhaps the cheaper labor (less senior) is being laid off first?

Or perhaps the labor that is more easily exported to lower cost countries is being laid off first?