stephanie pomboy predicts a deflation scare

[phirang]

Re: stephanie pomboy predicts a deflation scare

GRG,

Fair enough.

I was just curious what you meant by a collapse in oil prices.

Apparently you don't necessarily mean a price collapse - perhaps instead some type of distribution/supply issue? Shortages vs. expensiveness?

No, the $15/bbl type of price collapse is what he's talking about.

Namely, Saudi gets on board and decides to finish off Russia as a threat to Saudi's control of the oil market: a global recession/depression + continued Saudi output = bankrupt gazprom/rosneft/etc and a good 5 to 10 years before any new capex can get production going again.

The only thing Russia can hope for now is a war with Iran or something. That's why Russia keeps provoking Israel and the US, especially with those stupid S-300's.

[GRG55]

Re: stephanie pomboy predicts a deflation scare

GRG,

Fair enough.

I was just curious what you meant by a collapse in oil prices.

Apparently you don't necessarily mean a price collapse - perhaps instead some type of distribution/supply issue? Shortages vs. expensiveness?

One way to get refining margins back into the black is a reduction in the crude input cost. That is a possible outcome [as is $10 spot WTI crude oil], but I have no way of "predicting" that will actually happen.

My point is that refineries cannot continue to operate at a loss indefinitely. Although the integrated oil companies [Exxon, Shell, etc] can play with transfer pricing and cover temporary losses in their refining and marketing units, the pure refiner/retailers [Valero, Tesoro, etc.] simply cannot run their refineries at a loss for extended periods without risking insolvency. If you look at the equity prices of these latter companies you'll see they've been totally trashed and there is no possibility of them raising any needed capital from that source. Neither is there much chance of them floating even a junk bond issue. Negative cashflow is not an option for them for very long.

I don't know what the future holds, but I am simply pointing out that the risks that "something is going to break" are rising.

No, the $15/bbl type of price collapse is what he's talking about.

Namely, Saudi gets on board and decides to finish off Russia as a threat to Saudi's control of the oil market: a global recession/depression + continued Saudi output = bankrupt gazprom/rosneft/etc and a good 5 to 10 years before any new capex can get production going again.

The only thing Russia can hope for now is a war with Iran or something. That's why Russia keeps provoking Israel and the US, especially with those stupid S-300's.

If the Saudi's were Christian they would view the Oilexco announcement this morning as a Christmas present...;).

Oilexco's existing production will continue to flow, of course, but we should take this as confirmation that the decline rate in the North Sea is going to accelerate.

[LargoWinch]

Re: stephanie pomboy predicts a deflation scare

So, I would not poo-poo deflation. It is here now, and it is everywhere.

Starving Steve, a collapse in RE and vehicle prices is not deflation.

In Toronto, 4L of milk is now $7.09 up from $4.99 in 2000 and is up about $1.00 y-o-y.

Hell, even beer is more expansive; (now that hurts!)

http://www.torontosun.com/news/toron...33616-sun.html

[stockman]

Re: stephanie pomboy predicts a deflation scare

Some of those that were correct in predicting a deflationary outcome pointed to the US 1930s and Japan 1990s as examples of what could happen to yields in this event. I unfortunately questioned how that could happen given the debtor status of the US as we enter this period.


Japan and TNX 123108.JPG

So I missed this move in treasuries. But to hedge my reflation bets I did take advantage of the divergence which developed between corporates and treasuries. Also worth noting IMHO that Corporate AAA yields are now breaking to new lows, following treasuries.

BAA AAA yields 123108.jpg

In both events rates remained low for an extended period. Perhaps incorrectly I continue to harbor feelings that the outcome for a debtor country should look different than that of a creditor country.

[jk]

Re: stephanie pomboy predicts a deflation scare

right, just like good old kapoom theory. does she have a theory about what happens later? how long treasury bonds stay at or below 3%?

i don't play in the big league to be subscribing to pomboy, so i can't update you.

[FRED]

Re: stephanie pomboy predicts a deflation scare

Starving Steve, a collapse in RE and vehicle prices is not deflation.

In Toronto, 4L of milk is now $7.09 up from $4.99 in 2000 and is up about $1.00 y-o-y.

Hell, even beer is more expansive; (now that hurts!)

http://www.torontosun.com/news/toron...33616-sun.html

We are creating a new site fireeconomy.com to remind everyone of the all important distinction between asset price deflation within the FIRE Economy and goods and services deflation in the Productive Economy, the interaction between the two economies, and the impact of the separate monetary policies used to manage each.

[LargoWinch]

Re: stephanie pomboy predicts a deflation scare

We are creating a new site fireeconomy.com to remind everyone of the all important distinction between asset price deflation within the FIRE Economy and goods and services deflation in the Productive Economy, the interaction between the two economies, and the impact of the separate monetary policies used to manage each.

Ed. nice website.

I like the beige/gold colors, it screams: class.

The "active" FIRE economy figure is also very nice.

Great job.

[LargoWinch]

Re: stephanie pomboy predicts a deflation scare

I unfortunately questioned how that could happen given the debtor status of the US as we enter this period.

This may sounds silly stockman, but are you the author of the article referenced in this thread?

[Starving Steve]

Re: stephanie pomboy predicts a deflation scare

Four litres of skim milk is $4.69, give or take, at Superstore. And 24 cans of Molson's low alcohol beer is under $9.

And if Superstore gets any ideas about raising prices, a few hundred feet away in Langford, BC sits Wal-Mart. Should both try to hike prices, Fairway Foods is a few hundred feet in the other direction.

Competition makes capitalism work for everyone. Too bad that B.C. Ferries doesn't have competition. That is why we are stuck with the most outrageous ferry fees in the world. And too bad that Autopac in B.C. doesn't have competition from private insurance corporations.

What is so amazing to me is that few people in B.C. complain about govn't monopolies of the ferry system, the auto insurance, the electric utility, etc. It is as if the public thinks it is getting a deal from government or maybe that the public in this province has given up complaining about anything --- perhaps because govn't is so good at smothering public complaints.

[Slimprofits]

Re: stephanie pomboy predicts a deflation scare

Starving Steve, a collapse in RE and vehicle prices is not deflation.

In Toronto, 4L of milk is now $7.09 up from $4.99 in 2000 and is up about $1.00 y-o-y.

Hell, even beer is more expansive; (now that hurts!)

http://www.torontosun.com/news/toron...33616-sun.html

Same situation here in Northern California. Prices at the supermarkets, drug stores and liquor stores are holding steady or still rising.

I'm starting to think that people are leaving the area. Unlike in San Francisco, Berkeley and Oakland - rents are actually falling in the urban and suburban parts of Sonoma County. It was massively overbuilt. There are many foreclosures, tons of places for sale, but also for rent. I'm seeing homes that moved for $700k to $1,000,000 at peak being rented for $2500-$3000. And they're languishing in the classified ads.

[Slimprofits]

Re: stephanie pomboy predicts a deflation scare

We are creating a new site fireeconomy.com to remind everyone of the all important distinction between asset price deflation within the FIRE Economy and goods and services deflation in the Productive Economy, the interaction between the two economies, and the impact of the separate monetary policies used to manage each.

Who came up with the concept of the FIRE Economy?
The term was first used by political commentator Kevin Phillips and economist Michael Hudson around 2006 who explains the FIRE Economy in technical detail in his 2006 article Saving, Asset-Price Inflation, and Debt-Induced Deflation.

Fred I think that site a good idea, but one point - someone came up with the FIRE term as far back as in 1982.

Entry from June 25, 2005

21 October 1982, Washington Post, "New York, Once Nearly Bankrupt, Rides Manhattan's Boom" by Joyce Wadler, pg. A2:
In recent years, 160,000 jobs have been added in the "fire" section: finance, insurance, and real estate.

12 October 1986, New York Times, "Turmoil Ahead in Real State" by Philip S. Gutis, pg. NJ15:
Though real estate is one segment of the industry group known as "F.I.R.E.," for finance, insurance and real estate, which has been an important growth area in the most recent economic expansion, when taken alone it is a relatively small area of employment.

7 December 1988, New York Times, "Real Estate" by Richard D. Lyons, pg. D20:
"We are seeing a strong demand for space from the so-called FIRE group of companies - those involved in finance, insurance and real estate," Mr. Looloian said.

cont.

[FRED]

Re: stephanie pomboy predicts a deflation scare

Fred I think that site a good idea, but one point - someone came up with the FIRE term as far back as in 1982.

Thanks for the note. As the site says, the term F.I.R.E. to refer to the finance, insurance, and real estate industry sectors is standard economics sector terminology. The question is the origin of the idea of an economy based on those sectors and specifically labeled a "FIRE Economy." Bill Gross was using the term "finance-based economy" back in 2005 and we used it with reference to Gross in our opening retrospective in 2006. Any references to a "FIRE Economy" that predate Hudson or Phillips are appreciated.

[stockman]

Re: stephanie pomboy predicts a deflation scare

I'd suggest reading the entire article. I am pasting a few points related to the rates discussion below.

http://online.barrons.com/article/SB...e_left&page=sp

MONDAY, DECEMBER 15, 2008

INTERVIEW

Forecast: A Long, Cold Winter

Stephanie Pomboy, Founder and President, MacroMavens

"LIKE THE BUBBLE IN FINANCIAL ASSETS, THE NEW REAL-ESTATE bubble has its own distinctly disturbing characteristics," Stephanie Pomboy wrote in an April 2002 note titled "The Great Bubble Transfer." The founder and president of MacroMavens was on to something, even if she was early, and she worried about the big buildup of consumer debt fueled by rising home prices. Pomboy, whose Manhattan firm analyzes macroeconomic themes and their investment implications, remains bearish, convinced that a long period of paltry U.S. economic growth is in store -- akin to what happened in Japan in the 1990s. For more of her views and forecasts, read on.

One thing that caught our eye in one of your recent notes was the steep decline of Treasury-buying by foreigners. What are the ramifications of that?

We are acting as though there are no consequences to basically running the money off the printing press and handing it to the Federal government to backstop financial markets or bail out homeowners or what not. There is no consequence to doing this, unless or until the rest of the world says to us, 'We don't like this game' and 'We don't want to have all the dollar claims we are holding debased by [Fed Chairman Ben Bernanke] running his printing press.'

So if foreign investors stop buying Treasuries, or even significantly pare their buying, that means higher rates in the U.S.

That's correct. But then [Bernanke] will start buying Treasuries to arrest the rise in interest rates. I've always had a very simplistic view about this: Either we are going to pay for our policy sins via higher interest rates or a weaker dollar. And for an economy that is as levered as the one in the U.S. is, the former choice is not an option. We can't pay through higher interest rates; we barely got to 4.5%, 5% before the whole subprime crisis erupted. So a weaker dollar is the natural valve. But right now, we are enjoying some real competition in the ugly contest from the currencies of the European Union and the United Kingdom, and that will probably persist for a while because they are in pretty bad shape, and they are a little bit behind the curve relative to us.

Could you elaborate on that choice between higher rates or a weaker dollar?

If we rely on foreign creditors to lend us the money to sustain our lifestyles -- and that's what we do -- we need to compensate them for that risk of lending to us. As the economy weakens and our credit quality should theoretically be deteriorating, the only way we can really attract that same capital is by offering a higher interest rate or making our assets cheaper to them, in this case by having our currency be weaker."

[LargoWinch]

Re: stephanie pomboy predicts a deflation scare

Thanks Stephanie. ;)

[GRG55]

Re: stephanie pomboy predicts a deflation scare

...Competition makes capitalism work for everyone. Too bad that B.C. Ferries doesn't have competition. That is why we are stuck with the most outrageous ferry fees in the world. And too bad that Autopac in B.C. doesn't have competition from private insurance corporations.

What is so amazing to me is that few people in B.C. complain about govn't monopolies of the ferry system, the auto insurance, the electric utility, etc. It is as if the public thinks it is getting a deal from government or maybe that the public in this province has given up complaining about anything --- perhaps because govn't is so good at smothering public complaints.

You live in a place [Victoria - Capital Region area] where the government IS the economy.

You can thank the first NDP government in B.C. [led by Dave Barrett in the early 1970's] for the government-owned monopoly car insurance situation. When I bought my first car as a freshman student in B.C. I got my insurance with the same private firm my parents used for many years. Three years later, under the government mandated monopoly the insurance on my VW had more than tripled. Clean record. Not even a speeding ticket. So much for the "people's government".

And don't get me started on the B.C. Ferry Corporation. That's got to be the biggest featherbedding operation on the Left Coast.