Did we get it wrong?

[GRG55]

Re: Did we get it wrong?

Ok, folks. It's time to close off the topics of the dollar, inflation, and commodity prices. I've been hearing these arguments since 2001. In the words of George Jackson: "Patience has its limits. Take it too far, and it's cowardice."

Arguments that the dollar is due to rebound to its year 2000 bubble peak never mind its 1983 post Volcker rate hike peak are bankrupt. We do not want our readers chasing their tails around every time the dollar rallies and commodities correct. New threads posted here that attempt to make the totally discredited case, on each dollar rally since 2001, that a new era of secular dollar strength has begun, will be moved to a new forum called Case Closed. We may choose to re-open the discussion later, in five or ten years, after the conditions that have created the trend have reversed.

Also, after ten years the argument about commodities deflation versus inflation as fallout from debt deflation is also settled. We may have periods of disinflation but no run-away deflation, not unless the US government decides that wiping out creditors, and over-indebted households and firms, and creating 25% unemployment to preserve the dollar is politically more advantageous than deflating the dollar. We put the probability of that at close to zero.

I understand that no one likes to admit they are wrong but new events are coming at us fast and furious and we don't have time and energy to waste re-hashing old arguments that have been settled by events long ago. I also understand that if a reader waited until commodity prices doubled then doubled twice again before investing in the negative dollar trend that the corrections are painful because they take the investor underwater, unlike readers who have been here since 2001. But we cannot adjust our thesis for late comers. Facts are stubborn things.

1. Oil and commodities are not a bubble. They will rise, with occasional corrections as other currencies are depreciated in kind, until the US regains its position as a net creditor with a positive trade balance and energy independence. That day is a long way off, and the process of re-adjustment will be extended and arduous.

2. No deflation. Through the expedient of double entry book keeping, a negative rate of inflation can and will be avoided. The more relevant question is what will happen to inflation in the the US as the trade-weighted dollar index declines to the area of 40, down another 40% to 50% from here. Once again, deflation is the least of our worries. How global central banks will tackle a combination of debt deflation and monetary inflation is the topic we will debate here going forward.

Thank-you.

Another brief supporting observation from recent experience: I continue to be absolutely stunned at the price increases still occuring for the inputs to my cottage construction project. At a time when the new home markets in North America range from "softening" (including Vancouver! :eek to "decimated", the cost of construction continues to spiral upward rapidly.

A couple of little examples: 1) My gravel costs are up 27% from the prices I was quoted when I prepared my budget in early May. No matter what the state of the new home market and price trend, the cost of extracting gravel - fuel to dig it out, fuel to deliver it, environmental requirements including dust control and water management (for washing it) standards - are not getting any cheaper. 2) House wire costs have gone from $0.41/ft one year ago to over $0.90 today. The current declines in raw commodities like crude oil & copper may dampen the rates of increase later this year, but I doubt I'm going to see any outright declines in any input component.

Could be that even when the new home industry clears the current backlog of inventory, home construction still cannot revive given the severe squeeze between inflating inputs and declining end product prices?

I cannot see how anyone can argue with "no deflation".

[marvenger]

Re: Did we get it wrong?

cheers EJ. No cowardice there. Good form.

I actually hope we get to discuss how we're going to go forward in a world minus central banks, but I guess i'm getting ahead of myself.

[phirang]

Re: Did we get it wrong?

Thank-you.

Another brief supporting observation from recent experience: I continue to be absolutely stunned at the price increases still occuring for the inputs to my cottage construction project. At a time when the new home markets in North America range from "softening" (including Vancouver! :eek to "decimated", the cost of construction continues to spiral upward rapidly.

A couple of little examples: 1) My gravel costs are up 27% from the prices I was quoted when I prepared my budget in early May. No matter what the state of the new home market and price trend, the cost of extracting gravel - fuel to dig it out, fuel to deliver it, environmental requirements including dust control and water management (for washing it) standards - are not getting any cheaper. 2) House wire costs have gone from $0.41/ft one year ago to over $0.90 today. The current declines in raw commodities like crude oil & copper may dampen the rates of increase later this year, but I doubt I'm going to see any outright declines in any input component.

Could be that even when the new home industry clears the current backlog of inventory, home construction still cannot revive given the severe squeeze between inflating inputs and declining end product prices?

I cannot see how anyone can argue with "no deflation".

Here's why:

China plans to build a total of 7,820 km rail lines this year and foreign investment shall be introduced in the construction of railways, according to the Ministry of Railways. The ministry also said a total of 300 billion yuan ($42 billion) will be invested in China's railway construction this year.

http://www.chinadaily.com.cn/bizchin...nt_6877764.htm

[tombat1913]

Re: Did we get it wrong?

I actually hope we get to discuss how we're going to go forward in a world minus central banks, but I guess i'm getting ahead of myself.

Keep Dreaming!

[tombat1913]

Re: Did we get it wrong?

The cost of materials is clearly rising rapidly, I'm curious about the cost of labor with unemployment rising and the huge slowdown in new construction projects. Care to share?

[phirang]

Re: Did we get it wrong?

http://www.reuters.com/article/marke...0080815?rpc=44

[GRG55]

Re: Did we get it wrong?

The cost of materials is clearly rising rapidly, I'm curious about the cost of labor with unemployment rising and the huge slowdown in new construction projects. Care to share?

Labour costs in my neck of the woods have not come down at all. With the real cost of living still skyrocketing nobody will work at a loss. The one thing that has happened is that good trades are now available on short (days or weeks) notice, compared to a couple of years ago when one had to book months and months in advance to get a decent cribbing, framing or drywall crew. As my project is a combined personal mental health and physical fitness exercise, much of the labour will be my own in any event.

[Mega]

Re: Did we get it wrong?

EJ
Had No wish to upset you, frankly i agree...........remember am just a jeck from Liverpool who makes Door handles in his small workshop. To be honest i was looking for a little re-a-sure-ance that i am on the right track.

Even without the dis-cuss here i as a layman can see the MEGA debts that are going to HAVE to be baled. "They" can only do it one way...........by PRINTING.

This "Sudden" rise of the $ smells of CB intervention, thus America exports its inflation.

Now, remember to include a car chase in the next art-till-cal.

Cheers
Mike

[Supercilious]

Re: Looks like we got it wrong

Wrong post