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Stagflation? |
rffrydr
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 Posted: Fri May 05, 2006 7:33 am Post subject: Stagflation? |
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If this IS the 70's again, then maybe it's time to trot out this old bit of economics. Just a cursory view: dollar, as usual sniffed out first, high wages, low job growth, high commodity inputs, speculator mentality (a silver ETF without the silver to stock it!) Condos' in Miami, home sales going....going....
Was stagflation ever really here? How long can it stay?
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HenryTo
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| Posted: Mon Apr 28, 2008 10:34 pm Post subject: |
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That is why wages - if indexed to inflation - will inevitably bring on a substantial inflationary spiral.
It would be interesting to see what the demographics are for those that were buying the stamps. The real inflation will only come if we start charging to send and receive email. |
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rffrydr
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| Posted: Mon Apr 28, 2008 9:51 pm Post subject: |
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Rush on "Forever stamp," inflation, real inflation, is here:
http://www.msnbc.msn.com/id/24351605/
| Quote: | | But don't wait forever, because starting May 12 the cost of Forever stamps goes up to 42 cents too. |
Post Office has had to keep the presses running overtime to meet onrush.
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Last edited by rffrydr on Tue Apr 29, 2008 6:15 am; edited 1 time in total |
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rffrydr
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| Posted: Sat Apr 26, 2008 10:29 pm Post subject: |
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Well here it is in unadulturated form: sky high inflation, wobbling economy and sky-highest rates, Iceland:
http://www.economist.com/world/europe/displaystory.cfm?story_id=11090291
But is this really what we mean by stagflation? Where's Labour? Where's the pessimism. Mechanics and economics don't mix.
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keppierce
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| Posted: Sat Apr 26, 2008 6:40 pm Post subject: |
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Unfortunately she doesn't get any US Steel stock options at her level. I think you have to be a VP. I'm sure it is part of the reason they give generous bonuses though.
I bought about 100 shares of the stock when she was hired in 2003 at about $10 per share. Unfortunately I took a quick 20% profit. |
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rffrydr
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| Posted: Fri Apr 25, 2008 10:36 pm Post subject: |
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What does the wife think of inflation in her company's stock?
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keppierce
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| Posted: Fri Apr 25, 2008 11:52 am Post subject: |
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| My wife's company(joint venture US Steel and Posco) is raising galvanized prices now and in July after just raising prices at the end of the year. These are 10%+ per increase. Their customers are saying they will go somewhere else, then they come back because imports are more expensive. Will there be enough demand to pass the increases through to the customer or will it cut into margins? Either way it isn't pretty. |
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rffrydr
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| Posted: Fri Apr 18, 2008 8:27 pm Post subject: |
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Hitting us right in the pot-belly now:
http://www.latimes.com/business/la-fi-beer18apr18,0,6405169.story
Had felt crude's rise to be mostly DEflationary. But this is popping a trend that began with an odd sort of "short-cover" McDonalds downsizing its Supersize menu.
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rffrydr
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| Posted: Fri Apr 18, 2008 6:38 am Post subject: |
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Not stagflation but capacity restraints. Hats off to peak theorists cause that in its most extreme is what we are trading:
http://news.yahoo.com/s/ft/20080417/bs_ft/fto041720081301179348
Hoarding...rioting: that however is inflation in its purist expression. Can it just be developed/developing schism...TIPS the last to know?
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HenryTo
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| Posted: Sat Mar 01, 2008 1:28 pm Post subject: |
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The "baseline estimate" calls for a recapitalization of half of the $200 billion in estimated losses, mostly from sovereign wealth funds (this is the variable "k" in the paper). The other variable is potential deleveraging - and the potential impact - which is arguably the more sensitive variable.
Quoting the paper:
| Quote: | Although the degree of recapitalization is uncertain, it is notable that our estimate for the contraction of balance sheets is not particularly sensitive to the choice of k. For instance, if k were to turn out to be 25% rather than 50%, the contraction would be only somewhat larger (at $2.45 trillion) than our benchmark case. Alternatively, if k were to turn out to be 75% rather than 50%, the contraction would fall to $1.50 trillion.
Calibrating the baseline estimate for the change in leverage is more challenging. As shown in both Exhibits 4.1 and 4.2, there have been occasions in the past when the leverage of intermediaries has shrunk by more than 5%. One reason for choosing this as the reference point is the “lending against their will” phenomenon noted earlier. Because leverage actually increased for both large investment and commercial banks during the third quarter of 2007, some of the contraction from that point forward is required just to move back towards the target value that had obtained before the crisis. Given the more than 50% increase in Value at Risk relative to a year earlier, the 5% assumption strikes us as conservative. But this baseline is admittedly arbitrary. Unfortunately, as can be seen by scanning across any row in the table, the implied size of the contraction is more sensitive to this assumption than to the one on k. |
In other words, their estimate is more or less based on their guestimate of potential deleveraging of the financial/leveraged sector due to the "procyclicality" nature of the leveraged finance sector - which we had discussed in our last weekend's commentary (it is literally an estimate of an estimate of an estimate). So far, we have not see any significant deleveraging. Moreover, to the extent that the leveraged financial sector is procyclical, this can be directly mitigated by a substantial easing in the Fed Funds rate and LIBOR - as the NY Fed paper we mentioned last week discussed. The new $31.3 billion in financing facilities that Sallie Mae obtained on Friday from the likes of Bank of America, JPM, Barclays, etc, SHOWS that the deleveraging process hasn't started - in fact, the leveraged financial institutions are still lending. Moreover, there is little doubt that Fannie and Freddie will INCREASE their leverage going forward given the raising of the GSE confirming limits and their portfolio caps. This will all directly hit the consumers' bottom line in a positive way.
From an LBO standpoint, LBO outfits such as Blackstone are now directly seeking funds from sovereign wealth funds and other high net worth individuals. There are also many more vulture investors such as Wilbur Ross (and the smaller ones that are not mentioned) on the sidelines ready to provide liquidity to the financial sector or the corporate sector - more than in previous downturns.
This paper - with all its fancy graphs - is not a complete study by far and relies purely on back-of-the-envelope calculations, which in turn rely on questionable assumptions especially in the context of this current cycle. However, I agree with Mauldin that this is a potentially deflationary force - hence that is why the Fed is looking ahead and easing as opposed to looking in the rear view mirror. |
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rffrydr
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| Posted: Sat Mar 01, 2008 8:55 am Post subject: |
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Mauldin returns to theme:
| Quote: | So, let's look at why the Fed is not focusing on inflation, despite the numbers from last week. First, they truly think that inflation is going to come down on its own this year, and I agree.
As I have written for some time, it would be a very strange recession indeed, for inflation to be persistent, particularly with two major bubbles slowly collapsing before our eyes. The housing bubble is only beginning to be felt. It is clearly going to have a negative effect on consumer spending, and that is not a climate for demand-led inflation. It is just the opposite.
Second, the credit crisis is going to make credit cost more and be harder to get. A major paper was just released today at 11 a.m. I have not had time to read all of it, but the gist of it is that banks are going to reduce lending by about $2 trillion as a result of their losses. Almost half of that would have gone to consumers and Main Street businesses.
"The resulting withdrawal of credit could knock one to 1.5 percentage points off economic growth, significantly compounding the impact of collapsing home construction and softer consumer spending due to lower home wealth, said the study, presented at a joint academic-Wall Street forum in New York Friday." (Barry Ritholtz)
The paper is titled "Leveraged Losses: Lessons from the Mortgage Market Meltdown," and was written by an all-star cast from Wall Street, the Chicago Fed, and academia. Basically, they show how subprime debt is connected to Main Street business and consumer spending and credit. It is quite worrisome. You can read it at: http://www.brandeis.edu/global/rosenberg_institute/usmpf_2008.pdf. |
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rffrydr
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| Posted: Wed Feb 27, 2008 7:37 am Post subject: |
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Today's durables should show in copper: good test for the inflation bugs.
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rffrydr
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rffrydr
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| Posted: Mon Feb 25, 2008 8:18 am Post subject: |
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...Yet:
http://www.thestreet.com/tsc/common/images/storyimages/simons_LIBOR_0212_big.gif
"This flattening -- any number less than 1.00 indicates the three-month rate exceeds the six-month rate -- has proceeded through the 17 consecutive rate hikes between June 2004 and June 2006, the subsequent period of the Federal Reserve being on hold and the 225 basis points of rate cuts since September 2007. This flattening seems to exert downward pressure on inflation expectations."
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rffrydr
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HenryTo
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| Posted: Mon Feb 25, 2008 2:35 am Post subject: |
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Great NY Times article on run-away commodity inflation in the Middle East:
http://www.nytimes.com/2008/02/25/world/middleeast/25economy.html?_r=1&hp&oref=slogin
| Quote: | Here in Jordan, the cost of maintaining fuel subsidies amid the surge in prices forced the government to remove almost all the subsidies this month, sending the price of some fuels up 76 percent overnight. In a devastating domino effect, the cost of basic foods like eggs, potatoes and cucumbers doubled or more.
In Saudi Arabia, where inflation had been virtually zero for a decade, it recently reached an official level of 6.5 percent, though unofficial estimates put it much higher. Public protests and boycotts have followed, and 19 prominent clerics posted an unusual statement on the Internet in December warning of a crisis that would cause “theft, cheating, armed robbery and resentment between rich and poor.”
The inflation has many causes, from rising global demand for commodities to the monetary constraints of currencies pegged to the weakening American dollar. But one cause is the skyrocketing price of oil itself, which has quadrupled since 2002. It is helping push many ordinary people toward poverty even as it stimulates a new surge of economic growth in the gulf.
“Now we have to choose: we either eat or stay warm. We can’t do both,” said Abdul Rahman Abdul Raheem, who works at a clothing shop in a mall in Amman and once dreamed of sending his children to private school. “We’re not really middle class anymore; we’re at the poverty level.”
Some governments have tried to soften the impact of high prices by increasing wages or subsidies on foods. Jordan, for instance, has raised the wages of public-sector employees earning less than 300 dinars ($423) a month by 50 dinars ($70). For those earning more than 300 dinars, the raise was 45 dinars, or $64. But that compensates for only a fraction of the price increases, and most people who work in the private sector get no such relief.
The fact that the inflation is coinciding with new oil wealth has fed perceptions of corruption and economic injustice, some analysts say.
“About two-thirds of Jordanians now believe there is widespread corruption in the public and private sector,” said Mohammed al-Masri, the public opinion director at the Center for Strategic Studies at the University of Jordan. “The middle class is less and less able to afford what they used to, and more and more suspicious.”
In a few places the price increases have led to violence. In Yemen, prices for bread and other foods have nearly doubled in the past four months, setting off a string of demonstrations and riots in which at least a dozen people were killed. In Morocco, 34 people were sentenced to prison on Wednesday for participating in riots over food prices, the Moroccan state news service reported. Even tightly controlled Jordan has had nonviolent demonstrations and strikes. |
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