Post by agito on Jul 9, 2008 2:20:10 GMT -6
I don't know how i managed it, but i'm subscribed to john mauldin's newsletter, and every other newsletter is a reprint of analysis from an outside source.
This week, the firm of Hoisington Management Company makes a powerful case that we are going to encounter deflation(pdf) in prices.
Their anysis uses the mainstream numbers for inflation, and doesn't take into account M3 money supply (but with all the investment firms whoring themselves for reserve capital, M3 shouldn't be a factor on the economy anyway- at least not an inflationary one), but i would consider it a must read.
highlights:
In the second quarter, current dollar gross domestic product totaled an estimated $14.3 trillion, about $572 billion greater than a year ago. Of this gain, $359 billion can be attributed to price increases and $213 to higher real output. There are times, however, when GDP is not the final arbiter of the economy’s performance, and this is one. The seemingly large gain in GDP pales in comparison to the loss in wealth, which GDP does not capture. Over the past fiscal year, holdings in the stock market, as measured by the Wilshire 5000 Stock Index, lost more than $2.1 trillion. Simultaneously, the 15.3% contraction in the Case Shiller Home Price Index suggests the wealth loss in value of household residences was a staggering $3.1 trillion. Without including the negative wealth impact for declining prices of automobiles and other durables the total wealth loss was approximately $5.2 trillion. Obviously, the sum of dollars being erased from our economic system has overwhelmed the amount of dollars being increased by inflation by a factor of more than 14 to one.
Fiscal Policy as a factor:
Fiscal policy would seem to be undisputedly supportive for the economy with the Treasury’s $110 billion in rebate checks and a Federal budget deficit that is approaching a record $500 billion. But that is not the case. The Treasury does not have $500 billion in its checking account to cover the deficit, nor even the lesser amount for the rebates. The Treasury has to raise the funds by selling debt securities to the private sector....
Thus, deficit financing crowds out funds that would have gone to private uses. With the exception of the Federal funds rate, in the first half of this year virtually all money and bond yields rose, a clear sign that the deficit usurped funds for the private sector.
The costs of Raw materials versus rent as inflationary factors:
Raw Material Costs
If energy and other commodities were the only major cost, the AS curve would shift inward and cause cost push inflation. But, raw material costs only constitute about 10% of U.S. production costs.
Rents
Rents account for about of the cost of U.S. production, or approximately the same weight as raw materials. Rents for retail space are falling, and there are nascent signs that office and warehouse rents have begun to ease. All other costs also account for about 10% of the cost of U.S production, so any increases in this residual category would be neutralized by rents.
I'd like to see where they got the figure for "raw material costs only constitute about 10% of U.S. production costs" , but as noted by the other post in this forum, commercial space has gone up- so the rents should go down.
... well- what do you guys think?
This week, the firm of Hoisington Management Company makes a powerful case that we are going to encounter deflation(pdf) in prices.
Their anysis uses the mainstream numbers for inflation, and doesn't take into account M3 money supply (but with all the investment firms whoring themselves for reserve capital, M3 shouldn't be a factor on the economy anyway- at least not an inflationary one), but i would consider it a must read.
highlights:
In the second quarter, current dollar gross domestic product totaled an estimated $14.3 trillion, about $572 billion greater than a year ago. Of this gain, $359 billion can be attributed to price increases and $213 to higher real output. There are times, however, when GDP is not the final arbiter of the economy’s performance, and this is one. The seemingly large gain in GDP pales in comparison to the loss in wealth, which GDP does not capture. Over the past fiscal year, holdings in the stock market, as measured by the Wilshire 5000 Stock Index, lost more than $2.1 trillion. Simultaneously, the 15.3% contraction in the Case Shiller Home Price Index suggests the wealth loss in value of household residences was a staggering $3.1 trillion. Without including the negative wealth impact for declining prices of automobiles and other durables the total wealth loss was approximately $5.2 trillion. Obviously, the sum of dollars being erased from our economic system has overwhelmed the amount of dollars being increased by inflation by a factor of more than 14 to one.
Fiscal Policy as a factor:
Fiscal policy would seem to be undisputedly supportive for the economy with the Treasury’s $110 billion in rebate checks and a Federal budget deficit that is approaching a record $500 billion. But that is not the case. The Treasury does not have $500 billion in its checking account to cover the deficit, nor even the lesser amount for the rebates. The Treasury has to raise the funds by selling debt securities to the private sector....
Thus, deficit financing crowds out funds that would have gone to private uses. With the exception of the Federal funds rate, in the first half of this year virtually all money and bond yields rose, a clear sign that the deficit usurped funds for the private sector.
The costs of Raw materials versus rent as inflationary factors:
Raw Material Costs
If energy and other commodities were the only major cost, the AS curve would shift inward and cause cost push inflation. But, raw material costs only constitute about 10% of U.S. production costs.
Rents
Rents account for about of the cost of U.S. production, or approximately the same weight as raw materials. Rents for retail space are falling, and there are nascent signs that office and warehouse rents have begun to ease. All other costs also account for about 10% of the cost of U.S production, so any increases in this residual category would be neutralized by rents.
I'd like to see where they got the figure for "raw material costs only constitute about 10% of U.S. production costs" , but as noted by the other post in this forum, commercial space has gone up- so the rents should go down.
... well- what do you guys think?