[kyrill]

Holy Inflation, Batman!  Article By John Evanthes  in http://enjoythemusic.com/magazine/manufacture/0108/

ha 

What a transparent and nice article it should have been published in enjoytheread.com 

I have printed it and will use for my students in their Msc.BA studies so worthwhile and refreshing the article is
it plumbs all theorists and professors alike with their nose back into practical realities
my question though is
who do i ask permission to use it for my students?
the publisher or the writer?
Kyrill

[JohnR]

Congrats to TheChair(less)Guy!

[JLM]

Another factor is the increasing afluence of the average Indian and Chinese citizens.  They alone have significantly increased consumption of manufactured goods (made from all those raw materials listed).

Keep in mind that none of this manufacturing, transportation, and consumption happens without fuel.  Demand for oil worldwide currently outstrips production capacity with no end to this trend in sight  So you can probably guess what direction energy prices will continue to go.  And with all this additional human activity, global warming will only worsen.

Good time to invest in efficient cars, alternate energy sourcing, and home energy saving upgrades (with the U.S. housing slump, some building materials are cheaper than they were 2 - 3 years ago).

[kyrill]

Well i am a Dutchman and we Dutchmen have a feeling for prices...erghh

but to be honest all my hobbies spend euros travel via Ebay or direct sales to
US dollar or US related currencies like AU dollars. Even my Blue ray disks i buy in the US
are cheaper including the flying cost of shipping

There is not a Dutch shop with expensive audio gear that will ever see me. A pity somewhere, shouldn't i support local economy?

[Wayner]

John,

What an excellent article you have written. You did go to college (ha, ha). All I learned was junk like geometry and engineering stuff. KUDOS.

I actually have seen this coming for a long time, noticing all the products on store shelves being made in China. My wife and I refinanced our house for very low intest until I retire. Payments are a less than rent. If we began to be swallowed by the dragon, I have funds in place to wipe all debt out in an instant and I will be watching the economy like a hawk.

The first signs of trouble came with the auto industry offering zero interest rates to sell cars. Unfortunately, the cost of new cars and trucks put the loan out to 5 and 6 years (without a trade-in). Then the furniture industry collapsed and moved to China. They will now sell furniture with zero down, no payments until 2011 just to sell off pieces.

The third sign was the inflationary price increases in the housing industry. With an average of 15% value increase per year, it didn't take long for an average home to start to get out of reach for many potential home buyers. The buyers kind of got around the system by getting an ARM loan to at least get in, but the ARMs interest rates have all gone up, stretching their budgets to the limit. When the housing market collapsed and their home values plummeted, disaster struck. Making payments for a $350,000 dollar house that is now worth 250,000 is real tuff to chew. The finance company will only loan out what the house is appraised for. The cash flow has dried up.

John has good advice. People, get your financial house in order.....there is a storm a'commin'.

Wayner

[TheChairGuy]

Holy Inflation, Batman!  Article By John Evanthes  in http://enjoythemusic.com/magazine/manufacture/0108/

ha 

What a transparent and nice article it should have ben published in enjoytheread.com 

I have printed it and will use for my students in their Msc.BA studies so worthwhile and refreshing the article is
it plumbs all theorists and professors alike with their nose back into practical realities
my question though is
who do i ask permission to use it for my students?
the publisher or the writer?
Kyrill

Hi Kyrill - I'm thrilled you enjoyed it, thanks. It's okay by me to re-print it, but I'm no professional at that (I did not get paid for the article, for instance, by choice) and you may want to direct your request to Steve Rochlin of Enjoy the Music if you're a particularly ethical fella' and cannot sleep at night otherwise 

Probably what he'll tell you is just to ask you to cite it's source (writer's name) and publication (EnjoyTheMusic.com).  That seems enough to satisfy.

JLM is very correct in pointing out that domestic consumption in China, India (and Russia and Brazil - the so-called BRIC countries - or add Korea and it's BRICK countries) are working to peg prices higher ever still.  More competition for raw materials means higher prices for all.....that's part of the law of supply and demand.  A major thing that could alleviate this relative shortage is a dramatic drop-off in demand by the US consumer...which could plunge the US economy into recession (as 2/3 of it is pegged to consumer expenditures) with uncertain consequences for all over the world.

As every country is now incalculably linked together in a global economy, one hiccup in any one country will create a ripple effect elsewhere.  Especially if a country responsible for 27% of the world's output in goods and services (a number relatively consistent since WWII for the U.S.) has that hiccup.  Expect a larger belch soon 

I just looked at the chart of raw material prices, made less than one month ago, and I quickly caught sight of higher prices still.

Gold - now $894.00 oz. (from $815.00)
Silver - now $16.23 oz (from $14.49)
RMB/USD ratio - now 7.267 (from 7.37)

These three alone probably added 1-2% to the cost of product made in China in the past month....and this will eventually trickle down to you, Mr. and Mrs. Consumer.

Our primary factory, with whom we have great relations with (we are supremely honest with them, pay them on time, control 70% of their production - and they, in turn, have a response/communication/production rate better than any factory I've ever worked with in China....a total of 6 now) will not even guarantee prices in 90 day windows for us now - such is the work of inflation.  Prices rise daily now there....and any effort on the part of the Chinese to improve efficiency will be a small dent in the eventual tide of ever rising prices that we will all be paying for our audio products (and most other things) in the US.

As Kyrill has pointed out, those in the UK have been partly inoculated against higher prices by the plunged value of the USD to most of the world the past 2 years, but eventually as this stabilizes everyone else will acutely feel the pinch of these higher prices.

Regards, John

[Occam]

John - Excellent article!!!

[TheChairGuy]

Thanks- amazing that all that business knowledge doesn't translate into a whit of technical ability...I promise not to visit The Lab anytime soon unless you'd like to show off what kind of member shouldn't post at The Lab 

John

[lonewolfny42]

Latest news....

[TheChairGuy]

It's important for everyone to realize tho on a macro front the 'sky might be falling'...your individual share of the fall-out is relatively small.  It is at these times that Nostradamian prophecies are dusted off, sham investments offering 15% 'guaranteed' interest appear, and folks start tossing and turning at night.

As I see it, we have had a near 12 year run of good times...the tech sell-off of 2001 was a blip on the map that derailed it temporarily....but Greenspan, et al, lowered rates and we (in the US) spent our out of the morass back then. Like gravity itself, what goes up does eventually come down 

Well, the normally powerful option of lowered interest rates and tax cuts to stimulate spending are not going to perform magic this time....lotsa' people fell for the ponzi-esque trap of low interest rates and laddered adjustable loans (on homes and cars) and are tapped-out and retracting from purchases. 

Meanwhile, the 'lid' that China provided in keeping manufactured goods prices worldwide the past 10-15 years is ending.  Their currency has advanced against the $USD 8% in the past 14 months..and due to rise further in 2008.  Export Tax Rebates to manufacturers there are ending, causing an immediate bump in cost to any product made there, and this discourages dumping of product. 

Less product chasing buyers will result in higher prices - that's how it works 

While the US is the world's greatest debtor, we have been fortunate that (bond) rates in other stable countries elsewhere in the world the past 10+ years have been comparable or lower.  That has meant that creditor countries seeking the best rate of return on their money, and ultra-safety, have largely invested in the US.  If we lower our rates, we also make our Treasury bonds (which are our collective national debt) less attractive....at a time when the relatively stable EU has higher rates and even Japan has had to raise theirs. 

So, smart money is escaping ever outside of the US in hopes of attaining higher rates on their money...and Bernanke and the Fed will have to keep interest rates relatively high because of it.

So, Bernanke won't have the free hand that Greenspan had to lower rates during this time, folks have already been burned the past few years in the ponzi-esque fame of laddered/adjustable loan rates, and costly militarized action in Afghanistan and Iraq will not allow a tax break for US citizens to be large enough to stimulate the economy...as Congress and President Bush is pushing to do.

It all adds up to something we haven't seen in 30 years - STAGFLATION.  A period where demand is slack for borrowing and building in the US, at a time of relatively high interest rates and ever-higher raw material and (this time around) higher prices on manufactured foreign goods as the USD has shrunk and raw material, labor and other factors have raised those manufactured goods prices.

Anyhow, we're in for a good run in the US of several years of STAGFLATION...but don't jump out of a window, it's part of the inevitable cycle of things.   

President Obama, Clinton, McCain, Romney or Bloomberg (or, whoever) will be inheriting one fine economic mess....but we'll claw our way thru somehow in a couple/few years.  In the meantime, just enjoy the show inasmuch as you can 

John

[BobM]

Intelligent diversification is certainly the name of the game as far as investment is concerned these days. However each of these has its own issues:

- Safe havens are fairly high priced though (aka Gold and other precious metals).
- European markets that sell to the US are also susceptible to our troubles here at home. Although falling exchange rates make this attractive to US residents.
- Health Care reform is in the sights of the Democrats, so that is a risk also.
- China and other emerging markets have hugh PE multiples these days and I wouldn't be surprised to see a correction of sorts there. Although the falling US Dollar does make this a more attractive option and should help temper any fall.
- Money market fund returns and T-bills are dropping as the Fed drops rates further.
- Our balance of trade is improving as the dollar falls, but that excess liquidity in the marketplace is certainly inflationary.
- The FED has limited the amount of TIPS (inflation protected US Govt securities) you can buy to $20,000/year, and these are fairly high priced right now also.
- Dividend paying stocks (like utilities) don't look too bad, especially if oil comes down some more. US companies with large overseas sales revenue also may be safer too. Fixed income funds too.

All in all, I think it's a hunker down and keep expectations low until someone gets elected and pulls together a plan. Perhaps there may be a few bottom feeding investments to be made along the way in the hopes that they bear fruit in a year or two.

Enjoy (the gloomy predicitions),
Bob

[kbuzz3]

Great thread. Fascinating to me selfishly is on both macro and micro fronts is how the ny housing market (NYC and subs) continues on. 

[Red Dragon Audio]

Inflation Tax

[lonewolfny42]

And the cycle turns (maybe) at Starbucks......

[TheChairGuy]

And the cycle turns (maybe) at Starbucks......

That was bound to happen...it's real easy to trade down on a cup of coffee if a MacDonalds or Dunkin' Donuts is as near by as your local Starbucks. 

Why pay $4 for $1.50 caffeine fix? 

Save $2.50 a day for 200 days a year and you're taking care of a lot of little bills