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Thread: Stagflation Anyone ?

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    Default Stagflation Anyone ?

    Economic growth is declining even if we are not yet seeing a standard textbook
    "recession" and wholesale inflation jumped 1% in January; the highest rate in 25 years !

    Inter alia, it means the Fed is highly unlikely to cut rates further.

    Glad I bought some gold.

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    Default Re: Stagflation Anyone ?

    ^^^ wholesale inflation / commodity price inflation etc. will be jumping even higher in the very near future - thanks to both the US dollar exchange rate devaluation and the increased demand for global commodities from the Chinese / India etc. Kinda sucks when after-tax American incomes are falling at the same time.

    Also agreed that the FED is between a rock and a hard place in regard to further rate cuts. However, you might want to check out an interesting statistic ... new mortgage rates have risen from 5% to 6% while the fed has cut overnight interest rates by 3/4%. Credit card interest rates have also risen, as have non factory incentive auto loans. The reason of course is that your typical American borrower is an increasingly risky proposition for loan 'investors'.

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    Default Re: Stagflation Anyone ?

    Quote Originally Posted by Eric Stoner View Post
    Economic growth is declining even if we are not yet seeing a standard textbook
    "recession" and wholesale inflation jumped 1% in January; the highest rate in 25 years !

    Inter alia, it means the Fed is highly unlikely to cut rates further.

    Glad I bought some gold.
    I heard that fuel and food were not included in the price index calculating inflation. I'm not sure the accuracy of that statement (heard it on talk radio).


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    Default Re: Stagflation Anyone ?

    Quote Originally Posted by Melonie View Post
    ^^^ wholesale inflation / commodity price inflation etc. will be jumping even higher in the very near future - thanks to both the US dollar exchange rate devaluation and the increased demand for global commodities from the Chinese / India etc. Kinda sucks when after-tax American incomes are falling at the same time.

    Also agreed that the FED is between a rock and a hard place in regard to further rate cuts. However, you might want to check out an interesting statistic ... new mortgage rates have risen from 5% to 6% while the fed has cut overnight interest rates by 3/4%. Credit card interest rates have also risen, as have non factory incentive auto loans. The reason of course is that your typical American borrower is an increasingly risky proposition for loan 'investors'.
    I'm almost through with a refi right now. I'm moving from 7.2% down to 5.58%. Good deals are definitely still available for "prime" loans.


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    Default Re: Stagflation Anyone ?

    Unfortunately this isn't something that wasn't readily foreseeable.

    It isn't so much economics as history. There is an old saying that the definition of insanity is doing the same thing over and over but expecting a different result.

    The pattern of rising energy prices, devaluation of the dollar and the banks trying to increase their immediate profits by allowing riskier borrowers to borrow at increased interest rates [today it is many "sub-prime" loans, back than it was fewer loans but at vastly bigger amounts to third world countries that defaulted on payments, Mexico being one of the biggest defaulters] is readily discernible as that which got us into trouble in the early 70s and kept us in a deep recession until the early 80's.

    Some of us, when we saw the signs a few years ago, started saying that something had to be done to get us off this track because we knew where it was going. The only place it could go. The only place it has ever gone before and will always go.

    We stayed on that track and we are pulling into the station now. The only question is, how long do we remain on it and how deep will it hurt before we get off.

    Steps have to be taken to strengthen the dollar. Banks, in fact all companies, have to worry about LONG TERM PROFITABILTY and stop taking short cuts to increase the immediate bottom-line. That means we have to stop rewarding CEO, CFO, COO and other board positions for raising revenues by simply cutting costs if those cuts wind up making the company less profitable long term. We need to stop rewarding them for increasing stock prices it it means that the buy backs that are raising them cut deeply into R&D and/or modernization which is crucial for the company's long term profitablity.

    The sooner we tighten our belts and do the things that need doing: save instead of borrow, put off things we want rather than need until they can be paid for with cash, refuse to support business that lives for today's bottom line instead of planning for long term profitiablity, the sooner we switch tracks and get back moving in the right direction.

    No one wants to hear it but just like dieting there are no quick fixes and no pill that is going to make it all better. Switching from "live for today" to "plan for tomorrow" business, both corporate and personal, involves a little pain. It gets worse though if you put it off.
    Fiat justitia, pereat mundus.


    BTW, while we are on the subject, is it needed to point out the obvious: That it is just possible that if you are willing to judge the worth of someone simply by what you read on a website about them it might say a whole hell of a lot more about you than it says about the person you are judging?

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    Default Government reporting

    Quote Originally Posted by Paris View Post
    I heard that fuel and food were not included in the price index calculating inflation. I'm not sure the accuracy of that statement (heard it on talk radio).

    You are absolutely correct.

    Some folks have been bitching to their Congress people about that fact for more than 5 years now.

    It is ridiculous to have a CPI that leaves out two areas of consumption that are direct and immediate indicators of what the REAL inflation level is. Which just happens to be the precise reason they deliberately left them out of the equation. [Our tax dollars at work... sheese!]

    Best I can figure the national inflation level is over 7%. Might be over 8%. Its hard to tell when the only data I can get ahold of is regional. [North-East]. That is about double what the government is reporting as the inflation rate for January of 2008.

    Unemployment is higher than reported as well, because the government uses the same kind of not-particularly-legit policy used in the CPI in reporting unemployment figures. For instance, if you remain unemployed past a given point you are no longer counted in the figures but transferred into a pool of people categorized as "unavailable for employment", thus not part of the labor pool. People in the monthly survey pool who worked any part of a week are considered employed. Even if that person is someone seeking full-time employment but only worked for a few hours at one shot gig. Like an unemployed accountant who didn't find a full time job but reported doing a one off for a former client of his old company, or did a minor consulting gig that lasted less than a week, etc.

    I can't even begin to calculate what the real unemployment figures might be. I do know that regionally they are much higher in some parts of the country than is reflected in the national figure reported by the Bureau of Labor and Statistics.

    One of the things voters need to demand is that our government stop using cooked data in reporting these very important indicators of how well they are doing their job. How can we calculate whether a given Congress or a Presidency is having a positive or negative impact on our well being when the data being presented to us to make those assessments isn't based on formula or policies that reflect real world statistical analysis?
    Fiat justitia, pereat mundus.


    BTW, while we are on the subject, is it needed to point out the obvious: That it is just possible that if you are willing to judge the worth of someone simply by what you read on a website about them it might say a whole hell of a lot more about you than it says about the person you are judging?

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    Default Re: Stagflation Anyone ?

    Steps have to be taken to strengthen the dollar. Banks, in fact all companies, have to worry about LONG TERM PROFITABILTY and stop taking short cuts to increase the immediate bottom-line. That means we have to stop rewarding CEO, CFO, COO and other board positions for raising revenues by simply cutting costs if those cuts wind up making the company less profitable long term. We need to stop rewarding them for increasing stock prices it it means that the buy backs that are raising them cut deeply into R&D and/or modernization which is crucial for the company's long term profitablity.
    However, the fundamental problem is that many agencies of American gov'ts, and most American voters, and most foreign investors, really don't care whether American businesses and industries can remain profitable in the long term. They can't seem to see past the next gov't regulation, or the next election, or the next quarter's stock price / dividend payment.

    Right now there is essentially zero chance that any steps will be taken to strengthen the US dollar. The reason of course is that this requires raising interest rates to Paul Voelker levels, an action that would push 50 million Americans into bankruptcy along with half of all American banks and many businesses. The US dollar set another record low today falling below 1.50 to the Euro. Most of the major world suppliers of oil are quietly working behind the scenes to require future oil purchases in Euros / Rubles / Yen ... meaning that the US dollar denominated oil price will soon become even more volatile as the US dollar weakens further against other currencies.

    I would also point out that a fair amount of the negative economic changes we're experiencing today are the direct consequence of the 2006 election results ... although most Americans don't want to acknowledge this possibility. This is particularly the case where oil prices and food prices are concerned.
    Last edited by Melonie; 02-27-2008 at 04:34 AM.

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    Default Re: Stagflation Anyone ?

    Seventies revival, eh?

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    Default Re: Stagflation Anyone ?

    Quote Originally Posted by Melonie View Post
    I would also point out that a fair amount of the negative economic changes we're experiencing today are the direct consequence of the 2006 election results ... although most Americans don't want to acknowledge this possibility.
    Most American's won't acknowledge that possibility because that's a ridiculous assessment. Yet again you seem to be giving the GOP a free pass for some reason.

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    Default Re: Stagflation Anyone ?

    Quote Originally Posted by Richard_Head View Post
    Most American's won't acknowledge that possibility because that's a ridiculous assessment. Yet again you seem to be giving the GOP a free pass for some reason.

    I have to partially agree with Richard. We're seeing the effects now of policies and decisions that were made years ago.

    Substitute sub-prime mortgages for shaky 3rd World loans and it is scary how we are falling into the same trap that we did in the late 70's and early 80's. High oil prices and an irrational fear of recession ( as I've argued; they are sometimes a painful necessity ) leading to Fed policies that are locking us in to stagflation i.e. high inflation and high unemployment over a long period of time.

    Instead of biting the bullet and going through a recession ; we have loose money and excessive government spending which means that the eventual day of reckoning will be more prolonged and more painful than it otherwise would have been.

    As one of the other posters pointed out, many banks are glomming the difference between Fed rate cuts and the interest they charge to try to recoup their losses on many a shaky loan.

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    Default Re: Stagflation Anyone ?

    Quote Originally Posted by Richard_Head View Post
    Most American's won't acknowledge that possibility because that's a ridiculous assessment. Yet again you seem to be giving the GOP a free pass for some reason.
    Both sides of the aisle are into it up to their necks. They aren't alone though.

    It was greedy corporations making fast and loose money while saying, "Hang tomorrow", in the process.

    It was individuals making loans for far more house than they could afford that common sense simple shouldn't have allowed them to make.

    It was financial institutions loaning those people money their accounting and actuarial departments should have told them they had no business making.

    It was consumers living on credit.

    It was speculators jumping on the bandwagon and pushing oil above $100/barrel.

    It was a lot of things. All, or certainly most, of them totally foreseable and avoidable.
    Fiat justitia, pereat mundus.


    BTW, while we are on the subject, is it needed to point out the obvious: That it is just possible that if you are willing to judge the worth of someone simply by what you read on a website about them it might say a whole hell of a lot more about you than it says about the person you are judging?

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    Default Re: Stagflation Anyone ?

    Well I certainly am not giving the GOP a pass. if there is any cosmic justice, GWB will rot in hell for instituting a huge new entitlement program i.e. prescription drugs for senior citizens. FDR and LBJ would be proud of GWB, but I'm certainly not !

    However, where the price of food and oil are concerned, it is easily arguable that these were both affected in a big way by the swing in congressional majorities that occurred during the 2006 election. Democratic majorities assured that there would be upward pressure on oil prices due to no new American oil supply (i.e. ANWR, offshore) thus foreign imports would continue to grow. Democratic majorities also assured that there would be upward price pressure on all farm crops due to tremendous new demand for corn + fertilizer + pesticide, as well as additional cost for all farm labor, due to the passage of a greatly expanded ethanol mandate plus raising the US minimum wage.

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    Default Re: Stagflation Anyone ?

    Quote Originally Posted by flickad View Post
    Seventies revival, eh?
    YEAH ! And Mr. Bernanke was NOT encouraging in his recent Congressional testimony. It's all well and good to try and avoid recession but not at the price of increased inflation. He made it clear that further rate cuts by the Fed were in the offing.

    This is scarily reminiscent of Arthur Burns in the 1970's with the Fed continually inflating the money supply even after the first oil shocks of 1973-4. We had to endure a very painful five year period of stagflation and then recession - 1979 to 1983. Remember the " Misery Index" ? Even "bulls" like Kudlow are alarmed and think the Fed should hold the line on further rate cuts.

    I haven't even touched the total failure of the Treasury Dept. to support the dollar.

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    Default Re: Stagflation Anyone ?

    Quote Originally Posted by Golden_Rule View Post
    Both sides of the aisle are into it up to their necks. They aren't alone though.

    It was greedy corporations making fast and loose money while saying, "Hang tomorrow", in the process.

    It was individuals making loans for far more house than they could afford that common sense simple shouldn't have allowed them to make.

    It was financial institutions loaning those people money their accounting and actuarial departments should have told them they had no business making.

    It was consumers living on credit.

    It was speculators jumping on the bandwagon and pushing oil above $100/barrel.

    It was a lot of things. All, or certainly most, of them totally foreseable and avoidable.
    So true!

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    Default Re: Stagflation Anyone ?

    Quote Originally Posted by Melonie View Post
    However, where the price of food and oil are concerned, it is easily arguable that these were both affected in a big way by the swing in congressional majorities that occurred during the 2006 election. Democratic majorities assured that there would be upward pressure on oil prices due to no new American oil supply (i.e. ANWR, offshore) thus foreign imports would continue to grow. Democratic majorities also assured that there would be upward price pressure on all farm crops due to tremendous new demand for corn + fertilizer + pesticide, as well as additional cost for all farm labor, due to the passage of a greatly expanded ethanol mandate plus raising the US minimum wage.
    OK, here I have to fault your thinking.

    Oil isn't being effected by the idea that we aren't going to drill in Anwar. There isn't enough oil in Anwar to supply the U.S. for six months. The latest figures on oil reserves on hand show the U.S. is at record levels of oil in the pipeline waiting to be processed.

    If anything the price of fuel only is being effected by three things [only one of which is legit, in terms of supply and demand, the other two artificial in nature]: 1) lack of refining capability; 2) Russia and what Putin is doing to drive up oil prices; 3) speculation by greedy oil investors.

    And any speculation on food prices due to not yet present demands for ethanol producing crops is counter-balanced on the other side of the equation [or should be at any rate] in reduction of the speculative price on oil futures [speculation of reduced demand].
    Fiat justitia, pereat mundus.


    BTW, while we are on the subject, is it needed to point out the obvious: That it is just possible that if you are willing to judge the worth of someone simply by what you read on a website about them it might say a whole hell of a lot more about you than it says about the person you are judging?

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    Default Re: Stagflation Anyone ?

    ^^^ I would make the contrary argument that, with world oil supplies so closely tied to worldwide oil demand that a rumored disruption in Nigerian oil exports causes a sharp jump in the price of crude oil futures, the mere knowledge that new US oil production would be adding even 2% to worldwide oil production could and would have a significant downward effect on the price of oil. However, I don't disagree with your three items.

    As to food prices, if you do a little googling you will find that the unintended consequences of the US ethanol mandate are far from future speculation. Fertilizer prices have risen sky high. Grain futures of all types are setting new record highs. All of this is based on hard mathematics showing the number of prime US farm acres which must be diverted to corn production to meet the ethanol mandate, and the additional fertilizer / water / energy costs necessary to bring additional marginal US farmland into food production to make up for the prime acres 'lost' to ethanol.

    and

    both clearly show that agricultural futures, and corn futures in particular, took a big upward jump as soon as polling results made it known that democrats would carry the 2006 election, and those futures prices have continued moving upward ever since !

    ~
    Last edited by Melonie; 02-28-2008 at 04:06 PM.

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    Default Re: Stagflation Anyone ?

    Quote Originally Posted by Melonie View Post
    ^^^ I would make the contrary argument that, with world oil supplies so closely tied to worldwide oil demand that a rumored disruption in Nigerian oil exports causes a sharp jump in the price of crude oil futures, the mere knowledge that new US oil production would be adding even 2% to worldwide oil production could and would have a significant downward effect on the price of oil. However, I don't disagree with your three items.

    As to food prices, if you do a little googling you will find that the unintended consequences of the US ethanol mandate are far from future speculation. Fertilizer prices have risen sky high. Grain futures of all types are setting new record highs. All of this is based on hard mathematics showing the number of prime US farm acres which must be diverted to corn production to meet the ethanol mandate, and the additional fertilizer / water / energy costs necessary to bring additional marginal US farmland into food production to make up for the prime acres 'lost' to ethanol.

    http://charts3.barchart.com/chart.as...=BSTK&evnt=adv and http://charts3.barchart.com/chart.as...=BSTK&evnt=adv

    both clearly show that agricultural futures, and corn futures in particular, took a big upward jump as soon as polling results made it known that democrats would carry the 2006 election, and those futures prices have continued moving upward ever since !

    ~
    Oh, absolutely. I agree. BTW, very nice posting links to back up your ideas. I wish more people would do that.

    What you are saying isn't much different than where I was heading. Yes, corn speculation is up due to perceived demand once ethanol mandated increases hit the market. Which is truly dumb on our part because both sugar and sugar beats produce much better energy-out for energy-used ratios in the manufacturing of the final product. As I said though, the idea is that this should be met by a similar drop in oil prices when those products hit the market. I'll admit its a "time will tell" sort of business.

    I didn't know about the fertilizers. I can think of one good thing about that though. Perhaps the drastic rise in chemical fertilizer products will make organic fertilizers cost competitive and we'll see a rise in the use of those products.

    A small touch of silver in an otherwise gray lining.
    Fiat justitia, pereat mundus.


    BTW, while we are on the subject, is it needed to point out the obvious: That it is just possible that if you are willing to judge the worth of someone simply by what you read on a website about them it might say a whole hell of a lot more about you than it says about the person you are judging?

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    Default Re: Stagflation Anyone ?

    Which is truly dumb on our part because both sugar and sugar beats produce much better energy-out for energy-used ratios in the manufacturing of the final product
    this has been covered in many other threads, with the concensus being that only sugar cane has a seriously positive net energy equation (i.e. the ethanol energy you wind up with versus the oil energy inputs for fertilizer, irrigation, cultivation, harvest, transport, refining). Unfortunately, sugar cane can only be grown in areas of the US that are already primarily democratic like south florida, louisiana, hawaii ... or US territories that do not have electoral votes like puerto rico, guam, samoa. On the other hand, corn is primarily grown in 'swing' states that could easily vote republican as well as democratic.

    Just a pure coincidence of course ! Thinking otherwise would clearly demonstrate that the US corn ethanol program has extremely little to do with alternative energy, and a whole lot to do with 'buying' votes in states where they are needed to achieve a particular election result.

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    Default Re: Stagflation Anyone ?

    [quote=Golden_Rule;1422569]That means we have to stop rewarding CEO, CFO, COO and other board positions for raising revenues by simply cutting costs if those cuts wind up making the company less profitable long term. We need to stop rewarding them for increasing stock prices it it means that the buy backs that are raising them cut deeply into R&D and/or modernization which is crucial for the company's long term profitablity.


    G_R: Care to name 3-5 corporations that most blatantly epitomize this negative trait??

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    Default Re: Stagflation Anyone ?

    Right off the top of my head: Chevron, ConocoPhillips, BP, Shell, Exxon.

    All have dumped money into stock buy backs and taken those purchases off their profit line, while at the same time raising stock prices to kick in bonuses for their boards. At the same time not putting that money into R&D that would move the company further down the road into alternative energies that would keep the companies more profitable when fossil fuels start falling off the table [might give BP a pass on the latter as they were the least offender in that catagory]. Also failing to use that money to modernize their production facilities to increase refining capacity.

    Perfect examples of what I am talking about.
    Fiat justitia, pereat mundus.


    BTW, while we are on the subject, is it needed to point out the obvious: That it is just possible that if you are willing to judge the worth of someone simply by what you read on a website about them it might say a whole hell of a lot more about you than it says about the person you are judging?

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    Default Re: Stagflation Anyone ?

    Quote Originally Posted by Golden_Rule View Post
    Right off the top of my head: Chevron, ConocoPhillips, BP, Shell, Exxon.

    All have dumped money into stock buy backs and taken those purchases off their profit line, while at the same time raising stock prices to kick in bonuses for their boards. At the same time not putting that money into R&D that would move the company further (snip)

    Perfect examples of what I am talking about.
    Ah yes, big oil. Recessions of 74-75,80-82, 91 duly noted as was key Chevrons officer 4Q $5M profit on stock options (Yahoo Finance). But, there are other industries that have large impact on many communities. Do you have any examples of "s^#t list" corps. in such industries as manufacturing, chemicals, transportation, consumer goods, healthcare, aerospace/defense, etc.??

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    Default Re: Stagflation Anyone ?

    2/3rds of the S&P 500 companies have engaged in stock buybacks ! Some of the 'biggies' were Intel (25 billion) Microsoft (40 billion), Applied Materials, general electric, Citigroup, Amazon.com, Cigna and literally hundreds of other companies.

    The driving force for stock buybacks is primarily TAX oriented. Dividends paid by corporations are subject to 'ordinary income' tax rates that can run 25-35%+ for typical individual investors. Using the same money to buy back stock shares instead of paying dividends causes the stock price to increase ... which is then subject to 'capital gains' tax rates of 15%.

    Stock buybacks have been standard fare for 'tech' companies forever ! On the other hand, Oil companies have traditionally paid big dividends with or without stock buybacks thrown in. Of course most 'tech' companies don't need to worry about future profitability, because unlike the Oil companies who have to worry about calls for a 'windfall profits tax', powerful members of the US gov't have allowed tech companies to evade high taxes by claiming that their software is actually a product of Ireland (thus software royalties are subject to super-low Irish taxes instead of relatively high US taxes).

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    Default Re: Stagflation Anyone ?

    More inflationary fuel on the fire. Many 3rd world resource providing and goods producing nations are experiencing inflation in the own economies BECAUSE they are flush with money from exports and have too little to spend it on like Vietnam. As a result they are raising prices on good that they ship whcih coupled with the weak dollar means more inflationary pressure.
    First oil ; then food and now finished goods like CLOTHING. The hits just keep on coming.

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    Default Re: Stagflation Anyone ?

    ^^^ I posted a thread about this very issue a few days ago ...

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    Default Re: Stagflation Anyone ?

    Quote Originally Posted by Melonie View Post
    ^^^ I posted a thread about this very issue a few days ago ...

    http://www.stripperweb.com/forum/sho...d.php?t=112168
    Yeah but NOW the problem is spreading to even CHEAPER countries like Vietnam.

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