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Thread: weekend commentary - US 'Wholesale' inflation up 1.1% in March

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    Default weekend commentary - US 'Wholesale' inflation up 1.1% in March

    The article points out that 'wholesale' inflation i.e. the costs of production, including foods and energy, increased by 1.1% last month, which was almost 3 times as high as analyst expectations. If this continues, it would translate into an annualized 'wholesale' inflation rate of around 15%.

    What this is telling us is that the US providers of goods and services are being forced to 'eat' rapidly rising costs ... which will eventually have to be passed on to the consumer in the form of price increases or the provider of goods and services will face bankruptcy.

    At the same time, the article points out that (due to deteriorating economic conditions) the sales of non-essential items like cars and trucks declined notably last month. This worsens the economic pressure on providers of non-essential items because their 'fixed costs' (like property taxes, energy bills) do not decline along with declining sales. The same point logically applies to the providers of non-essential services i.e. restaurants, strip clubs, etc.

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    Default Re: weekend commentary - US 'Wholesale' inflation up 1.1% in March

    Another thing that is happening is the choice of options declines. Colors of cars are becoming fewer, choices of flavors of bagels is fewer now, etc.

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    Default Re: weekend commentary - US 'Wholesale' inflation up 1.1% in March

    Inflation is a problem, I do not see how anyone can deny that. Energy and food are affecting companies. It is a difficult enviroment to pass this along to the consumer. However, at some point, there isn't a choice. This, I feel, will help trigger the next loan crisis. That will be commercial properties that have been sold the last few years at low yields that made sense because of very low interest rates. When the Fed has to address inflation, they will raise interest rates as rapidly as they just took them down. Commercial properties will then go 'upside down' on income versus loan expense. Another wave of defaults could well hit the market, banks, when they are least prepared for this crisis.

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    Default Re: weekend commentary - US 'Wholesale' inflation up 1.1% in March

    ^^^ very insightful ... and also borne out by reports of rising numbers of commercial property loans now going belly-up.

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    Default Re: weekend commentary - US 'Wholesale' inflation up 1.1% in March

    We are hurdling down the high way in a junker hearing pieces fall off here and there but we know it's going to just explode.

    Then again, some call me a little pessimistic.

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    Default Re: weekend commentary - US 'Wholesale' inflation up 1.1% in March

    Are you sure the Fed will be raising rates any time soon? Didn't they already try that and saw that the US economy simply cant' function without cheap credit?
    What happens when foreigners stop subsidizing the US consumption, the Fed raises rates to attract the capital from within, but there is simply no capital left to finance the economy from within due to negative savings rate of US citizens?

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    Default Re: weekend commentary - US 'Wholesale' inflation up 1.1% in March

    ^^^ what happens then ... the US gov't becomes 'lender of last resort'

    - and 'prints up' new capital instead of having to attract capital from foreign investors. This is already happening at the Fed Window, where all sorts of funky subprime securities owned by banks are being accepted at face value in exchange for loans of newly printed dollars (that will probably never be paid back).

    - and has Fannie Mae buy more (and more expensive) subprime mortgages from banks in exchange for payment in newly printed dollars

    in other words, it doesn't appear that the US Fed is having any thoughts of raising interest rates anytime soon ... regardless on the inflationary / exchange rate effects on the US dollar. US interest rates MUST stay extraordinarily low to try and prevent widespread personal bankruptcies on variable interest rate loans of all sorts. US interest rates MUST stay extraordinarily low in order to provide a high 'spread' for US banks to operate with ( borrow on the cheap, lend at much higher rates) to restore their profitability.

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    Default Re: weekend commentary - US 'Wholesale' inflation up 1.1% in March

    Aren't they aware that the foreigners may cause collapse of the dollar? Or, would the Fed somehow benefit from it?

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    Default Re: weekend commentary - US 'Wholesale' inflation up 1.1% in March

    ^^^ well the US gov't would arguably benefit greatly if the US dollar were to suddenly be devalued by say a factor of 10. They could pay off all pre-existing treasury bonds and eliminate 90% of America's national debt. Of course the Chinese / Belgians / Japanese aren't likely to be too happy getting paid off at a rate of 1/10th of their original investment in terms of Yuan / Euros / Yen. However the same dollar crash would make everything imported (including food and energy) 10 times as expensive, and would also devalue savings and fixed income investments by Americans by the same factor of 10 !

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    Default Re: weekend commentary - US 'Wholesale' inflation up 1.1% in March

    the alternative scenatio is to devalue the currencies of the countries that trade with the US so that the US consumer can continue consuming although paying a higher price, but not 10 times as high, let's say 5 times as high?
    While the Chinese/Europeans/Japanese consumers "eat" another half of the iflation so that they can continue exporting to the US?
    Or is there no alternative scenario? We fall and they rise?

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    Default Re: weekend commentary - US 'Wholesale' inflation up 1.1% in March

    ^^^ ultimately Americans want to receive something for nothing. The Chinese / Europeans / Japanese want to receive something for something. Two times or 5 times or 10 times nothing is still nothing. This is an overdramatization of course, but like a bank who is holding the paper on a 'deadbeat' borrower, sooner or later the extensions / refinances / renegotiations come to an end when the bank realizes that the deadbeat borrower is a lost cause thus allowing the deadbeat borrower to continue will only create greater losses for the bank.

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    Default Re: weekend commentary - US 'Wholesale' inflation up 1.1% in March

    So the wake up call will come when they stop sending their goods here in return for our dollars? Will the Americans be capable of restructuring the economy towards manufacturing? Is there enough human and intellectual capital left in this country to face the reality and deal with it? Or are we permanently set on the path of always blaming others for our mistakes and exploting those who are weaker?

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    Default Re: weekend commentary - US 'Wholesale' inflation up 1.1% in March

    Quote Originally Posted by Adelina View Post
    Aren't they aware that the foreigners may cause collapse of the dollar? Or, would the Fed somehow benefit from it?
    Long run, the Value of any currency is determined by Productivity Growth.

    How many shady web-sites tell you this?
    Answer: 0

    Again, you'd have to be pretty clueless about what is happening in other countries to bet against the US$ long run

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    Default Re: weekend commentary - US 'Wholesale' inflation up 1.1% in March

    ^^^ there's no arguing the fact that China holds some 2 trillion dollars worth of foreign exchange reserve dollars, that Japan holds almost as many foreign exchange reserve dollars, and that the US holds less than 100 billion ! The US dollar could be severely devalued tomorrow if China and Japan chose to do so.

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    Default Re: weekend commentary - US 'Wholesale' inflation up 1.1% in March

    Quote Originally Posted by Melonie View Post
    ^^^ there's no arguing the fact that China holds some 2 trillion dollars worth of foreign exchange reserve dollars, that Japan holds almost as many foreign exchange reserve dollars, and that the US holds less than 100 billion ! The US dollar could be severely devalued tomorrow if China and Japan chose to do so.
    or they can buy more because of 'flight to quality' and once the Euro Bubble comes crashing down

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    Default Re: weekend commentary - US 'Wholesale' inflation up 1.1% in March

    Xan, the Chinese and Japanese (together with the rest of the world) wouldn't be so worried about their dollar holdings if the dollar was still considered a "safe heaven" currency. Have you noticed that the recent market down days don't generate a flight to US Treasuries any more?

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    Default Re: weekend commentary - US 'Wholesale' inflation up 1.1% in March

    Quote Originally Posted by Adelina View Post
    Xan, the Chinese and Japanese (together with the rest of the world) wouldn't be so worried about their dollar holdings if the dollar was still considered a "safe heaven" currency. Have you noticed that the recent market down days don't generate a flight to US Treasuries any more?
    Of course they haven't. The moment of truth comes when ROW GDP growth slows down.

    Its one thing to bet on India's & China's economy to grow (only because they are really coming off a low base & there is huge catching up for them to do). But, to say that Europe and Japan with their aging demographics & high protectionism will grow better than US needs a great deal of cluelessness which is displayed by currency markets today.

    Remember how good people used to feel about real estate investment before the crash? It is the same feelling displayed with the ROW currencies by mass market

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    Default Re: weekend commentary - US 'Wholesale' inflation up 1.1% in March

    Long term- yes, we have a real chance to regain respect for our currency IF we stop creating bubbles, cut spending and restore our manufacturing base (competitive on the world market). Will that happen, time will tell.

    Short to medium term dollar has a long way to go down. Too many obstacles on the dollar's uptrend. Dollar rallies are still possible, though, a normal thing in a bear trend.

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    Default Re: weekend commentary - US 'Wholesale' inflation up 1.1% in March

    Quote Originally Posted by Adelina View Post
    Long term- yes, we have a real chance to regain respect for our currency IF we stop creating bubbles, cut spending and restore our manufacturing base (competitive on the world market). Will that happen, time will tell.

    Short to medium term dollar has a long way to go down. Too many obstacles on the dollar's uptrend. Dollar rallies are still possible, though, a normal thing in a bear trend.
    1. Manufacturing base has nothing to do with creating wealth
    2. Nobody can time Exchange markets. You simply don't know what scenarios the market has already priced in. If the market has already priced in an asteroid hitting only the US and destroying it completely then any news is only good news. OTOH if the market has priced in US to grow 20% in real terms for the next 50 years, then any news is bad news. It is the same with Gold/Silver/Art and assets that don't have cash flows

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