tag:blogger.com,1999:blog-8515247115132134144.post7375431337621938835..comments2024-02-17T12:34:01.400-08:00Comments on Illusion of Prosperity: CPI: EnergyStagflationary Markhttp://www.blogger.com/profile/04568993350246477976noreply@blogger.comBlogger6125tag:blogger.com,1999:blog-8515247115132134144.post-72996647789399788732014-09-29T18:31:53.909-07:002014-09-29T18:31:53.909-07:00jeff,
Personally, I think the bubble is in the co...jeff,<br /><br /><i>Personally, I think the bubble is in the corporate junk bond sector.</i><br /><br />It would make sense. Just as many Americans fell into the subprime housing trap, so too many corporations have fallen into the subprime business trap. No amount of borrowing can likely make a bad business profitable. It simply extends the point at which it fails.<br /><br />Some would argue that corporate subprime borrowers can't bring down the economy any more than subprime homeowners could bring down the economy. The people making these arguments have clearly been living in a cave for the past decade though, lol. Sigh.Stagflationary Markhttps://www.blogger.com/profile/04568993350246477976noreply@blogger.comtag:blogger.com,1999:blog-8515247115132134144.post-12000512232635761542014-09-29T18:11:15.043-07:002014-09-29T18:11:15.043-07:00After Japan's property bubble burst in 1990, t...After Japan's property bubble burst in 1990, their next recession was a the result of a external bubble (1997 asian crisis that popped when US started raising rates), then the 2000 dot com bubble and then again in 2007 with US property bubble (both which also popped with rising rates). The last recession occurred in 2011 after the earthquake and Tsunami.<br /><br />Personally, I think the bubble is in the corporate junk bond sector. That said, without US rates rising to pop that bubble like, they popped the asian bubble, dot com bubble, housing bubble (or the black swan earthquake) then perhaps Japan would have avoided a recession. And simply grew at at a slow rate. Maybe the US can somehow keep muddling along here with low growth until some bubble pops or some big black swan disaster jolts confidence. <br /><br />jeffhttps://www.blogger.com/profile/18212017825312097996noreply@blogger.comtag:blogger.com,1999:blog-8515247115132134144.post-12112074647565218772014-09-29T16:52:50.476-07:002014-09-29T16:52:50.476-07:00Nathan,
I really don't think the global econo...Nathan,<br /><br />I really don't think the global economy can tolerate $100+ oil. One wonders if the falling oil price recently doesn't reflect that.Stagflationary Markhttps://www.blogger.com/profile/04568993350246477976noreply@blogger.comtag:blogger.com,1999:blog-8515247115132134144.post-70741134721120443482014-09-29T16:51:49.950-07:002014-09-29T16:51:49.950-07:00jeff,
I'm surprised how well the US has done ...jeff,<br /><br /><i>I'm surprised how well the US has done post crisis but I don't see a self sustaining way out of this yet.</i><br /><br />Yeah, me too.<br /><br /><i>So when do you see the business cycle rolling over?</i><br /><br />I predicted it would roll over on or before October of 2014 a few years ago. Seems unlikely now, but we'll see! Won't know for 6 months or more if I was right. (Few seem to notice a recession until we're well in it.)Stagflationary Markhttps://www.blogger.com/profile/04568993350246477976noreply@blogger.comtag:blogger.com,1999:blog-8515247115132134144.post-34699894694978052752014-09-28T13:13:27.954-07:002014-09-28T13:13:27.954-07:00I'm glad you are posting again.
So when do yo...I'm glad you are posting again.<br /><br />So when do you see the business cycle rolling over?jeffhttps://www.blogger.com/profile/18212017825312097996noreply@blogger.comtag:blogger.com,1999:blog-8515247115132134144.post-58154613379752361412014-09-28T13:12:28.066-07:002014-09-28T13:12:28.066-07:00The increase in domestic oil production has improv...The increase in domestic oil production has improved the US trade deficit and has helped strengthen (partially) the dollar. <br />http://research.stlouisfed.org/fred2/graph/?g=LGh<br /><br />The USD also seems to be regulating the economy at this point. A strong dollar is a form of tightening that makes corporate exports more expensive (but does lower the cost of imports). <br /><br />From the household and corporate perspective they see <br />- low energy cost (low CPI but with real wages)<br />- low interest rate (even with high debt)<br /><br />This is an estimate of how much "free money' the average household has after tax, after debt expenses and after CPI increase. As the chart shows, in 2007 before the crisis the average household spent 15% of personal income on tax, interest and CPI increases. Currently, those expenses are at the all time low of near 10% of personal income. <br />http://research.stlouisfed.org/fred2/graph/?g=Kth<br /><br />Households and corporations have received a 5% boost in cash flow after tax with the low inflation and low rates. That increase in cash flow is in part sustaining the US economy. <br /><br />The two bad thing is <br />- most of these "gains" in cash flow are going to rich (wealth inequality) and <br />- in a sense what we are doing is giving "welfare" to the weakest and highest levered consumers and companies who normally would default with low after tax interest/inflation<br /><br />I expect though the private and corporate sector will lever up and use that "extra cash flow" and at some point when the business cycle turns down there will be more delinquencies and bankruptcies.<br /><br />I'm surprised how well the US has done post crisis but I don't see a self sustaining way out of this yet. I guess we wait for the business cycle slowdown which will continue the original delevering process. At worst we become more and more like Japan with lower interest rates and low inflation. I think Japan has shown for the past 20 years that the hyperinflation or debt deflation disasters are unlikely outcomes. Rather a world of awful return on equity and gyrations in inflation/deflation. jeffhttps://www.blogger.com/profile/18212017825312097996noreply@blogger.com