A really interesting long-term chart that contextualizes this market rally

Thanks for starting this thread and sharing your very well thought out ideas.

Quote from brettman9:

Thoughts on the dollar in all of this mess:

This is another interesting situation to me, and some have brought it up implicitly or explicitly in this thread.

I have to say, sure I am a bit worried about inflation. But only because I'm worried that people are worried about inflation. The same two sentences could be said about the dollar.

But the comparison with the 1970's inflation doesn't work at all. In other words, it is not the case that the 1970s were a potential deflationary bust that policymakers turned into an inflationary one with excessive monetary support. The roots of a deflationary bust lie in the expansion of a credit bubble and its subsequent collapse. The roots of an inflationary bust lie in the gradual entrenchment across the economy of expectations of an undesirable pace of inflation, and the supplying of enough money to make those expectations actionable.

Hence, the current situation is unique among the three 'supercycle' corrections shown in the original chart in that it aligns, in principle, as a deflationary bust, but unprecedented monetary and fiscal measures have stoked fears of an inflationary outcome.

This has opened the door for reasonable fear about the future of the dollar (and a market for the views of those like Peter Schiff and his ilk).

But the 1970's were an inflationary bust all the way. The problems were, first, government financing of the Viet Nam war, then the untethering of the currency system from the Bretton-Woods limitations, and then the existence of very very stupid mechanisms that promoted positive feedback loops. For example, labor union strength at the time created contractual obligations in a number of industries to tie wage growth to inflation. This, of course, simply meant that, if inflation increased, then companies would have to raise prices to afford their payrolls, which just gave the wage-earners more money to afford the inflated prices.

We know how stupid that was now.

There is no doubt in my mind that there will be unintended consequences for the unprecedented policy effort now in effect. But I'm not sold on it being the death of the dollar.

In fact, I'm inclined to suggest a long dollar strategy. The dollar has been in a bear market for about a decade. Bear markets of that duration, in any asset, conclude only when everyone is convinced that the end-of-the-world scenario is totally believable for that asset. At this point, we are above the summer 08 lows and sentiment is far worse for the currency, which is a potentially important divergence scenario.

In my view, everyone is positioned for the dollar to get decimated and the dollar carry-trade has grown massively in the past 2-5 months, which means a one-sided position of enormous proportion is sitting there just asking for a catalyst to come along and force its unwinding.

And there is one rule I have learned well over the years: that major bottoms are made if and only if the market in question is overwhelmingly positioned for continuation lower. Hence, if you believe central banks are not going to waver in their use of the dollar as reserve currency, then we have reached that point for the dollar.

Note, I understand that the situation is ripe for some sort of reorganization of the reserve currency mechanics. But the idea that China and Japan are going to "pull the plug" on the US is absurd - it would decrease the value or our debts and their assets...you do the math. They're far more likely to intervene than abandon. The same could be said of the ECB. We're more likely in an age of competitive devaluation than anything else.

But the fact that drives my perception most of all is as follows: When you start seeing a clear consensus in public sentiment as expressed by NY Times best-sellers and you-tube popularity that we're heading for a continuation move in a market that has been in a large degree trend for a decade...Watch out!
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Quote from slapshot:

I disagree. The only real growth is population growth. For each item you mentioned such as technology that "grows" there is attrition (shrinkage) of older technology, jobs, and revenue.

In order for your premise to be true, the status quo would have to be fully maintained and then plus the new additions. But that is not reality. It is more a function of replacement.

Example: for each Green job created, there is one or even two jobs in energy or other sectors that eventually becomes eliminated or reduced as newer tech replaces old.

This is why NoBama's "grow the government and the Green stuff" economic plan will fail. At best, it is just running in place but with lower emissions. At worst, it increases costs/reduces profits by trying to force new tech to the forefront with political pressure.

Example: you cite the internet as growth, but try telling that to convention centers, airlines, railroads and some retail stores that have all experienced corresponding declines in business and employment or in fact been put out of business.
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Your point about new technology replacing old is valid. But as long as the increased productivity from the new technology outweighs the lost productivity on the replaced technology, the economy will grow.
 
Quote from brettman9:

Seems to me the important part is productivity growth. And there has been, and will be, plenty of that.
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The point made in my earlier post was that over the last twenty years, in spite of the technology boom and the internet, there was not much growth in in the GDP when discounted for inflation. What we had was growth in some sectors but offsetting retraction in others, such as manufacturing.

I wish I could be as optimistic as you, but it seems to me the US economy is maturing and that future growth in GDP will, after correcting for inflation, be less, or at least no more, than past growth. In other words I would expect the US to remain on roughly the same path it has been on.

See http://www.shadowstats.com/alternate_data

and also, http://www.shadowstats.com/article/gross_domestic_product
 
Where are the facts to back up these productivity claims?

Some just want to believe stocks will always go up. Wall street has a certain amount of fools brainwashed.

The real truth is you can believe what you want to but that does not change the facts. The facts are even if you manage to get more cash in your pockets you will lose purchasing power as you walk down the street to the retail store to purchase some goods because the value of your money is going down the toilet.

In 1965 a brand new car loaded up with all the toys cost about 4 grand. Today that same car will cost about 40 grand. And least we not forget .........even if there were REAL productivity increase, in this day and age where the workers have been castrated there is no economic improvement to speak of. The profits are not shared with the folks on the factory floor. Productivity increases are another myth for the sheepie to believe. :eek:

http://en.wikipedia.org/wiki/Purchasing_power_parity
 
Productivity is about how much time and energy must be invested in the accomplishment of a given task.

A single individual human living today can get a hell of a lot more done with less of an investment of their time and energy than 20 years ago, or 30, or 50, or whatever. This is self-evident.

That being said, the point about the US being a relatively mature economy is, I think, spot on. And most of the growth seems destined to come where things aren't done nearly as efficiently already. Namely, the emerging markets. This should be no surprise.
 
Quote from brettman9:

Productivity is about how much time and energy must be invested in the accomplishment of a given task.

A single individual human living today can get a hell of a lot more done with less of an investment of their time and energy than 20 years ago, or 30, or 50, or whatever. This is self-evident.
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I don't think this is self-evident. Or even accurate in all respects, only some.

For example, people are not as healthy and active physically and spend way more hours wasting time on the internet, watching TV, slogging through IT issues, answering annoying e-mails.

How much of this effort translates into actual economic productivity is debatable, especially when compared to hard-working manufacturing or farming folks from 50 years ago.

It is not actual tangible productivity, but rather derivative productivity - just like our economy. That is the illusion of growth I am referring to.
 
There is a point of diminishing returns when it comes to productivity. A mature economy such as ours reaps increased productivity in terms of more free time for people as they have done all there is to do absent new industries to spend time in. There is a significant part of our workforce that is employable only in Bubble conditions and thus a new one MUST be created. Technology (increased productivity) has achieved much of what it's core goal is: to eliminate the human from the equation through the promise of greater profits and convenience.

Wall street loves difficult to measure factors such as productivity as it is nearly impossible to question, just as the Dot_coms were.
 
Quote from retire45:

There is a point of diminishing returns when it comes to productivity.
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When <10% of the population is needed to generate 150% of the food, you're pretty much there.
 
Random.Capital


Registered: Jan 2005
Posts: 1536


09-18-09 11:00 PM



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Quote from retire45:

There is a point of diminishing returns when it comes to productivity.
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When <10% of the population is needed to generate 150% of the food, you're pretty much there.




BINGO!!!!!

Like the other poster said..........We are a mature country now. Increased productivity could be better measured to show factual improvements in a country like Haiti or some other 3rd world spot.

Discussing productivity in a mature developed country like the USA is symantics because Brettman refuses to talk about the decline of the USA which is not his bag. I am a realist and call them as i see them. Fact: the USA is a declining economic power, DEAL WITH IT.

Productivity increase or decrease nunmbers for the USA is a bs data point.
 
Quote from bighog:

Random.Capital


Registered: Jan 2005
Posts: 1536


09-18-09 11:00 PM



--------------------------------------------------------------------------------
Quote from retire45:

There is a point of diminishing returns when it comes to productivity.
--------------------------------------------------------------------------------



When <10% of the population is needed to generate 150% of the food, you're pretty much there.




BINGO!!!!!

Like the other poster said..........We are a mature country now. Increased productivity could be better measured to show factual improvements in a country like Haiti or some other 3rd world spot.

Discussing productivity in a mature developed country like the USA is symantics because Brettman refuses to talk about the decline of the USA which is not his bag. I am a realist and call them as i see them. Fact: the USA is a declining economic power, DEAL WITH IT.

Productivity increase or decrease nunmbers for the USA is a bs data point.
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Bighog, I am not challenge what you say, I want to ask a question. Is USA declining, or other countrys becoming more productive, so in the whole world picture the USA is not wealthy as before (only compared to the world) but is still a wealthy country?
 
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