Archive for category Inflation Trends

Riots Intensifying in 2014 –Turning into Racial Divides

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Riots in the USA and across the globe escalate to racial riots.  Constant riots resulting from accusations of excessive police brutality from police and citizen activities that resulted in fatal shootings have escalated.  This is in Missouri.

Violent protests break out in suburban St. Louis

History Repeats and Shows Inflation Relation

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History Shows That Pinning Fed Funds Below GDP Growth Leads to Rising Inflation Over Time

e = KKR Global Macro & Asset Allocation estimate. Our estimate assumes the Fed does not tighten until mid-2015 and that nominal GDP growth averages 4.5% annually between 2012 and 2014. Data as at March 20, 2014.

Mid-Year Economic Update – 2014

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USA stable but not strong (2.5%), Europe stable but anemic (1.1%), Chinese GDP is lower but still strong (7.3% with ranges from 7.2% to 7.5%), Brazil improving (1.8%, from 1.0% however confidence is waning).  (Bloomberg).

The USA economic recovery is predicted by KKR Global to remain at work until 2017. However, it is not expected that major crisis would result in severe deterioration because the crisis was created in a single sector that grew to bubble proportions, at the moment there is no single sector growing, there is more uniformity (“the worst is over” idea, this time) (KKR Global)

On the longer horizon, the Chinese economy is structurally slowing and changing at the same time.  Exports continues down, internal consumption is increasing, government spending is down, infrastructure projects and investments are increasing.

These are the result of several drivers:

  1. Anti-corruption initiatives;
  2. Forced decline in lending back towards nominal GDP growth; and
  3. Increased competition across many of China’s export due primarily with rising cost of labor.

Manufacturing in Developed Markets is Up While in Emerging Ones is Flat

Shows manufacturing improvement in developed countries (less imports needed) while emerging countries (sources of imports) have reduced manufacturing.  In particular, China’s prior brand as the “Manufacturer of the World”, is no longer the case.  In summary, this chart below shows, more production in develop countries versus less exports in emerging countries, China in particular.

 

Inflation (as measured by CPI) Rising In Emerging Countries Since 2012 While Falling in Developed Countries.

Increase prices of products and labor in emerging countries contributes to increase in production cost of emerging countries making them less competitive compared to developed countries.

Silver on the Move

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As expected, silver has broken UP.  Then resistance is 22.0 level.

 

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With this weekly chart, we see Silver still have a lot of room for growth.  It has already passed strongly the 20.0 level and the next level after 22.0 is 28.0.

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As an additional piece of information, Baltic Index has deteriorated further.

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Recycling Trend Setting

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The trend toward recycling is taking shape and eWaste stand leading the revolution. This has been one of our major predictions since 2000.  The enormous and insatiable use of natural raw material started by the consumerism trend in the USA and overflowing to emergent economies with billions of inhabitants of disposable income will meet with natural supply obstacles.  Recycling is innevitable!

And here is a news article to the above.

US Military Building Space Robot to Recycle Satellites (Video)

By Mike Wall | SPACE.com – 1 hr 23 mins ago

DARPA Phoenix program

Defense Advanced Research Projects …

A Pentagon project to harvest and reuse parts from dead satellites is gaining steam, and a new video shows how the far the military program has come in its first few months.

The new video serves as a progress report through last November for the Phoenix program, a project by the Defense Advanced Research Projects Agency (DARPA) to recycle space junk back into valuable satellite parts, or even completely new spacecraft. DARPA scientists began the project in July and are working toward launching the first demonstration mission in two years or so.

“Today, satellites are not built to be modified or repaired in space,” Phoenix program manager Dave Barnhart said in a statement unveiling the video Tuesday (Jan. 22). “Therefore, to enable an architecture that can reuse or repurpose on-orbit components requires us to create new technologies and new capabilities. This progress report gives the community a better sense of how we are doing on the challenges we may face and the technologies needed to help us meet our goals.” 

An animation of a Phoenix servicing spacecraft working on orbit runs in the background of the 2 1/2-minute video. The foreground, meanwhile, shows some of the progress that has been made in the lab to date. [DARPA’s Project Phoenix (Video)]

This progress includes the development and testing of prototype satellite-grappling technology and tele-operations control software, among other gear, according to the video.

The Phoenix program plans to use a robot mechanic to grab still-working antennas from the many retired and dead satellites in geosynchronous orbit, about 22,000 miles (35,406 kilometers) above Earth. These large, bulky antennas would then be attached to small “satlets,” or nanosatellites, launched from Earth, creating new space systems on the cheap.

The goal is to demonstrate a way to turn part of the ever-expanding cloud of space junk around our planet into space resources, saving money in the process, DARPA officials have said. The first on-orbit demonstration mission is targeted for 2015.

“We have a long way to go, but we are laying the foundation for improving how we build space systems, with the goal of changing the economic model for space operations,” Barnhart said.

Phoenix isn’t the only satellite-servicing effort currently underway. NASA’s Robotic Refueling Mission (RRM), which was delivered to the International Space Station in July 2011, is testing out the technology necessary to repair and refuel satellites on orbit.

The latest round of RRM experiments is going on right now, with the space station’s two-armed Dextre robot attempting to snip wires, unscrew caps and pump simulated fuel using the RRM test module, NASA officials have said.

 

BASILIO CHEN H.
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Is it Possible to Create Growth Through Fiscal Stimulus?

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The answer is yes but the question is at what cost.

Two school of thoughts should be considered, the Austrian School that endorses the free-market approach and the more widely used Keynesian approach.

For the Austrian School, read Ludwig H. Mises (1881 – 1973) , a prominent figure in the Austrian School of economic.  His best known for his work on praxeology.

A government directed stimulus can add to the economy however it is a rather innefficient effect at all times.  On the other hand, Austrian School experts will also say that no matter government or private sector, any time an economy is over stimulated, the investment return suffers from being efficient and at worst from a bubble leading to a financial crisis.

In recent times, after the financial crash of the dotcom (private investment) bubble in 1999-2000, the US government stimulated the economy and the resulting effect was the Real Estate bubble to follow in 2007-2008.

This model seems to replicate in places outside of the USA as well.  China has been receiving major foreign direct investment (private and others) to the extend that China is the magnet for the majority of investment taking over the prior position of the USA for invesment.

Since 2008-2009, China government also has been providing stimulus into its economy (which in many respect is different than the one in the USA and Europe).  The result can be seen in the following chart.

The first is the large Assets represented by the Balance Sheet of the People’s Bank of China (China’s national central bank).

 

You can see that as more financial assets built from 2004 to present, it did not have much effect in the Industrial production.  Increasing investments when the world economy is saturating and demand is winding, does not necessarily create new production although it can produce excess supply and inventory. 

In addition, since 2009, much of the capital has gone to infrastructure and real estate development where demand is not yet near.  Many cities in China have ample supply of inhabited apartments and many highways are under utilized with no visible sign of major utilization.  On the opposite side, traffic in all major cities have major congestion while highways and superhighways remain with little to no traffic (who is paying for the infrastructure cost of these superhighways now).  It is clearly possible that demand will come in the future and this would be good investment however, infrastructures require costly maintenance to be paid when there is no high demand seems to be capitally inefficient.

 

Location in the Long term – Where are we

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This is the most difficult of all secular cycles, patience is challenged for everyone.

We need a reminder from time to time. Here it is.

Under the present trend, interest rates will rise. Inflation will continue in unexpected non-linear ways, taxes will be increased to pay for all the debt and loses. The small businesses and people will be most vulnerable. This period is very difficult to make real value. Best is to switch venues and wait for the changes to favor your outcome.

Beware of severe social moods which can turn into riots and more over this is the times where wars lead to bigger wars.

Study gold and silver.
Study Mania’s
Take advantage of the crowd behavior

The Invisible Money Dilution – Update

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Currency Dilution is not stopping. Measuring since January 1, 2000, US dollars has lost 26% in purchasing power. The Canadian dollar has lost 23% in the same period. This is a serious devaluation of money which means every US and Canadian citizen is affected and sadly most of them don’t know it until it is too late.
Meanwhile, and a result, gold has gained 325% in purchasing power after accounting for inflation as measured by the CPI (and because the CPI is understated, the actual gain in gold is much higher)
The monetary erosion in the USA and western economy is only getting bigger through money printing (with fancy names: Quantitative Easing). The monetary base now in 2012 exceeds $2.6 trillion, up 215% since January 2008; the national debt is over $15.7 trillion (without counting for to-be-funded pension and social funds needs) will conservatively reach $20 trillion in just three years; the US budget deficit alone is $1.3-trillion, which is more than the entire US budget was just 20 years ago;

Credit Default Swap – Insurance on Defaulted Sovereign Debt, A Template

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This is a perfect template of following the “leader”.
The graph shows the cost of insuring against sovereign debt default. As it increases, it become a clear measure of probability of default.

And to some extend is a self-fulfilling prophecy.

Sovereign Debt Domino Effect – Italy after Spain

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With Spain $125 Billion bail out plan, others now follow.
Here is what is in the headlines now.

Italy has 2 trillion euros of debt, more as a share of its economy than any developed nation other than Greece and Japan. The Treasury has to sell more than 35 billion euros of bonds and bills per month — more than the annual output of each of the three smallest euro members, Cyprus, Estonia and Malta.

On the positive side for Italy, Italy is on track to bring its budget deficit within the European Union limit of 3 percent of gross domestic product this year and the country is already running a surplus before interest payments, meaning its debt will soon peak at about 120 percent of GDP. The jobless rate is less than half of Spain’s 24 percent, and Italy didn’t suffer a real estate bust, leaving its banks healthy by southern European standards. The budget deficit was 3.9 percent of GDP last year, less than half that of Spain.
However Italy has a below averages growth rate and that is the main problem. It is borrowing against low to no growth.

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