As you recall, my take on the deflation vs inflation debate is much less crystal ball-ish than many other pundits on the web. I never was very much into fortune telling or forecasting the future. From what I observed and researched, if I had to make a call that call would be stagflation.
On that note, here is an interesting note from one of my site's subscribers on how China is exporting to what is amounting to stagflation to the United States, now!
Hi Reggie, I thought it was interesting to get a price increase from China when we have deflation over here, since you just wrote a China and stagflation piece I though it maybe of interest to you.
I am in the furniture business and took more of an interest in investing through your site. My company imports furniture from various Asian countries, Costco is our largest customer. Costco had two Furniture only stores, doing $120mil in business for the both stores, they closed these stores last year , due furniture not being a growth area for them going forward (they still sell through their regular stores and .com)
At that same time this was only June last year, Chinese factories were laying workers off, said workers returned to their homes mostly in the country. Now we have factories in China raising prices on products destined for deflationary markets, not by a small amount either, 6-10%!
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And a few days laters...
Hey Reggie,
Here comes something on this price increase issue again!, really all this is happening very fast and at high $/% increase levels.
Attached is a summation of our suppliers announcement (this is sent to Canada customers though not sure about US, though TPEB is East to West) and it indicates right off the bat "that the situation is expected to get worse - increasingly similar to conditions back in 1998 (when there was a huge surge of bookings combined with capacity cuts on Transpacific resulting in 3 week backlog and a $1500 increase per 40ft"
You will have more economic info at your hands than myself, though this is what I know.
1998 was probably (again you may know more), the begging of mass volume exporter from China, therefore not enough vessels to ship this quick jump in volume, China joined WTO in 2001 and exports started to explode.
The drop in 08 exports led to a decrease in the container ship fleet and now we have stimulated re-bound.
The shipping companies have not been pulling ships back into service, they mostly likely waiting to see what orders are like after Chinese New Year, hence we have low carrier vessel capacity.
The letter states immediate GRI (general rate increase) stating that TPEB (Trans Pacific East bound) is below the Europe rate route. These increases will impact goods that are currently in production or awaiting shipment, most goods will be already sold or quoted on, increase's cannot be passed on immediately.
When we had went through GRI's up to 2007, we could pass it on easily as increasing business was easily able to absorb this, then we had a crash in prices with increases now coming fast within 18 months, the up and down of prices so quickly is difficult, it is possible we can see these GRI's removed by the 2nd qtr as Chinese new year shipments do get bottled neck due to 2-3 week shut down depending on factory, mostly though the stimulus is creating this demand which the carriers cannot deal with due to many ships being anchored.
I have not included the supplier letter since I have yet to get explicit permission from the reader yet. Below, is what I have had to say in the past on the topic.
On inflation, deflation, and stagflation:
- Is My Warning of the Risks of a Stagflationary Environment Coming to Fore?
- Deflation, Inflation or Stagflation - You Be the Judge!
- Are the Effects of Unemployment About To Shoot Through the Roof?
On China:
- It Doesn't Take a Genius to Figure Out How This Will End
- China Macro Update
- Believe Those China Growth Stories at Your Own Risk - Just Ask Google!
- He Who Bloweth the Bubble With Wet Lips Should Stand Back Lest Spittle and Saliva Spray Upon Ye Face
- Goldman Seems to Trust the Chinese Economic Reporting a Tad Bit More Than I Do!
- Now that the world is forced to agree with Reggie on China's growth propsects...
- Just another Reggie Macro Rant...
- Anecdotal thoughts for discussion
- How quickly protectionisim erodes the gains of global commerce when thing get rough!
