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Global Macro Roundtable

<the following is an excerpt from our Blog >

Reminder: this little blog is simply my tool to remind myself and any readers of my thoughts and anything else I deem important - more extensive charts and/or analysis takes place in the GMR Newsletter and GMR Flashes. Usually, this blog is updated periodically throughout the day / week.

US Market Events / Highlights:

Date Event For Actual Forecast Prior Original
Jun 2 Construction Spending Apr - -0.8% -1.1% -
Jun 2 ISM Index May - 49.0 48.6 -
Jun 3 Auto Sales May - NA 4.9M -
Jun 3 Truck Sales May - NA 5.6M -
Jun 3 Factory Orders Apr - -0.5% 1.4% -
Jun 4 ADP Employment May - - 10K -
Jun 4 Productivity-Rev. Q1 - 2.5% 2.2% -
Jun 4 ISM Services May - 52.0 52.0 -
Jun 4 Crude Inventories 05/31 - NA -8883K -
Jun 5 Initial Claims 05/31 - 370K 372K -
Jun 6 Average Workweek May - 33.8 33.7 -
Jun 6 Hourly Earnings May - 0.3% 0.1% -
Jun 6 Nonfarm Payrolls May - -50K -20K -
Jun 6 Unemployment Rate May - 5.1% 5.0% -
Jun 6 Wholesale Inventories Apr - 0.6% -0.1% -
Jun 6 Consumer Credit Apr - NA $15.3B -

Tags: inflation, deflation, bank index, usd, fx, dollar, cycles ...... Search DINL Site

My Market Notes:

  • Bosch just bought a controlling interest in Ersol - stock jumped 50% - they see long term value in the solar sector ... consolidation is taking place. article
  • The Dow Transports have again rebounded higher while gold and oil are in sync in correction mode. I would like to see gold spot stay well above its short term up trend line
  • INVEST : I will be looking closer at Water Equities - these have also corrected and longer term look positive; solar companies have jumped on positive news out of Germany
  • Banking Index looks very weak - read more below in this blog
  • With US driving season (summer) coming up it will be interesting to see if Americans will continue driving or think about their petrol habits ... 300m people using 25% of the world oil is truly absurd ; maybe it is truly time for a paradigm shift

A summer heatwave has gripped much of Europe - it's the hot air blowing in from North Africa with temperatures in the mid 30s °c. Hot for us snowbirds ! There's also been quite a bit of hot-air blowing in from the investment and financial markets. But first, I wanted to do a quick check from my May/June GMR Letter:

  • the risk of bank failures in the US is dramatically increasing √ ... here1 here2
  • the FED has now permanently opened access to loan facilities for banks (even as they trumpet that "the worst is now over" ) √ ... here1
  • commercial real-estate looks wobbly √
  • LIBOR rates are not trustworthy √ ... here1 here2
  • Crude Oil has reversed $10 √
  • Dow Transports reversed and then jolted higher χ

Ok, so I am not an all-seeing sage, but not too bad either. But my short-term record is not the point of this update however, INFLATION is.

Today is the 10th anniversary of the European Central Bank - now, although the ECB seems to be doing rather well and the Euro along with it, I do have some serious inflation doubts. The official inflation rate given by the ECB is around 3+% , well over the 2% target. But as was shown during a weekend news discussion on german TV, the REAL inflation rate based an a REAL BASKET of REAL items for REAL people is well over 10% !! This is a basket like food, energy, clothes, etc. and not the idealized basket of goods considered by central banks like pitch forks, cat food, tractors, home insulation and Apple Iphones. In fact, inflation is VERY REAL and wage increases are NIL - in fact on average, wages have not risen in most sectors since 10 years, except for those with strong and aggressive worker unions.

So there we have it - and I am very sure that these central bank "abracadabra" inflation statistics are not going unnoticed. For more information on this read Bill Gross' Hmmmmm? article.

The other intersting thing to note is that the US has foresaken its manufacturing role and has now become a financial services economy - a recent graphic shows that the US manufacturing role has declined steadily since the 1950s and the financial services has increased substantially in its place (sorry, I can no longer find that graphic in my piles of papers :-( but no matter, the point is, we can now "measure" to a certain degree of accuracy, the state of the US by way of its Banking Index - and the banking index has tanked southwards -38%. This in conjunction with ongoing credit stresses of junk debt subprime and large write-downs. I expect that the markets will struggle substantially until the BKX starts to show considerable life - in the meantime, I do not expect a rapid turnaround - watch the BKX.

Banking Index

Another thought: many people in the US and a number of newsletter writers wail about the secular Bull market and this is a BEAR market in the secular bull and things are looking fundamentally long-term positive. I have my doubts especially when measuring simple things like Return on Investment in US Dollars (note : I do not invest much in US markets because of the obvious loss against the Euro and many other currencies - (read this - just in) With REAL inflation running at 8 - 10% along with a near 40% drop in the value of the US Dollar (read this) while the markets have risen 40% this equals a considerable REAL purchasing power loss, even more so for those market participants ONLY in savings and/or money market accounts. Think about the consequences of it - portfolio rotation and diversification into strong markets AND strong currencies verses your own home currency is essentially MANDATORY if you want any retirement savings at all...


Finally, remember that we likely have farther to go in the Deflationary cycle as I have already pointed out in the February GMR Letter. When taking a 12+ month outlook, I expect we still have more shakeouts in disinvestments, further consumer bankruptcies and likely continued inflation due from global commodity demand. If you want to read a bit more on that, please check out my Energy Fund monthly report for more on that. From my economic model, I foresee a downward slope and the ultimate bottoming process somewhere out to 2011 - that means likely we have a BEAR rally in H2 2008 heading into more pain for 2009...

Deflation Cycle

Come join us - we have an excellent track record of calling the markets - private and institutional investors in 45+ countries.

Best regards from the GMR,


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