How then, do we move backwards? How does a society, with most of the people having no clue of future events, move from being dependent on a vast and intertwined network of goods and services produced by the indigenous people of whereever, to a local resource and renewable energy based society, and do so in the timeframe available (20-30 years using the most liberal extimates, 10-20 with resonable estimates, 5-10 with worst case scenarios), all the while prices on everything increasing, world politics getting more militaristic, governments continuously reducing civil liberties, shortages of goods on the market and weather patterns resembling bad Hollywood movies?
Posted: Fri Jul 04, 2008 2:15 am Post subject: Re: Trader's Corner 2008
It is HOT. I am taking the afternoon off. So Happy 4th of July to our American friends. And have a great weekend!
But before I go I have to share this gem with you all. A Bloomberg I received yesterday from Lehman Bros. called Stagflation discounted, load up on risk...
Quote:
I have this market pal. Despite stealing my HP calculator in 1987 and refusing to give it back, we are still mates. Yesterday, he reminded me that I have basically been a bull on stocks for the last 10% down, or during the worst June since 1930. Ouch! Double ouch! Okay, timing has not been ideal. Trying to pick a bottom has not been easy. But the irony is once a bottom is in, it is always so obvious in retrospect. Like yesterday (July 2). That was definitely the bottom (the market traded lower on July 3rd). It may try a cheeky retest, but I kind of doubt it. As for bonds, I find it difficult to hold a long view, but have a little optionality just in case. I guess if you were to sum up my strategy it is CASH ZERO - buy bonds and stocks. From June 13th date it has been more bonds than stocks. In July it will be more stocks than bonds. News is super bullish for stocks. Housing is improving, ISM up, financials bottoming, oil on verge of a collapse, inflation numbers better in the US at least, 5y5y expectations contained, the world the most bearish every on stocks and profit expectations, earnings discounted -10.5% coming quarter. See what I mean: All priced in!!!!!!
Classic. Damn the torpedos! Here is what I would consider a more reasonable outlook for the summer.
Quote:
Now that we’re getting a taste of what deflation is, it’s easier to
talk about. Before, I tried to describe what to expect and how to
deal with it, but in a way that was difficult for the average
person to understand - especially when the government, the Fed, and Wall Street continue to misrepresent it.
Now that we’ve seen the beginning stages of deflation, it’s becoming clearer what’s going on and what’s important: to conserve capital. To save.
So let’s review what inflation and deflation really are.
The traditional definition of inflation (rising prices) and deflation (falling prices) don’t make sense in today’s world. That’s why people are confused. Ironically, the Fed wants you to be this confused, because it’s actually they who create inflation - which
plants the seeds for eventual deflation.
Inflation’s just the expansion of the money supply, almost always
through the expansion of debt. This is what the Fed does: They
create debt out of thin air and pass that debt on to the banking
system by extending credit; banks then extend it to consumers.
From 1993 to 2006 the Fed created massive inflation by creating massive debt, keeping real interest rates negative and supplying plenty of credit to keep them there. This was particularly true from 2001 to 2006; in 2006 alone the Fed expanded the money supply by creating $4 trillion in new debt.
People who had no business borrowing took money from people who had no business lending. This drove the prices of the cars and house they bought with that money up, while the debt drove the value of the currency down. This doubles the pressure on the prices of things we get from other countries - like oil.
So it isn’t hard to convince people that inflation means rising prices, because rising prices almost always occur when the money
supply’s inflated with debt.
In 2007, we reached a point where there was just too much debt; no one could take on any more. This is where the Fed’s inflation
machine breaks down: If no one can borrow or lend on the credit
they offer the banking system, the money supply stops expanding. In fact, as people try to pay off all that debt (retire it) or default
on it (destroy it), the money supply, bloated with debt, begins to
shrink. Hence deflation.
What does the Fed do then? Why, they buy that debt themselves, to try to keep the money supply from deflating. This leads to those
TAF (term auction facility) auctions you’ve heard about, where the
Fed exchanges new capital (t-bills) for bad debts with banks.
Despite these efforts, the money supply has probably deflated by the amount of write-offs -- by now, approximately $400 billion -- that banks have incurred. Strict measures of money supply, like M3,
haven’t fallen - but that doesn’t include the most important broad
sources of new money, like derivatives and securitized loans. As
the money supply deflates, people borrow less and spending goes
down. The deflation thus feeds on itself, because lower spending
means lower income and debt becomes even harder to support. Prices in stocks begin to fall as the money supply dwindles.
Central banks are powerless to stop the money supply from deflating unless they take on the debt themselves. If not, it will be systematically destroyed by defaulting, and the money supply will shrink even more.
As central banks fight this by taking on debt (as in TAFs and the
Bear Stearns bailout), taxpayers will be called upon to make up the
losses. Ironically, the Fed’s attempts to keep the money supply
inflated are much worse for the average person, who suffers from a
declining dollar and higher taxes in the long run.
Why doesn’t this happen all the time, you ask? It does - it just
usually happens in smaller increments. What’s happening now is
different only in terms of magnitude: The money supply has been so debt-inflated for so long that the reversal is very significant.
Over the years, it just adds up: Few realize just how much debt’s
still out there.
When a bank takes a write-off, debt gets smaller - but we still have
a long way to go. How long? Well, the level of debt’s currently four
to five times greater than is normal for our economy; the natural
level of income and savings aren’t enough to support the debt. Debt will get destroyed -- and the money supply will deflate -- until
debt and actual savings are more balanced.
If you understand inflation and deflation in this way, our current
crisis makes more sense. Now we’re seeing deflation (a shrinking
money supply and lost liquidity), which is causing havoc in
markets.
We’re still seeing prices rise on certain scarce commodities as
various competing forces work their way through the system; but
that’s to be expected, because those rising prices are caused by
more debt, which will eventually make the debt untenable as income goes down.
We’re seeing formerly powerful financial institutions destroyed by
even these first stages of deflation. That’s because their only
power came from franchise - from being able to take out high-risk
spreads. So they actually had very little capital to support vast
amounts of debt when things began to sour.
High risk has been rewarded in the past by government (easy monetary policy), legislation (the repeal of Glass-Steagall, now clearly a mistake), and the markets (the Wall Street marketing machine). Those rewards fall away quickly when you see that you have built your house built on sand.
For decades, but especially over the last seven years, central banks
have “solved” any and all market dips, slowing economies, and
financial problems by creating debt. If the stock market declines,
just make it easy to borrow, so people can buy stocks. If the
economy slows, just make it easy to borrow, so people can consume more. This methodology may work on occasion, but doing it systematically leads to crisis.
Central banks can’t fix this problem: They can only create more
banking debt or transfer its risks onto taxpayers via TAF auctions
or nationalization - which will only stabilize the banking system
long enough for banks to dilute themselves massively by suckering
investors into buying stock. More debt isn’t the solution.
So stay the course. Stay out of the way. Bottom feeders keep coming up empty. There will be rallies in stocks. Some will be quite
vicious, but that doesn’t mean we’re in a bull market. The GDP’s
going to go way down, but will eventually come back when debt is
wiped out to a point where those with savings want to lend or
invest again.
We have a long way to go, though - and risk is high.
source: Minyanville's Mr. Practical: How The bubble Bursts
www.minyanville.com
Try to be happy, healthy and wise. Talk to you next week. Fountain of youth? Red wine gives up secrets _________________ The organized state is a wonderful invention whereby everyone can live at someone else's expense.
Posted: Mon Jul 07, 2008 4:01 am Post subject: Re: Trader's Corner 2008
The Inflation Genie is out of the bottle!
Quote:
With currencies tied to the U.S. dollar, officials in many developing countries have had to keep their monetary policies linked to the Federal Reserve's. Now, after chairman Bernanke led the Fed's most aggressive easing in two decades, their central banks find themselves with interest rates too low for their economies and the worst bout of inflation in a generation.
``There's a lack of independent monetary policy; it's been inappropriately stimulative,'' says Nariman Behravesh, chief economist with Global Insight in Lexington, Massachusetts. The answer, he says, may be to ``tighten credit more aggressively,'' the way then-chairman Volcker did in the early 1980s.
Such a policy shift would mean pushing borrowing costs above the level of inflation and keeping them there even at the cost of a steep slowdown that might send commodity prices into a tailspin. Faced with inflation that approached 15 percent in 1980, Volcker pushed interest rates as high as 20 percent and drove the U.S. into its deepest recession since the 1930s.
Prices are now surging across the developing world. China's inflation rate stayed near a 12-year high of 8.7 percent in May; prices in Vietnam jumped 27 percent in June and Indian wholesale prices increased 11.6 percent last month, the fastest in 13 years. Inflation exceeds benchmark lending rates in China, Russia, India and at least a dozen other emerging economies.
Posted: Mon Jul 07, 2008 5:19 am Post subject: Re: Trader's Corner 2008
Your potential for gov't's to stem inflation with interest rate hikes to stymnie growth adds all the more validity to my rough model for significant demand destruction leading to an oil price collapse. I've bumped heads with quit a few who are so focused upon the forthcoming decline in global production capacity that they can't appreciate the net effect of a significant global recession.
I keep telling them that my model is not a prediction but just a viable possibility. I know you were around to watch the story unfold during the late 70's and 80's. Can you make any sort of a qualitative comparison between the global state then and now? My layman's view is that an increased complexity and greater globalization now makes the system even more unstable and subject to an even more server economic down turn.
Posted: Mon Jul 07, 2008 6:46 am Post subject: Re: Trader's Corner 2008
The biggest difference between then and now are the twin effects of the break-up of the USSR, and China and India joining the global economy to a much greater extent than before. This has been a boon to booming world trade that is growing at almost twice the rate of global GDP growth as well as adding several billion consumers of the energy pie.
Adoption of a market economy helped those previously stunted economies to grow that much quicker. And the Bretton Woods II informal agreement between exporters and importers of capital has essentially kept world growth above trend for the past 5-6 years on the back of cheap credit.
So it has been a confluence of events. However, it has also resulted in global imbalances that now are threatening to unwind. This deleveraging of the global financial system will reduce consumption as individuals, and therefore firms, are forced to cut back and manufacturers export less. That drop in export earnings will further act as a deleveraging shock as less capital is exported to cover countries' current account deficits such as in the USA.
Governments may counter such a cyclical slowdown by fiscal and monetary stimuli that would exacerbate inflationary trends for physical commodities such as energy, but ultimate demand must come from an ability to pay. With less credit available than before that ability to consume using debt is very much curtailed. Individuals, firms and governments will all be competing for less capital to both fund existing debt and take on more credit. Real interest rates should rise, so that along with debt repayment will result in even less consumer demand.
As pointed out elsewhere 'the export land model' indicates that oil producing countries are more inclined to invest domestically now than risk it on low-yielding US treasuries for example. Higher inflation and a weaker US dollar would exacerbate that trend. Some projections indicate that GCC oil producers might re-invest between 20-28% of their export earnings at home. Repatriating that capital makes it unavailable for indepted countries to finance their existing deficits much less expand them. And due to their large holdings of US agency debt those export earnings are far more likely to be diversified. The US dollar amount might not fall, but as a percentage of the total it will shrink.
I think it would be safe to say that the events that gave rise to the current crisis started in the 70s and 80s, but are now coming to a head. Therefore, I do not see ready parallels with that period - other than slow domestic growth and high commodity inflation - because there are more countries competing for existing energy resources, lower conventional supplies to be released by higher prices and more debt than ever that needs to be repaid (or indeed destroyed through default).
UPDATE: U.S. Bear Market May Last Another 118 Days, Barron's Says
Quote:
The U.S. bear market, defined as a decline of 20 percent from its highest point on the Standard & Poor's 500 Index, may fall another 14 percent over the next 118 days, Barron's said, citing Bespoke Investment Group.
In an average bear market since the 1940s, stocks fall 30.4 percent during a 386-day period, according to Bespoke data, Barron's said in its July 7 issue. Based on the date it reached the 20 percent mark, the current bear market is 74 percent complete.
The largest decline was in 1973-1974 when it took 630 days to cut 48.2 percent from the S&P, Barron's said. One of the shortest covered 101 days in 1987 when the S&P lost 22.51 percent in a single day on Oct. 19.
Investors have withdrawn more than $80.4 billion from domestic equity funds in the past year, Barron's said, citing Investment Company Institute data. Overseas funds took $75.7 billion from U.S. mutual funds for a net equity fund outflow of $4.7 billion.
Source: July 5 (Bloomberg) _________________ The organized state is a wonderful invention whereby everyone can live at someone else's expense.
Last edited by MrBill on Mon Jul 07, 2008 7:01 am; edited 1 time in total
Posted: Mon Jul 07, 2008 6:55 am Post subject: Re: Trader's Corner 2008
Thanks Mr. Bill.
But am I reading between the lines correctly: the potential demand destruction could be so severe given the factors you outline that a potential global recession could exceed that of the early 80's?
Posted: Mon Jul 07, 2008 7:30 am Post subject: Re: Trader's Corner 2008
The camp is still divided between outright global recession or just a few years of below trend growth that will feel pretty awful by those affected by it, but that officially will not be classified as a recession. I think at that point we are splitting hairs and arguing over a technical definition.
Global imbalances have never been larger. And we are going through a period of stagflation that makes debt harder to service or in fact repay. At the same time a global credit crunch is making lenders that much less willing to lend or take on risk. The deleveraging. While bond investors are insisting on higher spreads to compensate them for those risks. Higher credit costs cools growth further.
The problem with bubbles, and financial crises in general, it that once they run their course and burst market participants are far less likely to fall into the same trap twice. That is why predictions of a short, shallow recession lead by a steep V-shaped recovery are just so far wide of the mark. We are still in the process of deleveraging, and those affects have, yet, to be felt in the wider global economy as business investment slows.
David Darst, chief investment strategist at Morgan Stanley Global Wealth Management in New York, comments on his outlook for the U.S. equity market. He spoke in an interview.
On bear market for U.S. stocks:
``Our guess right now'' is for the stock market to decline ``another 10 percent. So we are probably two-thirds of the way through this bear market on price, and probably two-thirds of the way through on time. Fourteen months is normal, and we've had eight months of this bear market.''
On his investment strategy:
``Patience is called for. Cash and defensiveness is called for. We are looking for a very sluggish recovery next year'' for the economy, and ``we're not going to have a big snap back.''
source: July 7 (Bloomberg)
Plus if this were just a US-recession then we might look forward to a rebound by selling into a still strong and growing world economy. But it is not. The slowdown and credit problems are still spreading and taking down new victims. So even if the US-recession would be nearing its bottom there is less external demand to suck in US-exports. And that is too bad as US-exports are finally becoming competitive through a weaker US-dollar, and those exports have been the one highlight of the past 9-months.
Instead we have the UK and parts of Europe rapidly decelerating as well as signs of stress showing up in Asia. Vietnam is dropping like a stone due to their currency crisis. Japan is already in a recession. Its fourth in 15-years. S. Korea describes itself officially as suffering from stagflation. And India and its neighbors can no longer afford to subsidize food and fuel imports. Plus it will take multiple years before higher global food prices are addressed by worldwide production increases.
So I do not know exactly how much real demand for energy that this global slowdown will destroy, but it has certainly wiped-out a lot of potential demand. Looking forward I think we will have to continue to lower future economic growth forecasts through 2010. So a good three years or more of sub-par growth and a great deal of wealth destruction as well as the economic pain of adjustment to a new reality. _________________ The organized state is a wonderful invention whereby everyone can live at someone else's expense.
Posted: Mon Jul 07, 2008 8:00 am Post subject: Re: Trader's Corner 2008
Gotch ya Mr. Bill,
Though a technologist by background I’ve seen enough unintended consequences in the engineering world to question the ability of relatively simple models to predict net reactions. I’m sure you’re quit familiar with cascading effects. I doubt any of the design engineers modeled the effect of the vertical loading the World Trade Centers experienced. And for good reason, as they might explain: no anticipation of any event to generate such a scenario. Between my hunches and your detailed analysis I see the potential for a lot of those “never anticipated” this or that type of statements as well as “this has never happened before” excuses.
Even with your obvious significant background in macroeconomics I would view any predictions with a grain of salt (respectfully, of course). Perhaps it has to do with Mother Nature’s habit of knocking my head up against the wall just when I was positive of anticipated results. For instance, I’ve only drilled two “sure shot can’t miss” wells in my career. Both missed including the one that twinned a big discovery. Now I may drill a well that has a high probability of success but run like hell from the sure things.
Perhaps this is why I’m so easily drawn into debates with those so sure they have the exact answers to the future. Playing the odds I’m bound to come out on top more often then not.
Posted: Mon Jul 07, 2008 8:15 am Post subject: Re: Trader's Corner 2008
The global economy is always a moving target. It is all about assigning probabilities to various outcomes. The most important part of the forecast are the assumptions. Change the assumptions and you change the outcome. Therefore, one has to red flag the assumptions and constantly update the forecast as those assumptions are validated or change. Keeping in mind that the so-called fundamentals are always clearest to everyone at the bottom and the top of any cycle. Exuberance and despair. Fear and greed. _________________ The organized state is a wonderful invention whereby everyone can live at someone else's expense.
Posted: Mon Jul 07, 2008 8:26 am Post subject: Re: Trader's Corner 2008
Mr. Bill,
You've reminded me of my exposure to Monte Carlo simulation that was hot in the oil patch in the late 70's. It didn't take long for us to learn how to set our variable ranges to either kill a deal or drill it. Thus, once you decided the outcome you preferred, it was easy to run the appropriate model. Hmmm...a source of my prejudice perhaps.
Same can be said for all the failed efforts to teach computers how to draw geologic maps. Just couldn't get the damn machines to reach conclusions before analyzing the facts. Thus we geologists will survive the post-Mad Max world...just us and the cockroaches.
Posted: Mon Jul 07, 2008 8:29 am Post subject: Re: Trader's Corner 2008
Yes, kind of like taking one of those high school career tests already knowing what you do and do not want to be after college. It is bound to skew the results. I guess that is why I never became an accountant or a dentist for that matter.
Geologist would be fine. I enjoyed soil science. Unfortunately, I had a jerk for a teacher that had a real grudge against me just because I read the newspaper in his class. Geez! ; - )) _________________ The organized state is a wonderful invention whereby everyone can live at someone else's expense.
Last edited by MrBill on Mon Jul 07, 2008 8:33 am; edited 2 times in total
Posted: Mon Jul 07, 2008 8:29 am Post subject: Re: Trader's Corner 2008
An interesting story I jus picked up on another thread:
Quote:
Sun, Jul 6 2008. 11:11 PM IST
Will China be winded after Olympic sprint?
In order to prevent the currency from appreciating, the People’s Bank of China (PBoC) has been forced to acquire ever larger amounts of dollars
breakingviews.com | Edward Chancellor
[...]
While this view of China’s prospects may prove correct in the long term, serious clouds are appearing on the horizon. That’s the view of Jim Walker, former chief economist of CLSA and founder of the Hong Kong-based consulting firm Asianomics. Walker adheres to the Austrian school of economics, whose most famous exponents include Ludwig von Mises and the Nobel laureate Friedrich von Hayek.
Austrians are obsessed with interest rates, and most particularly about what happens when central banks apply the wrong rates. When interest rates are too low, they argue, credit expands too rapidly. This stimulates investment and fosters asset price bubbles. Eventually, credit “inflation” shows up in rising consumer prices. But by then, it’s too late to stop the damage. The end of the boom reveals the misallocation of capital, or “malinvestment” as the Austrians insist on calling it. After which, there follows a painful process as the economy is forced to adjust back to equilibrium.
Walker believes that Beijing has allowed an Austrian-style bubble to inflate in China. In equilibrium, he argues, short-term interest rates should be roughly in line with the economy’s nominal GDP growth. But China has actually enjoyed interest rates well below the rate of inflation at a time when its economy has been expanding rapidly. Negative real rates are a consequence of China’s policy of pegging the renminbi to the dollar. In order to prevent the currency from appreciating, the People’s Bank of China (PBoC) has been forced to acquire ever larger amounts of dollars. The expansionary consequences of this policy could have been neutralised by the PBoC issuing “sterilization” bonds to soak up renminbi issued to buy dollars. But sterilization in recent years has been inadequate, says Walker.
The result has been strong credit growth. This, in turn, has fuelled an extraordinary investment boom. Investment has been growing at 25% a year and constitutes around 40% of GDP. Most of the fruit of this new investment has been exported abroad. The trade surpluses so generated have meant yet more intervention in the foreign exchange markets and further credit growth. For a while, this must have seemed like a virtuous cycle. Now it’s turning vicious.
Chinese export growth is set to fall sharply. Europeans initially took up the slack after the housing bust dented the appetite of American consumers for all things “Made in China.” But the credit crunch is wreaking havoc on both sides of the Atlantic. Recent data suggest that European export demand is slowing.
Many claim that Chinese domestic consumption will take up the slack. This is unrealistic. As Walker points out, the UK alone consumes more than China and India combined. China’s economy has been driven by investment and exports, not by domestic consumption. In fact, consumption in China has failed to keep pace with economic growth, which is why the trade surplus has continued rising.
Posted: Mon Jul 07, 2008 8:53 am Post subject: Re: Trader's Corner 2008
This dynamic is what I mean when I speak about the Bretton Woods II informal agreement between America and her creditors. A recylcing of export dollars back into the world's capital markets that is offset by sterlizing export earnings by buying US dollars and printing Chinese yuan for example.
Also what I mean about self-reinforcing capital flows as Micheal Pettis describes so well in his book The Volatility Machine, Emerging Economies and the Threat of Financial Collapse. Virtuous cycles followed by vicious circles as global imbalances unwind voluntarily or not.
Quote:
Many claim that Chinese domestic consumption will take up the slack. This is unrealistic. As Walker points out, the UK alone consumes more than China and India combined. China’s economy has been driven by investment and exports, not by domestic consumption. In fact, consumption in China has failed to keep pace with economic growth, which is why the trade surplus has continued rising.
This view of domestic demand ignores two important facts. One is that ecomomic expansions and contractions take part at the fringes of the economy first and foremost. A loss of 10-15% demand does not sound like much, but if A trades with B, B trades with C, C trades with D, and D in turn trades with A then a loss of 10-15% at one end is compounded down the line so the end result can likely be more than 10-15% loss in final demand.
Secondly, if a factory is geared-up to produce widgets for export it is not so simple to have that capital, equipment and labor redeployed to build dams, dredge harbors and complete railways. Factories have to be re-tooled before they can produce something else, and the basket of goods and services that the Chindians need for their domestic economy is not the same product mix that they have been exporting to Europe and the USA.
At current trends Chindia may have as large an economy as the USA or EU by 2030, but Chindians will still earn less than Americans or Europeans. That is assuming, of course, we find the energy and other natural resources to fund both their growth and our own. And that their fast headline growth at the moment does not regress to the mean as they both grow and experience production and labor bottlenecks. More likely given physical constraints is that the USA and Europe will converge with Chindia at a lower standard of living and/or income level. Growth in global trade has already halved in the past year. No one was predicting that last year based on recent trends that indicated a steady uptrend. _________________ The organized state is a wonderful invention whereby everyone can live at someone else's expense.
Posted: Tue Jul 08, 2008 2:33 am Post subject: Re: Trader's Corner 2008
The Asian Century Suspended By High Fuel Costs
Someone posted this excellent link in another forum. I just want to re-post it here for future reference. It certainly throws a spanner in the notion that anything 'we' can produce 'they' can produce better and cheaper. At least not when transport costs are factored in, and by definition the flipside of demand is the willingness AND the ability to pay for stuff Made in China.
Quote:
Global trade still growing faster than GDP
WTO economists estimate that growth in global merchandise trade is slowing, as "sharp economic deceleration in key developed countries is only partly offset by continuing strong growth in emerging economies." The growth in world trade in goods dropped from 8.5 percent in 2006 to 5.5 percent in 2007; a 4.5 percent expansion is predicted for this year. However, this growth remains ahead of global GDP expansion, which isforecast to be 2.6 percent in 2008. Over the past ten years, growth in world merchandise trade fell behind output growth only once, in 2001.
"Initial focus was on structured products held and marketed by investment banks and the viability of structured investment vehicles. Focus going forward is likely to be on the scale of credit impairments delivered by a deteriorating economic cycle,"
Quote:
Fresh worries over the financial sector dealt a blow to risky assets, which have been already reeling from fears about rising inflation due to high energy costs and slowing growth.
"The crisis in the financial system, given banks are the lubricant for the economy, points to continued tight credit," said Jonathan Lawlor, head of European research at Fox-Pitt, Kelton.
"So we have a loop where tight credit leads to slower economic growth, which leads to higher losses for the financial system, which leads to capital constraints for the banks."
MSCI main world equity index fell as low as 341.35, down 1 percent, hitting its lowest since October 2006.
The index is down 20 percent from its all-time peak set in November last year, plunging into bear market territory.
Posted: Tue Jul 08, 2008 5:20 am Post subject: Re: Trader's Corner 2008
Regarding shipping costs I saw an interesting TV story a while back showing thousands of containers stacked in a European port because it wasn't economical to return them empty to the exporting countries. The show actually highlighted an effort to recycle the containers into apartments. But now that steel prices have jumped so fast that practice could be reversed. Or not given transport costs have also risen quickly. But if they aren't recycled then new containers must be built using the now more expensive energy and steel.
This seems to be a game of musical chairs that even Mr. Bill may having difficulty predicting.
Posted: Tue Jul 08, 2008 6:43 am Post subject: Re: Trader's Corner 2008
That is an interesting supply chain dilemma. Thanks for the example. As per that article on shipping costs I did not realize that containerization had shaved 97% of the cost of shipping and handling. Amazing. I knew it prevented a lot of traditional dockyard pilfering, and that the first container ports tried to bypass organized labor that was opposed to their use. I guess we will be giving some of those productivity gains, or losing them to higher fuel prices, going forward. _________________ The organized state is a wonderful invention whereby everyone can live at someone else's expense.
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