Friday April 22, 2005 - 11:05:46 GMT
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Black Swan Capital - www.blackswantrading.com
“Globalization of supply is decreasing labor’s bargaining power everywhere. Real wages have been quite restrained in this cycle. The ceiling appears to be 2%. From Asia, to Europe, to North America, it is difficult to see real wages rising faster. It is indeed remarkable to see wages so tame after seven quarters of the highest growth rate in decades.”
Andy Xie, Morgan Stanley
Stagflation continues to slip salaciously off the lips of several seers. Still stagnant real wage growth—the reasons being globalization of supply, according to Mr. Xie, and an accumulation of many things waiting to be liquidated—second and third homes and gas-guzzling SUV’s come to mind (but can the average “soccer-mom” really relent when it comes to her SUV?), are reasons to suggests that growth will fade in the wake of rising prices—it’s believed.
The stagflation theme is predicated on yet another forecast of the demise of the American consumer. Several themes past have been smashed against the rocks of supposed falling consumer demand. It still seems a treacherous and unpredictable base for economic forecasting. And yet somehow, somewhere, they try to pass this stuff—economics—off as science.
Well, the scientists got a bit of surprise yesterday:
• Initial claims for jobless benefits plunged 36,000 to 296,000 last week, the Labor Department said. It was the biggest one-week drop since December 2001.
• Federal Reserve Bank of Philadelphia said its index of manufacturing conditions in its district soared to 25.3 in April from a 20-month low of 11.4 in March.
Stagflation numbers they are not!
And even more surprised than the scientists, were bond traders…as long bond slipped almost a point. And those stock jockeys, with all those shorts hanging out to dry, rushed to bring that line back in. Stocks soared. And the Dow finished with its best single day performance in two years—I read somewhere.
Stagflation numbers they are not!
It could all be a one day wonder. After all we are close to the full-moon. Based on my observations, which in no way resembles anything close to scientific inquiry, the irrational markets we operate in each day become even more irrational when the werewolf is howling. On the other hand (I have only used two), it could be that rumors of stagflation are greatly exaggerated.
Until a stake is driven through the heart of Mr. Consumer I ‘m not buying into the science or the rumor of stagflation—but on the other hand (damn, that’s three) I’ve been surprised many times before.
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