Comments on: Liquidity trap of a different sort http://www.creditwritedowns.com/2008/04/liquidity-trap-of-different-sort.html Sat, 21 Nov 2009 08:48:41 -0700 http://wordpress.org/?v=2.8.6 hourly 1 By: Edward Harrison http://www.creditwritedowns.com/2008/04/liquidity-trap-of-different-sort.html/comment-page-1#comment-18 Edward Harrison Tue, 22 Apr 2008 17:25:00 +0000 http://www.creditwritedowns.com/2008/04/liquidity-trap-of-a-different-sort.html#comment-18 SO Bob, what do you think will happen when these commodities implode and which ones will suffer? All commodities are going through the roof right now: agricultural, metals and oil.<br/><br/>My bet is against the metals. I don't believe in global de-coupling. I think China will feel some serious pain when the US consumer stops buying and the whole argument for raw materials demand will come crashing down. SO Bob, what do you think will happen when these commodities implode and which ones will suffer? All commodities are going through the roof right now: agricultural, metals and oil.

My bet is against the metals. I don’t believe in global de-coupling. I think China will feel some serious pain when the US consumer stops buying and the whole argument for raw materials demand will come crashing down.

]]> By: BethesdaBob http://www.creditwritedowns.com/2008/04/liquidity-trap-of-different-sort.html/comment-page-1#comment-17 BethesdaBob Tue, 22 Apr 2008 16:22:00 +0000 http://www.creditwritedowns.com/2008/04/liquidity-trap-of-a-different-sort.html#comment-17 Regarding the commodity bubble - we have a great capacity to formulate rational ideas why these bubbles form while they are forming, then great 20-20 hindsight after they burst. (What were we smoking????) In the case of the dot-com bubble, everyone rationalized the ridiculous asset prices based on the "new economic paradigm" that the Internet was expected to create. In the case of housing, everyone assumed that they could do an LBO on a piece of real estate with a presumed no-risk cash inflow to cover it. Now we rationalize the rise in commodity prices as a supply squeeze ("suddenly" everyone in the developing world is consuming more protein), as opposed to an inflation hedge because current interest rates don't compensate people for a real return plus a loss of purchasing power. Even long-term US rates are below the expectations for inflation (let's get real - the CPI is a joke)- hence the move towards assets that protect against monetary erosion. Watch out - as construction costs rise with inflation, that house may again become an attractive asset. And then there's the aftermath of the commodities bubble collapse.... Regarding the commodity bubble – we have a great capacity to formulate rational ideas why these bubbles form while they are forming, then great 20-20 hindsight after they burst. (What were we smoking????) In the case of the dot-com bubble, everyone rationalized the ridiculous asset prices based on the “new economic paradigm” that the Internet was expected to create. In the case of housing, everyone assumed that they could do an LBO on a piece of real estate with a presumed no-risk cash inflow to cover it. Now we rationalize the rise in commodity prices as a supply squeeze (”suddenly” everyone in the developing world is consuming more protein), as opposed to an inflation hedge because current interest rates don’t compensate people for a real return plus a loss of purchasing power. Even long-term US rates are below the expectations for inflation (let’s get real – the CPI is a joke)- hence the move towards assets that protect against monetary erosion. Watch out – as construction costs rise with inflation, that house may again become an attractive asset. And then there’s the aftermath of the commodities bubble collapse….

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