The Weekly Report

By: Mick P | Sun, May 25, 2008
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Welcome to the Weekly Report. Due to family illness, this week's letter will be shorter than usual but all the more powerful. This week we re-visit the scenario used for the Occasional Letter series as another milestone is passed.

The Scenario:

bubble, easy money, inflation in fiat money supply, inflation in commodities and hard assets, inflation, fear of inflation, rising rates, YC inverting, flattening, rising and inverting again, tightening, withdrawal of liquidity, corrections, crashes, talk of stagflation, FEAR, withdrawal of speculative funds, further corrections and crashes, demand collapse.....Deflation.

I wrote the above scenario many years ago. My only regret was that I didn't write it more clearly. It was not written as a linear listing of events, it was meant to show an interactive series of events that run parallel to each other. These events overlap, some are a reaction to others but they all move in the same direction. Let me attempt to show you how I "see" this. I am going to quantify the various factors that make the scenario and measure them on a time line. This will give us a visual representation of the various strands. The relationships on the chart are important, not the numerical value.

Don't worry about whether you think EZ money should be a higher value, that's not what I want you to see. Instead think of the trends and how they relate to each other. The diagram displays the historical as well as the future trend. Right now I see a post bubble, low interest rate environment, where EZ money is disappearing as credit contracts. Funds have poured into commodities as unstable stock markets and topped out bond markets make traditional investment havens unattractive. Meanwhile money, real paper and coinage, continues to slow and contract as the real economy suffers.

Which brings us to the milestone. Current interest rates are not reflective of current circumstances. Think of the attractiveness of assets and their returns. Commodities are currently appreciating in capital, prices are rising but they do not pay a dividend or a yield. We have been here before and not that long ago, last time it was tenuous promises of dot.com companies, this time its hard and soft commodities. The "attractiveness" measure of assets is about to change.

The IMF issued a downbeat report on the UK economy earlier this week. Whilst it is country specific, its relevance to other similar economies cannot be ignored, especially the US. (The latest IMF report on the US - http://www.imf.org/external/pubs/ft/scr/2007/cr07264.pdf is incredibly inaccurate even though it is less than a year old)

Here are the paragraphs that interested me:

There is no respite for the UK consumer. If inflation pressures remain.....

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Mick P

Author: Mick P

Mick P (Collection Agency)
About Collection Agency

An Occasional Letter From The Collection Agency in association with Live Charts UK.

For some years now I have written an ongoing letter, using macro-economics, to try and peer into the economic future 6 to 18 months ahead. The letter was posted on a financial bulletin board to allow others discuss its topic.The letter contains no recommendations to buy or sell, indeed I leave that to all the other letters out there and to the readers own judgement. The letter is designed to make us all think about what may be coming, what macro trends are occurring and how that will affect future trends and how those trends will filter down to everyday life and help spot weak or strong areas to focus on for trading or investing.

To contact Michael or discuss the letters topic E Mail mickp@livecharts.co.uk.

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