By: Randolph Buss | Tue, Jun 3, 2008
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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:

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:

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

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Best regards from the GMR,



Randolph Buss

Author: Randolph Buss

Randolph Buss
Berlin, Germany

Randolph Buss, currently works in portfolio & asset management | commodity fund advisory & management | macro investment research as editor and publisher of his newsletter read in over 45 countries.

The full GMR and portfolio entries can be read at the homepage along with the full disclaimer. For those new readers, the Global Macro Roundtable (GMR) is conceived as a "real world" newsletter written by market analysts and not by unknown editors doing research for others. The GMR provides up-to-date analysis and gives the reader a variety of opinions on the investment markets and sectors. We are not here to massage our egos rather we are here to provide our readers with real-world research and investment opportunities. The markets know more than any body - we remain humble but alert.

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