Tuesday, September 1, 2015

China Exports Inflation?

 Over in China more weak economic numbers tonight. Our S&P futures down sharply. And the US $ down.

 So this ain't about the Fed raising interest rates. If the Fed was raising the dollar would strengthen. And if this is about China exporting DEFLATION the US$ would be strengthening.

 The news reporters are reporting that hard times in China will make them work for less and thus sell to us for less, equaling deflation. But, 10yr US treasury yields are rising, the dollar is declining. What if things are SO bad in China that their means of production comes to a standstill? (ie, financial crisis) That will export INFLATION. Who will be making the stuff they sell us and that we demand?

 And another reason for a decline in the US $ and inflation is that the Chinese govt. is selling US treasuries and then cashing in the dollars for their own currency to prop up their economy. This releases those dollars into the world economy. As those US dollars look for a home they will compete for good and services with the US dollars that you and I already have. Inflation. As Milton Freidman, a famous economist said, "Inflation is always and everywhere a monetary phenomenon." So beware. Things could go either way.

Disclaimer from a trader:

"It is hard to make predictions, especially about the future".
Yogi Berra
The above quote, often attributed to Mr. Berra, is an accurate assessment of the difficulty of predicting the future.
Those who know me know of my passion for economics and financial markets. My perspective is from the traders view of markets and other goings on. I often make what may seem to be intelligent prognostications about markets or economies or other macro-economic events, real or imagined.
The point of this post is to remind myself as well as the reader of my poor record of forecasting. I do not know what will happen in the future.
As a trader my goal is to adequately manage my affairs as the future unfolds. As a trader I constantly try to intuit what is going on under the surface of markets by what I see and hear. But there is only ONE outcome. And we don't know what that ONE outcome is until after the fact. Sometimes well after the fact.
There are, however, many things that do not happen that MAY have had a chance to happen, or not. In order to limit my risks I try to arrange my bets to match what seems to be happening while thinking of as many things as I can that could also happen and make me wrong. And often, in my excitement of new discovery, I will write what I think.
Do not use anything I say as a definite prediction. Anything I say MAY happen, but chances, thus probabilities, are that it won't happen. Put simply, I try to manage probabilities by imagining possibilities. Only one thing happens out of an infinite number of possibilities.

Manage your risk,

No comments:

Post a Comment

All comments are appreciated as it will give me a chance to adjust my content to any real people who may be out there. Thank you. gh